Amazon’s cloud business reports 20% growth in fourth quarter, missing estimates

Amazon Web Services CEO Adam Selipsky delivers a keynote address during the AWS re:Invent conference in Las Vegas on Nov. 29, 2022.

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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.

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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.

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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 Amazon’s total 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.”

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.”

WATCH: Amazon Web Services revenue growth will slow down more in 2023, says Satori Fund’s Niles

Amazon Web Services revenue growth will slow down more in 2023, says Satori Fund's Niles

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