Amazon is happy about its cloud computing business, and so are investors.
The Seattle-based company crushed analyst expectations for its Q1 2016 earnings on Thursday, as the company’s stock spiked more than 12 percent in after-hours trading.
Wall Street expected Amazon to post earnings per share of $0.58, but the company ended the quarter with a record-high $1.07 EPS, nearly doubling the estimate. That’s up from a $0.12 net loss in the year-ago quarter.
The profit growth — Amazon posted profit for the fourth consecutive quarter — can certainly be credited in large part to Amazon Web Services, which reeled in $2.57 billion during Q1 2016, up from $2.4 billion in the previous quarter and $1.57 billion a year ago, a 64 percent year-over-year growth. Analysts expected AWS to make $2.53 billion last quarter. Operating income for AWS in Q1 was $604 million, up from $195 million last year.
Over the past four quarters, AWS has generated $8.7 billion in revenue for Amazon. The company started breaking out its AWS financials one year ago.
On the earnings conference call today, Amazon CFO Brian Olsavsky called AWS a $10 billion business. He repeated that Amazon was “very happy” with the top and bottom line for AWS during Q1 2016, pointing specifically to a 23 percent operating margin, up from 12 percent a year ago.
“We think it’s very early, and there’s plenty of room in this industry for multiple winners,” Olsavsky said. “We like where we are. We have a leadership position and we will certainly try to build on it.”
Charlie O’Shea, a retail analyst for Moody’s, pointed out the “impressive” operating margin for AWS.
“Once again, Amazon Web Services exhibited significant growth, with revenues up $1 billion, however the more impressive metric is margin, which roughly doubled to 23.5%, generating over $600 million, or roughly 60%, of Amazon’s total operating income,” O’Shea said in a statement.
When asked about a slightly slowing sequential growth rate for AWS — it posted $2.4 billion in revenue for Q4 2015, which was up 69 percent year-over-year, versus the 64 percent YOY growth in Q1 2016 — Olsavsky cautioned that people shouldn’t “draw too many conclusions on long-term margins.”
“Margins will be bumpy and are affected by levels of investing, price reduction, and cost efficiency,” he said.
Olsavsky noted that Amazon has reduced AWS pricing 51 times since it first launched the product. Phil Hardin, Amazon’s director of investor relations, noted that “we aren’t in the business of raising prices.” Given that Amazon lowers prices yet grows revenue is an indication of steady usage growth for AWS, Hardin said.
Olsavsky added that AWS is “innovating at a rapid clip,” with 217 significant new features delivered last quarter, up 25 percent from last year.
Stacked against Amazon’s retail business, the company’s other big money-maker, it’s easy to see why Amazon continues to invest in AWS, which is used by customers like Netflix and Apple and competes with similar cloud offerings from Microsoft and Google.
Amazon Web Svcs vs retail biz (Q1)
-EBIT $604M vs $467
-Margin 24% vs 1.8%
-Growth 64% vs 21%
By 2020 AWS -> 4x Retail$AMZN = cloud.
— Adam Johnson (@AJInsight) April 28, 2016