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Amazon turns surprise Q3 profit as AWS cloud growth soars

Amazon Web Services continues to go from strength to strength as it banks income similar to its parent company's entire North American e-commerce business

Amazon Web Services (AWS) is well on its way to becoming a $7bn run rate business this year, having banked revenue of $2.1bn in its third quarter.

The cloud computing giant's Q3 performance means it has now racked up sales of $6.9bn over the course of the previous four quarters, putting it on course to become a $7bn run rate company.

AWS reported an operating income of $521m during Q3, which is almost on a par with the amount brought in by its parent company’s entire North American online retail business ($528m).

During a conference call to discuss the results, transcribed by Seeking Alpha, the company credited the pace of innovation in AWS and the scale of its business – which has allowed it to cut its prices eight times since April 2014 – as key factors in its success.

In reference to the innovation point, the company rolled out 539 new features and services in the past year alone, many of which have been designed so that its customers can access enterprise-grade services for a fraction of what they would traditionally cost on-premise.

During the call, Phil Hardin, director of investor relations at Amazon.com, credited the 2014 launch of the AWS Aurora relational database engine as being a particular technological high point for the firm.

“Aurora, our new database software, is our fastest growing service ever. So for a long time, we talked about Redshift, and Aurora has now outpaced that. So we're very excited about what we're seeing there,” he said.

Brian Olsavsky, senior vice-president and chief financial officer at Amazon.com, said its new services were being warmly welcomed by its customers, before cautioning industry watchers against getting complacent about AWS and its growth rates.

“We enjoy leading this business and customers responded well and we believe we are adding new services and features at a rate faster than many others,” he said.

“But the growth rates and margins will certainly remain lumpy and bumpy as we go forward. But we're very encouraged by the business, and so are our customers.”

The results were disclosed along with details of the financial performance of Amazon’s wider retail business, which saw the firm turn a surprise profit of $79m against a revenue of$25.4bn during Q3, thanks in no small part to the performance of its cloud business.

Wall Street had expected the firm to post a loss for Q3, prompting the e-commerce firm’s share price to increase by more than 10%.

Enterprise buy-in

Concerning who is buying into the AWS cloud, Hardin said the firm is seeing “strong usage” across the board in vertical markets and company size.

The firm regularly talks up the appeal of its services to the start-up community, as using the cloud frees up funds that would have traditionally been eaten up by investing in IT kit, meaning they can get their businesses up and running faster.

The company has been taking steps to address the enterprise market, by pitching its public cloud offerings as a way for them to embrace a hybrid IT model that allows them move some workloads off-premise, while taking steps to reduce their reliance on hardware.

In line with this trend, the quarter also saw Netflix conclude its move to shut down its datacentres, and run its operations entirely from the AWS cloud.

Read more about Amazon Web Services (AWS)

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"AWS operating profit margin was 25% for Q3'15, up from 21% in Q2'15 and 17% in Q1'15. Was 8% in Q3'14." 

Churning the flywheel….
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