Amazon’s cloud unit a clear winner
May we all have such wellappointed storm shelters. Amazon Web Services is Amazon. com Inc.’ s goldplated umbrella from the tempest of investors’ demands for the company to turn a profit that’s more than a few bucks once in a while.
It’s hard to imagine now that Amazon only last year started breaking out the results of AWS.
In hindsight, it was the smartest move Amazon could have made.
The company’s 10- yearold cloud- computing unit is now growing so quickly and generating such tidy profits that investors have ( mostly) stopped grumbling about Amazon’s famously skimpy, if any, profits. Amazon said on Thursday that revenue at AWS rose 58 per cent in the second quarter compared with figures in the period a year earlier, coming in at $2.89 billion. That was about in line with Wall Street expectations, although slower than the growth rate of recent quarters.
The cloud division’s operating profit margin, excluding employee stock compensation and some other costs, reached a record 30 per cent, or US$863 million. AWS now generates less than 10 per cent of Amazon’s total revenue but 56 per cent of its total operating profit including stock compensation.
The growth in AWS powered Amazon past analyst expectations. The company’s net sales rose 31.1 per cent to US$30.4 billion in the quarter ended June 3o. Net income rose to US$857 million, or US$1.78 per share, up from $ 92 million, or US92 cents per share, a year earlier. According to Thomson Reuters, analysts, on average, had expected profit of US$ 1.11 per share.
AWS is simply remarkable. It is one of the most important new technology products of the last decade, going toe- to- toe with Apple Inc.’s iPhone. AWS made it possible to churn computing chores at relatively low costs; without it, we probably wouldn’t have Pokemon apps on our phones or Netflix movies in our homes. AWS has shaken up the information technology industry — a business with US$ 2 trillion in annual customer spending worldwide.
And even better for CEO Jeff Bezos, AWS gives him leeway for all the crazy projects he wants to undertake because he has the long leash of AWS profits. Bezos can fulfil his every whim to splurge on package-delivery drones, Netflix- like web video programming, talking home speaker systems, Amazon cargo ships, home grocery deliveries, e-commerce in India and much more, and lean on AWS to paper over the expensive forays. It’s a beautiful relationship.
Heading into Amazon’s second- quarter report, analysts were uncertain about how fast AWS could keep growing. It’s not only that AWS al r eady generates US$ 10 billion a year in revenue and faces dangerous rivals including Microsoft Corp. and Google Inc., but it was also coming off an unusual year. In 2014, AWS’s revenue growth and especially its profit margins were pinched by a cloud price war kicked off by Google. Financial performance suffered for a couple of quarters, and perversely that made it easier for Amazon to show bright results in 2015. That temporary lift brought down the growth rate in the second quarter, but it is still enviable.
Amazon has f orecast current- quarter net sales of between US$ 31 billion and US$33.5 billion.