Amazon profits rise again, but cloud growth is slowing

AWS sales rose 16% compared with last year, but CEO Jassy warns customers are 'cost-optimising'

Amazon Web Services continues to show growing strength, but businesses are only starting to see the potential optimizations they can expect as AWS continues to grow and innovate, according to Amazon president and CEO Andy Jassy, as Amazon's quarterly figures were announced on Thursday.

"People sometimes forget that 90-plus percent of global IT spend is still on premises. If you believe that equation is going to flip, which we do, it's going to move to the cloud, and having the cloud infrastructure offering the broadest functionality by a fair bit, the best security, and operational performance, and the largest partner ecosystem bodes well for us moving forward," he said.

Jassy, in his prepared remarks Thursday during Amazon's fiscal first quarter 2023 financial analyst call, said AWS is seeing enterprises continuing to be cautious in their spending in this uncertain time.

"Customers are looking for ways to save money however they can right now," Jassy said.

"They tell us that most of it is cost optimising versus cost-cutting, which is an interesting distinction because they say they're cost optimising to reallocate those resources on new customer experiences. One of the great attributes of the cloud is that you can scale seamlessly up or down if demand dictates, which is not the case with on-premises infrastructure."

AWS and the cloud are proving to be key ways to help customers spend less during this challenging time, Jassy added.

"The new customer pipeline looks strong," he said.

"The set of ongoing migrations of workloads to AWS is strong. The product innovation and delivery is rapid and compelling. And people sometimes forget that 90-plus percent of global IT spend is still on premises. If you believe that equation is going to flip, which we do, it's going to move to the cloud, and having the cloud infrastructure offering the broadest functionality by a fair bit, the best security, and operational performance, and the largest partner ecosystem bodes well for us moving forward."

Even so, Amazon is far from done inventing at AWS, Jassy said.

"Our recent announcement on large language models and generative AI, and the chips and managed services associated with them, is another recent example.

"And in my opinion, few folks appreciate how much new cloud business will happen over the next several years from the pending deluge of machine learning that's coming."

Brian Olsavsky, Amazon's senior vice president and chief financial officer, said during his prepared remarks that AWS revenue in the fiscal first quarter of 2023 increased 16% year-over-year, representing an annualised sales run rate of more than $85 billion.

"Given the ongoing economic uncertainty, customers of all sizes in all industries continue to look for cost savings across their businesses, similar to what you've seen us doing at Amazon," Olsavsky said. "As expected, customers continue to evaluate ways to optimise their cloud spending in response to these tough economic conditions in the first quarter."

AWS is seeing these optimisations continue into the second quarter, with April revenue growth rates about 500 basis points lower than what the company saw in the first fiscal quarter, Olsavsky added.

"As a reminder, we're not trying to optimise for any one quarter or year," he said.

"We're working to build customer relationships and a business that will outlast all of us. Therefore, AWS sales and support teams continue to spend much of their time helping customers optimise their AWS spend so that they can better weather this uncertain economy. This customer orientation is built into our DNA and how we think about our customer relationships in business over the long term."

For its fiscal first quarter 2023, which ended March 31, Amazon reported total revenue of $127.4 billion, up about 9% over the $116.4 billion the company reported for its first fiscal quarter 2022.

This included North American Amazon sales of $76.9 billion, up 11% over last year; international Amazon sales of $29.1 billion, up 9%; and AWS sales of $21.4 billion, up 16%.

While product sales growth remained relatively flat, growing a mere 0.01% to $57.0 billion, service sales bounded by over 17% to reach $70.4 billion for the quarter.

AWS saw sales increase by 16% year-over-year, to $21.35 billion. The figure represents almost 17% of the Amazon's net sales, slightly exceeding analysts' predictions.

The fiscal first quarter revenue beat analyst expectations by $2.85 billion, according to Seeking Alpha.

For the quarter, Amazon reported GAAP net income for the quarter of $3.2 billion or 31 cents per share compared with last year's net loss of $3.8 billion or 38 cents per share.

This beat analyst expectations by 11 cents per share, according to Seeking Alpha.

This article was first published on CRN.