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AWS emerges as a bright spot in Amazon’s ‘mixed’ Q2 results

Amazon.com’s earnings per share failed to meet analyst expectations, but the retail giant’s cloud arm continues to go from strength to strength

Amazon Web Services (AWS) has reinforced its position as a major source of revenue for its parent company, following the publication of a mixed set of second quarter financial results.

The online retail giant banked a net second quarter income of $197m, down from $857m for the same period a year ago, and saw revenue increase year-on-year by 25% to $38bn.

The latter was in line with Wall Street expectations, while the company’s earnings per share fell slightly short of the predicted values, prompting the firm’s share price to fall by around 3% in after-hours trading.

In a statement, Jeff Bezos, Amazon founder and CEO, said the company remains “heads-down and focused on customers”, before reeling off a list of achievements the company ticked off during the second quarter.

These include the expansion of its Echo line of voice-activated devices and its Fire tablet portfolio, as well as the roll-out of its Amazon Fresh and Amazon Prime services to new geographies.

“It’s energising to invest on behalf of customers, and we continue to see many high-quality opportunities to invest,” he added.

Bezos also called out the continued momentum seen around the roll-out of new functionality and services by AWS during the second quarter as another bright point, with 400 features added.

The quarter also saw AWS cement its place as a sizeable revenue driver for its parent company, with revenue hitting $4.1bn for the quarter, and up 42% on the previous year, while operating income hit $916m.

The revenue growth rate is down slightly on the first quarter, which – as previously reported by Computer Weekly – is a trend that has played out during successive quarters for AWS in recent years.

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Kate Hanaghan, chief research officer at IT analyst house TechMarketView, described the continued slowdown in revenue growth rate as no real cause for concern, in a note to subscribers of its UKHotViews service.

“AWS continues to move forward on new products and win more significant enterprise business. That said, it – and public cloud more generally – is not the right answer for every organisation at the moment,” she said.

“While many have spent at least the past 18 months implementing either AWS or Microsoft Azure (or both, and/or others), most mainstream organisations remain open to developing a hybrid approach to cloud.”

During a conference call with analysts to discuss the results, transcribed by Seeking Alpha, Amazon.com CFO, Brian Olsavsky, confirmed the quarter as a significant one for AWS, with the company’s cloud arm now considered to be a $16bn run rate business.  

“AWS stepped up its run rate from a $14bn run rate last quarter to $16bn. So we saw the largest quarter-over-quarter and year-over-year increase in revenue in that business as well. And gross margin expanded 130 basis points,” he said.

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