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AWS results hint at slowdown in cloud giant’s annual growth rate

Amazon Web Services reports another strong quarter, but analysts point to slowing of annual revenue growth

Amazon Web Services’ (AWS) fourth-quarter results suggest the cloud giant’s growth may be starting to slow, despite posting sizeable year-on-year increases in both profit and revenue.

The firm reported full-year revenue of $12.2bn, which equates to 55% year-on-year growth for its 2016 financial year.

However, this is slightly down on the 69% full-year revenue growth the company reported for its 2015 financial year.

Ahead of the company’s full-year results being published, analysts predicted that AWS would post quarterly revenue of $3.6bn, equating to a 50% year-on-year increase on its Q4 2015 takings.

In reality, the company posted quarterly revenue of $3.53bn, which is 47% up on the previous year. It also made an operating profit of $926m during the three months to 31 December 2016, compared with $580bn in Q4 2015.

To put those figures into context, AWS made a bigger operating profit than Amazon.com’s entire North American retail business, which banked $26.2bn in revenue against an operating profit of $816bn.

On a conference call to discuss the results, transcribed by Seeking Alpha, Amazon.com CTO Brian Olsavsky said the results mean AWS is now on course to become a $14bn a year run rate business.

“We are very pleased with Q4 and the pace of the business,” he said. “The new services and features last year were over 1,000 versus 700 or so in 2015.

“We are working with some very large customers in each industry. You have probably seen press releases on companies like Capital One, Workday, Salesforce and others. So, again, [we saw] widespread usage and new customer adoption [in Q4], which is great.”

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Despite the slowdown in annual revenue growth rate, Kate Hanaghan, research director at IT analyst firm TechMarketView, said AWS is now one of the UK’s top 20 infrastructure services providers.

“AWS might have seen its revenue growth rate slow, but we expect to see its position as a competitor against the traditional infrastructure services players intensify in 2017,” she said.

“One of the ongoing challenges it and the entire UK industry will face, however, is finding enough employees with the right skills to help it execute its plan.”

The fourth quarter also saw AWS introduce 308 new cloud services and features to its portfolio, bringing the total number of new additions to 1,017 in 2016.

The company also kicked off 2017 by debuting its Re:Start cloud training programme, designed to address the UK’s cloud skills gap.

AWS is the last of the big three to publish its financial results, after Microsoft and Google posted theirs – for the three months to 31 December – at the end of January. The performance of Microsoft and Google’s cloud businesses was credited with boosting the financial performance of both firms during 2016.

Read more on Infrastructure-as-a-Service (IaaS)