AWS suffers year-on-year drop in profit and revenue growth as enterprises curb cloud spend

The annual revenue growth rate for Amazon’s cloud arm is continuing to slow, as enterprises look for ways to optimise the costs involved in running their IT estates off-premise, as evidenced by the e-commerce giant’s first-quarter results for 2023.

The revenue generated by Amazon Web Services (AWS) for the quarter covering the three months to 31 March 2023 reached $21.4bn, which is up 16% on the previous year. It did, however, suffer a year-on-year drop in profit from $6.5bn during Q1 2022 to $5.1bn this year.

The revenue growth rate is markedly down on Q1 2022, when AWS reported a 37% year-on-year revenue jump, as the company continues to feel the impact of customers tightening their belts amid the ongoing macroeconomic uncertainty, said the firm’s chief financial officer, Brian Olsavsky, in a call transcribed by Seeking Alpha.

“As expected, customers continue to evaluate ways to optimise their cloud spending in response to these tough economic conditions in the first quarter,” he said.

“As a reminder, we’re not trying to optimise for any one quarter or year. We’re working to build customer relationships and a business that will outlast all of us. Therefore, our AWS sales and support teams continue to spend much of their time helping customers optimise their AWS spend so they can better weather this uncertain economy.

“This customer orientation is built into our DNA and how we think about our customer relationships and business over the long term,” said Olsavsky.

This is in line with what Amazon CEO Andy Jassy told shareholders in a letter published online earlier this month, where he said AWS sales and support teams were spending “much of their time helping customers optimise their AWS spend” so they can “better weather this uncertain economy”.

As reported by Computer Weekly, AWS is also undergoing some cost-cutting measures of its own, with the news that it would be one of several business divisions on course to lose 9,000 members of staff, as part of an ongoing push across the whole of Amazon to trim its headcount.

Jassy also appeared on the analyst conference call, where he said there was a difference between customers wanting to cut costs verses optimise them.

“[Customers] tell us that most of it is cost-optimising versus cost-cutting, which is an interesting distinction because they say they’re cost-optimising to reallocate those resources on new customer experiences,” he said.

“The new customer pipeline looks strong,” said Jassy. “The set of ongoing migrations of workloads to AWS is strong. The product innovation and delivery is rapid and compelling. And people sometimes forget that 90-plus percent of global IT spend is still on-premise. If you believe that equation is going to flip, which we do, it’s going to move to the cloud.”

In terms of the whole company results, Amazon’s overall revenue was up 9% year-on-year, hitting $127.4bn, and it also made a profit of $4.8bn, up on the previous year, when it made $3.7bn during Q1 2022.