Technology

AWS Cloud Operation Drives Almost Half Amazon's Bottom Line

Douglas A. McIntyre

Published: February 2, 2018 6:55 am

Last Updated: January 12, 2020 3:49 am

Investors have worried for years that Amazon.com Inc. (NASDAQ: AMZN) posts strong revenue growth but a weak bottom line. Founder and CEO Jeff Bezos introduces product after product to drive new sales and customer loyalty. These often are costly and cut into operating income. In the most recent quarter, Bezos showed Amazon can post strong margins. However, a large share of the bottom line was not driven by the company’s traditional e-commerce business. It was due to its cloud business, Amazon Web Services (AWS).

Amazon posted total sales in the final quarter of 2017 that hit $60.5 billion, up 38% from the same quarter a year ago. Operating income of $2.1 billion was up 69% over the 2016 quarter.

Amazon’s international business was a loser. It lost $919 million, on revenue of $18 billion. The top line was higher by 29% in the fourth quarter, but the loss grew from $487 million in the same period a year ago.

Amazon’s North American operations posted revenue of $37.3 billion, up 42%. Operating income rose 107% to $1.7 billion. Clearly, Bezos did not give away the store to post strong holiday sales in its home market.

AWS had substantial margins and substantial growth. Its revenue rose 45% to $5.1 billion. Operating income rose 46% to $1.4 billion, very close to Amazon’s North American bottom line, but on only 14% of North American revenue.

Bezos repeatedly has said that AWS eventually will be larger than Amazon’s e-commerce revenue. That forecast is possible. Cloud computing has become among the largest segments of the tech industry, and it has been essential to the growth of other companies, particularly Microsoft and struggling IBM.

Amazon announced over a dozen new AWS products and listed a slate of impressive new customers:

Amazon Web Services (AWS) announced several enterprise customers during the quarter: Expedia, Ellucian, and DigitalGlobe are going all-in on AWS; The Walt Disney Company and Turner named AWS their preferred public cloud provider; Symantec will leverage AWS as its strategic infrastructure provider for the vast majority of its cloud workloads; Expedia, Intuit, the National Football League (NFL), Capital One, DigitalGlobe, and Cerner announced they’ve chosen AWS for machine learning and artificial intelligence; and Bristol-Myers Squibb, Honeywell, Experian, FICO, Insitu, LexisNexis, Sysco, Discovery Communications, Dow Jones, and Ubisoft kicked off major new moves to AWS.

Going forward, it is likely that AWS could be close to the majority of Amazon’s operating income. And Bezos’s vision for the business may very well turn out to be right.