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AWS continues to power Amazon profits

The latest Q3 results from Amazon have shown that AWS continues to play a key role in revenue for the company

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Amazon Web Services (AWS) continues to be the biggest profit driver for the internet giant’s overall business, after the cloud provider reported 42% annual growth in third-quarter sales with operating income up 36%.

AWS revenue for the three months to 30 September 2017 hit $4.58bn, resulting in operating income of $1.71bn – up 8% from the previous quarter.

Amazon as a whole achieved revenue of $43.7bn, with operating income of $347m down 40% year on year due to $936m operating losses in its international e-commerce business.

AWS brought in 10 times the operating income of Amazon’s North American e-commerce operations.

Brian Olsavsky, chief financial officer at Amazon, described it as a “very strong quarter”, according to a transcript of a conference call with analysts by financial blogging site Seeking Alpha.

“[AWS] revenue growth was the same as Q2, and now we’re at an $18bn run rate, whereas last quarter, we were at $16bn, so very pleased with the customer response in the AWS business as well,” he said.

“Usage growth is actually growing a lot higher than revenue growth. So we’re particularly pleased with the new customers we’ve added and the additional workloads we’ve picked up from existing customers.”

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Olsavsky said he expects another positive quarter ahead, even if the results are likely to be skewed by price cuts introduced in December last year.

“We don’t provide segment level estimates, but we did consider in our guidance the impact of the price cuts last year. We had a number of price cuts timed around 1 December 2016. That certainly had an impact on Q4 of last year,” he said.

“Not only price cuts but new products, that have lower average cost and can cannibalise more expensive products, are pretty much a part of our business all the time in AWS. So we’re looking forward to a strong Q4.”

AWS revenue growth has been levelling out over the past 12 months, with year-on-year increase between 42% and 43% since the fourth quarter of 2016.

Kate Hanaghan, chief research officer at analyst TechMarketView, said despite Amazon and Microsoft’s cloud success, buyers and suppliers still face challenges.  

“The conundrum for senior IT decision makers is bringing cloud services into the fold, while at the same time nurturing legacy infrastructure systems to create an overall hybrid environment that is more efficient and much more capable of enabling digital change at scale,” she said.

“The challenges for suppliers are also multiple, not least around speeding up and simplifying application migration, optimising legacy and developing partner ecosystems.”

Marginal improvement

Net income for Amazon was $256m, marking a marginal improvement on the $252m in the same period last year – but up 30% compared to the previous quarter.

Third quarter sales for the company increased 34%, from $32.7bn in 2016 to $43.7bn, up 15% on the previous period.

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