AWS sees 37 percent quarterly growth as Amazon disappoints

aws, cloud, last year’s second quarter, this year’s first-quarter earnings, replaced Jeff Bezos, an 11-year AWS veteran

Amazon Web Services’ growth rebounded for the second straight quarter, while parent company Amazon.com missed analysts’ revenue expectations and attributed its performance to consumers returning to some sense of normalcy amid the coronavirus pandemic.

Revenue for AWS, Amazon’s industry-leading cloud computing division, increased 37 percent to US$14.8 billion for the second quarter that ended June 30, compared to revenue of US$10.8 billion in last year’s second quarter.

The results equate to a US$59.2 billion annualized revenue run rate for AWS, which had been on track for a US$54 billion revenue run rate after reporting this year’s first-quarter earnings in April.

“(AWS) has been 15 years in development, and we think our scale and experience really pays dividends,” Brian Olsavsky, Amazon’s chief financial officer, said during a call today with financial analysts, referring to AWS’ 15th anniversary since its 2006 launch. “If you look at the last quarter, AWS had more revenue quarter over quarter and year over year than any quarter in our history. We’re now a $59 billion annualized run rate business, and that’s up from $43 billion at this time last year.”

AWS is doing a good job on products, adding new capabilities and working with customers to solve their problems, according to Olsavsky.

“It’s matching up well with a renewed emphasis on getting to the cloud by a lot of companies out there,” he said. “And when they’re looking to make that transition, it’s giving up control and…choosing a partner for the long haul, and we’re proud that companies choose us for that journey.”

Revenue growth accelerated across a broad range of customers, according to Olsavsky, with strong growth from enterprises, governments, educational and research institutions, and startup and digital-native customers. He noted recent new commitments and migrations from customers including Swisscom and Bell Canada in the telecom industry, BMO Financial Group and Bancolombia in financial services, and Ferrari in the automotive sector.

“AWS customers recognize that the move to the cloud is very positive for their businesses in the medium and long term,” Olsavsky said. “Disruptive economic events like COVID have caused many people to step back and think about how they want to change strategically, and many have come to the conclusion that they do not want to own and run their own data centers. They see that they can save money and gain agility and innovation by moving to AWS.”

AWS saw its growth reaccelerate this year as more companies brought forward plans to transform their businesses and move to the cloud, new Amazon CEO Andy Jassy said in a statement.

AWS’ 37 percent second-quarter revenue growth compares to 33 percent growth rate in the first quarter of 2020, and then drops to 29 percent growth in the second and third quarters, and 28 percent in the fourth quarter amid the pandemic.

“Last year, there was a lot of effort by companies to limit their spend and operate more efficiently as we were all plunged into a kind of an unknown demand curve,” Olsavsky said. “Some industries were hurt worse than others. We actually worked very hard with our customers to help them lower their demand for AWS services as best we could to match any new demand patterns. We also helped people scale very quickly. Companies like Disney+, Netflix and others were glad that AWS was there to help them scale meet volume very quickly. So there’s a lot of mixed bag there.”

Overall Amazon results

Amazon’s overall second-quarter performance missed Wall Street analysts’ revenue forecast, but beat their average earnings projection.

Amazon reported revenue of US$113.08 billion, a 27.2 percent increase from the second quarter of 2020, when many customers were confined to their homes and turned to online shopping due to the coronavirus pandemic.

Analysts polled by Zacks Investment Research expected Amazon revenue of US$115.08 billion.

“Q2 of this year was a transition period for many of our customers,” Olsavsky said. “As the quarter progressed, people were at home less, as restrictions and lockdowns eased in some of our largest geographies, including the US and much of Europe. As a result, while Prime members continue to spend more with us, growth in Prime members’ spend moderated compared to spending seen during the peak of the pandemic.”

Amazon’s second-quarter net income hit US$7.8 billion or US$15.12 in earnings per share (EPS), compared to US$5.2 billion or US$10.30 EPS in the year-earlier period. Analysts had expected EPS of US$12.22, according to Zacks.

The Amazon and AWS leadership transition

The former CEO of AWS, Jassy formally replaced Jeff Bezos as Amazon’s leader on July 5, after the second quarter ended. Adam Selipsky, an 11-year AWS veteran who had been serving as CEO of Seattle’s Tableau Software since 2016, rejoined AWS as its CEO, also on July 5.

Jassy is expected to add “his unique brand of positive attitude and optimism and forward-looking focus to help Amazon keep going and delighting customers,” according to Olsavsky.

“As you would expect Andy has hit the ground running,” he said. “He’s continuing to have a very high bar for customer experience, high standards, operational excellence, inventiveness, willingness to fail and everything else that Amazon is known for internally and externally. I think we’ve had a good handoff.”

Bezos, who’s now serving in the executive chairman role for Amazon, will continue to be very involved in “one-way door decisions,” Olsavsky said.

“We’ve also had a good leadership change at AWS with Adam Selipsky coming in,” he said. “Adam himself comes with a lot of Amazon history and knowledge and external CEO experience that has made him even stronger as he comes back.”

Amazon’s third-quarter outlook

Amazon’s guidance for its third-quarter revenue for the three-month period that ends 30 September is in the range of US$106 billion to US$112 billion, which would reflect growth of 10 percent to 16 percent compared to the third quarter of 2020.

Analysts expected third-quarter revenue to reach US$119.25 billion, according to Zacks.

“While not giving forward guidance beyond Q3 of this year, we do expect this pattern of difficult year-over-year revenue comps to continue for the next few quarters,” Olsavsky said.

Amazon stock closed regular trading at US$3.599.92 per share, down 0.84 percent. It sank further in after-hours activity and was down 7.44 percent to US$3,332 per share as of 7:59 p.m.

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