Amazon web services ‘growing fast’

  • 24 April 2015
  • From the sectionBusiness
Jeff Bezos in front of Amazon logo
Amazon founder Jeff Bezos has always insisted on reinvesting profits into the business

Technology giant Amazon has said its web services business generated sales of $1.57bn (£1.04bn) in the first quarter of the year and is profitable.

Amazon Web Services (AWS) is a cloud computing offering that makes money by charging businesses to host websites and other applications.

Amazon founder Jeff Bezos said in a statement: “Amazon web services is a $5bn business and still growing fast.”

The firm’s total revenues for the quarter rose by 15% to $22.7bn.

The increase was stronger than expected, with revenues buoyed by increased sales in North America, Amazon’s biggest market. Despite the rise, the company reported a loss of $57m for the quarter.

Shares in the firm rose nearly 5% in after-hours trading.

The AWS division provides cloud computing services to household names including Dropbox, Spotify, Netflix, Uber, Samsung and even the CIA – helping them send notifications, stream video and synchronise data.

The figures for the first time confirm that Amazon’s cloud business is the biggest of its kind in terms of revenue.

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Analysis: Leo Kelion, technology news editor, BBC Online

On the conference call one of the analysts expressed surprise at the scale of the margins enjoyed by Amazon Web Services.

The division posted $265m of operating income in the first quarter, which was not only higher than last year’s figure, but more importantly not the loss that several analysts had expected.

Even so, Amazon made clear that its business model for AWS was to innovate quickly and then pass cost savings onto customers in order to remain the dominant player.

Recent AWS add-ons include Amazon Machine Learning – a service that automatically analyses clients’ data to help them reduce their customer churn and a feature that makes it easier for developers to run “internet of things” apps.

Last year AWS’ chief told the BBC that the unit could in time become bigger than Amazon’s retail business.

But with Microsoft, Google and IBM among rivals seeking to eat into its market share, the question is whether those margins will hold up over the long term.

More from Leo: Amazon’s bid to power the internet

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‘Surprisingly profitable’

The profitability of the cloud business could soothe investors, who have been anxious for the firm to turn a profit and stop investing in new projects, which has seen them move into tablet computers, smartphones, and a short-lived nappy service.

AWS “was surprisingly more profitable than forecast”, Dan Kurnos, an analyst at the Benchmark Company, told the BBC.

That “should help [Amazon] justify their heavy investment spending and provide a clearer path to profitability for the [overall] company as AWS grows,” he added.

Michael Pachter, from Wedbush Securities said: “I think most of us believed that the business [AWS] was breakeven at best, and it is surprising that it generates such a significant portion of profit.”

“The stock is up because it is clear that if that business scales, Amazon can be immensely profitable,” he added.

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AWS in numbers

Clouds
  • launched in 2006
  • more than one million customers, including more than 600 government agencies worldwide
  • 27% market share of the cloud infrastructure-as-a-service (IaaS) sector, compared with Microsoft’s 10% and IBM’s 7%, according to Synergy Research
  • computer servers based in eight countries across 28 zones. Each zone hosts between one and six data centres.
  • Each data centre holds between 50,000 to 80,000 computer servers

Source: Amazon, unless otherwise stated

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2 Comments

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