Technology

Amazon Web Services Delivers Again as Parent Falters

Douglas A. McIntyre

Published: July 28, 2017 6:50 am

Last Updated: January 12, 2020 9:41 am

Wall Street was disappointed by the latest earnings from Amazon.com Inc. (NASDAQ: AMZN). As has been the case over and over again, investors believe the company spends too much money to get e-commerce customers. However, the division that founder Jeff Bezos thinks eventually will be Amazon’s future has delivered again. Amazon Web Services (AWS), its cloud business, posted revenue of $4.1 billion, up from $2.9 billion in the same quarter the year before.

AWS operating profit also surged. In the most recent quarter, it was $916 million, up from $718 million in the period a year ago. Notably, Amazon’s total consolidated operating income was only $628 million, which shows how important AWS is.

Overall, Amazon posted revenue of $38 billion, up from $30.4 billion in the same period a year earlier. Operating income of $628 million was down from $1.3 billion a year ago. Net income was $197 million, down from $817 million last year. Amazon’s two great challenges are its high e-commerce expenses and its trouble in its international business. Overseas, Amazon lost $724 million on revenue of $11.5 billion, compared to a loss of $136 million on revenue of $9.8 billion a year ago.

Amazon is generally considered to be the leader in cloud computing. Almost every other large tech company in the world has given chase. Most make cloud computing progress a central part of the narratives about their operations. Amazon can actually brag. Its business is both rapidly growing and highly profitable. Maybe Bezos will cut AWS margins to drive its growth. Investors would not like that.

If Amazon’s future is in the cloud, it is not only because AWS has grown and will grow rapidly. It also means that eventually e-commerce growth will decelerate. Some of that has to be expected. Amazon’s market share is so large that it soon may only be able to grow as fast as the industry. And, although many investors laugh it off, Walmart and other large retailers have begun to pour billions of dollars into operations to compete with Amazon. Like the monkey with a dartboard, some are bound to be successful.

Bezos’s comments from years ago about the size and scale of AWS have begun to turn out to be true. If he cannot make money in his traditional business, he can make a lot in his new one.