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Amazon’s cloud group becomes more profitable but misses on top line

Adam Selipsky, Amazon Web Services CEO

Source: CNBC

Amazon said Thursday that its cloud unit grew revenue 12% year over year in the third quarter. Analysts had expected a more rapid performance for the world’s top provider of computing and storage services delivered from faraway data centers.

The outcome suggests that the category, one of the liveliest parts of the mature information-technology sector, has gotten a touch of relief from the economic challenges brought on by rising prices and higher interest rates.

Revenue from the Amazon Web Services division during the quarter totaled $23.06 billion, according to a statement. That’s lower than the $23.2 billion consensus among analysts polled by StreetAccount. Growth was barely faster than in the second quarter, ending a six-quarter streak of deceleration.

During a call with reporters, Brian Olsavsky, Amazon’s finance chief, declined to say that growth from AWS growth has bottomed.

“I wouldn’t quite characterize it that way,” he said. “Just because, you know, we’re in a delicate, you know, situation. There are a number of cross streams right now. We have cost optimization work that is starting to slow down, at least.” At the same time, Olsavsky told the reporters, clients are handing Amazon new workloads to run in the cloud.

Andy Jassy, Amazon’s CEO, said on the company’s earnings call that customers have been increasingly taking advantages of Arm-based Graviton chips from AWS to reduce core computing costs. They’ve also been shifting from on-demand spending to commitments over one to three years that come with lower prices, he said.

Some organizations were planning to kick off major cloud migrations in 2023 but put off those plans, Jassy said.

Amazon had a happier story to tell about the profitability of its cloud business. It generated $6.98 billion in operating income, a figure that was up 29% and considerably more than the StreetAccount consensus of $5.63 billion. Amazon’s entire business generated $11.19 billion in operating income. The AWS operating margin expanded to 30.3%, the widest in two years.

Job cuts and slower hiring have boosted the AWS margin profile, Olsavsky said on the earnings call.

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