Amazon Web Services saw 39 percent growth in its third-quarter cloud computing revenue, as parent company Amazon.com missed Wall Street estimates for top-line growth and earnings and gave a disappointing holiday shopping season forecast.
AWS is seeing a general level of recovery across a lot of its customer base, according to Amazon chief financial officer Brian Olsavsky.
AWS revenue increased to $16.1 billion for the three-month period ended Sept. 30, up from $11.6 billion in the same period last year, under its fastest growth rate since the first quarter of 2019, when revenue jumped 44 percent.
The industry’s dominant cloud computing provider now has an annualized revenue run rate of $64.44 billion. That’s up from $59.2 billion based on its second-quarter results and $46.4 billion based on its third-quarter results in 2020.
“AWS has seen a reacceleration of revenue growth as customers have expanded their commitment to the cloud and selected AWS as the cloud partner,” Olsavsky told financial analysts during an earnings call today. “We feel really good about the acceleration and growth. We know there was some suppression last year, but the growth last year was still in the 28 (percent) to 33 percent range…through most of the year.”
While many customers accelerated their journeys to the cloud during the pandemic, others’ curtailed their spending, Olsavsky noted. https://5494b913766515ad9c131ddae50e7a9b.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
“Some companies were booming — Disney, Zoom, Netflix,” he said. “Others that were more travel-related were suppressed in their demand.”
The third quarter was the first reporting period with new leadership atop AWS and Amazon.com. Adam Selipsky, the former Tableau leader and Amazon veteran who returned to the company, officially became CEO of AWS on July 5, five days after the start of the quarter. Former AWS CEO Andy Jassy also replaced Jeff Bezos as the CEO of Amazon.com that day. Neither of the CEOs were on the call.
AWS’ revenue growth was driven by a broad base of services, including machine learning (ML), according to Olsavsky.
“We’ve been investing in this area for several years, offering an extensive set of machine learning services, including ones that can be applied to common business problems, like Amazon Connect for contact center intelligence or Amazon Kendra for intelligent enterprise search,” he said. “We recently launched solutions specific to industries, including industrial machine learning services, as well as Amazon HealthLake to help healthcare and life sciences customers seamlessly transform their data across disparate sources to understand and extract meaningful medical information.”
Amazon SageMaker continues to help customers scale their use of ML to core workloads, making it one of the fastest growing services in AWS history with tens of thousands of active external customers using it every month, Olsalvsky said. AWS also continues to see strong interest and rapid adoption of its custom silicon and AWS-designed Graviton2 processors, which deliver customers up to 40 percent better price performance than current x86 processors, according to AWS.
Overall Amazon.com Results And Outlook
Amazon.com’s overall revenue grew to $110.8 billion in the third quarter — up 15.2 percent from its $96.14 billion generated in the same period of 2020 – but missing analysts’ consensus revenue estimate of $111.8 billion, according to Zacks Investment Research.
Jassy said the coronavirus pandemic that drove shoppers to Amazon.com for personal protective equipment, food and other items came at a cost as the company ramped up its investments to meet demand.
“Just one example is that we’ve nearly doubled the size of our fulfillment network since the pandemic began,” Jassy said.
Amazon’s net income dropped to $3.2 billion, or $6.12 in earnings per share (EPS), down from $6.33 billion, or $12.37 EPS, in last year’s third quarter. Analysts had expected EPS of $8.71.
Olsavsky cited numerous challenges that Amazon has faced since last February, including billions of dollars in additional costs to keep employees safe and support testing and other COVID-related costs. Amazon also has increased its global headcount by 628,000 employees in the past 18 months and is recruiting for more, including more than 150,000 in the United States to support fourth-quarter seasonal demand.
“The demand for labor has recently coincided with the shortage of available workers, particularly in the United States, which began in Q2, but it really started to impact our operations and cost structure in Q3,” Olsavsky said. “This led to wage increases and sign-on incentives as companies compete for workers, as well as inconsistent staffing levels in our operations.”
Disruption to the global supply chains and inflation in the cost of materials such as steel and services such as trucking also have raised the cost of operations for Amazon.com. It estimates the cost of labor, labor-related productivity losses and cost inflation added approximately $2 billion in operating costs in the third quarter, particularly in August and September. Amazon guidance for the fourth quarter — the all-important holiday shopping season for retailers — anticipates those costs will approach $4 billion.
Amazon expects fourth-quarter revenue of $130 billion to $140 billion, which would represent growth of 4 percent to 12 percent from the same three months of 2020. Operating income is expected to be between $0 and $3 billion, compared with $6.9 billion in last year’s fourth quarter.
The news depressed Amazon’s stock. After closing at $3,446.57 today, up $54.08 or 1.59 percent, it fell in after-hours trading. The per-share price had dropped to $3,308.50 by 7:15 p.m. EST, down $138.07 or 4.01 percent.