Amazon CEO Jeff Bezos is advising the company’s shareholders to “take a seat” to prepare for the tech giant’s ambitious spending on COVID-19 initiatives, but if not for Amazon Web Services, they might be falling out of their chairs.
The tech giant’s cloud division was responsible for more than 77% of Amazon’s total operating profits in the first quarter, the highest percentage in two years.
Amazon’s total operating profit declined 10% to $4 billion as reported, but without AWS, operating profits for the company would have been below $1 billion.
And those cloud profits are a big reason Amazon has the financial license to spend what Bezos says could be an additional $4 billion coping with the crisis in the current quarter.
Amazon’s situation is unique in many ways, but its reliance on the cloud for profits during the pandemic reflects a common pattern for tech companies.
Results reported last week from Apple, Microsoft and Google show they also benefited, to varying degrees, from their efforts to expand beyond their traditional businesses and further into cloud infrastructure and subscription services in recent years.
- Microsoft’s commercial cloud revenue rose 39% to $13.3 billion, representing 38% of the company’s overall revenue of $35 billion for the quarter. Commercial cloud includes Office 365 Commercial, Microsoft Azure, and commercial portions of LinkedIn, Dynamics 365 and other Microsoft cloud businesses.
- Apple’s services revenue for the quarter was a record $13.3 billion, more than twice its combined revenue from Mac and iPad sales, and nearly 23% of the company’s overall quarterly revenue of $58 billion. Services include digital content and streaming, AppleCare, iCloud, licensing and similar forms of revenue.
- Google Cloud revenue rose 52% to $2.78 billion for the quarter. At less than 7% of Google parent Alphabet’s $41 billion in quarterly revenue, the cloud business still pales in comparison to the company’s online advertising business, but it is emerging as a key area of growth.
Beyond those giants, other tech companies also saw the benefits of business diversification. Seattle-based networking and security technology company F5 Networks, for example, has expanded beyond its traditional hardware appliances to build a growing software and services business. As a result, 65% of its $583.5 million in quarterly revenue was from recurring contracts.
“In the last three years, in particular, we have built a very strong base of recurring revenues,” said François Locoh-Donou, F5’s president and CEO, in an interview with GeekWire. “In times like this, recurring revenues are more sticky, because you’re asking customers to renew something, not to buy new projects, etc. And I think because of that, we’ve got a lot of resilience.”
That’s one reason F5 is in a position to pledge to avoid layoffs from COVID-19 for the remainder of its fiscal year.
Oracle is also seeing the benefits of its cloud expansion, announcing last week that Zoom has chosen its cloud infrastructure to help support a spike in usage. Responding to an inquiry from GeekWire, a Zoom spokesperson said the company continues to use Microsoft Azure and AWS.
But how long will the cloud be this cushy? For all of these companies, a big wild card is the pandemic’s impact on longer-term business spending on technology projects.
“A surge in demand for online collaboration tools, ecommerce and consumer cloud services drove sharp increases in cloud infrastructure consumption, benefiting all the major cloud providers,” research firm Canalys explains in a new report, showing overall spending on cloud infrastructure services growing 34% to $31 billion in the quarter. “But this was offset by a slowdown in large complex enterprise migrations and transformational cloud projects as businesses called a halt to all but the most important IT tasks as lockdowns took effect.”
This could get costly. The major cloud providers are spending on new capital projects to boost capacity, in part to support remote work and emergency services during the pandemic.
Amazon’s official financial guidance for the June quarter illustrates the uncertainty ahead — ranging anywhere from a $1.5 billion operating profit to a $1.5 billion operating loss.
