Amazon Web Services CEO Adam Selipsky delivers a keynote address during the AWS re:Invent conference in Las Vegas on Nov. 29, 2022.
Noah Berger |Getty Images
Amazon said revenue in its cloud unit increased by 20% in the fourth quarter, a slower pace than analysts had projected and more sluggish than the 27.5% growth rate in the third quarter.
Cloud growth appears to be moderating along with other parts of the technology industry that boomed over the past decade and accelerated in the pandemic, when businesses adopted services that could foster remote work.
Amazon Web Services leads the cloud infrastructure market, with almost 39% share in 2021, according to estimates from industry researcher Gartner. Microsoft’s Azure business and Google Cloud are AWS’ top competitors.
Microsoft said last week that revenue from Azure and other cloud services, which the company doesn’t report in dollars, grew by 31% from the prior year, down from 35% in the previous period. Google parent Alphabet reports earnings after the bell on Thursday.
Revenue growth at AWS has generally decelerated since 2015 as the segment has become larger and competition has picked up. In the fourth quarter, AWS generated $21.4 billion in revenue, representing 14% of total Amazon revenue. Analysts polled by StreetAccount had expected $21.87 billion in AWS revenue.
In an interview late last year at the company’s annual Reinvent customer conference, AWS CEO Adam Selipsky said “we do see some customers who are doing some belt-tightening now.”
Brian Olsavsky, Amazon’s finance chief, said on a conference call with analysts that lower mortgage volumes, cryptocurrency prices and advertising spending are causing lower cloud spending for some customers.
“By and large, what we’re seeing is just an interest and a priority by our customers to get their spend down as they enter an economic downturn,” Olsavsky said.
But the AWS customer pipeline is very healthy, said Andy Jassy, Amazon’s CEO and formerly the head of AWS. Jassy joined the conference call for the first time since he replaced Jeff Bezos as CEO in 2021. Migrations are still scheduled to happen, Jassy said.
“To our best estimations, when we look at the absolute dollar growth year-over-year, we still have significantly more absolute dollar growth than anybody else we see in this space,” Jassy said.
The AWS division ended up with $5.2 billion in operating income for the quarter, almost double the profit number for the full company. But it was down by almost 2%. This was the first quarter since at least 2015 in which AWS failed to increase its operating income year over year. The standalone AWS operating margin, at 24.3%, has not been this narrow since 2017.
In November, AWS introduced supply-chain, clean-room and security data storage services at its Reinvent conference. Also in the quarter, AWS announced the availability of data center regions in Spain and Switzerland.
Analysts at Oppenheimer, who have the equivalent of a buy rating on Amazon, wrote in a report this week that their research indicated clients were moving to discounted term contracts, optimizing workloads and seeing lighter usage as “the digital economy reverts somewhat back to in-person.”
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(With Inputs from cnbc)
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