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Amazon cloud revenue soars 42 percent, topping analyst estimates

  • Amazon generated $4.58 billion in sales and $1.17 billion in operating income.
  • AWS revenue growth has now declined for nine consecutive quarters.

Amazon Web Services, the cloud-computing business, grew 42 percent in the third quarter, beating Wall Street's expectations.

In its earnings report on Thursday after the market's close, Amazon reported AWS revenue of $4.58 billion, topping the $4.5 billion average analyst estimate, according to FactSet.

AWS remains the profit engine for Amazon, which has always operated on thin e-commerce margins. While AWS accounted for 10 percent of Amazon's total revenue in the quarter, the unit generated operating income of $1.17 billion, while the company as a whole had operating profit of just $347 million.

AWS revenue growth was flat compared to the prior quarter, following eight straight quarters of slowing expansion.

"The business model at this scale is transitioning from hypergrowth to high growth alongside an increasing number" of competitors, analysts from KeyBanc wrote in a report on Tuesday. Enterprises are increasingly willing to use more than one cloud, they wrote.

But AWS still leads the market for cloud infrastructure, which companies can use to run their applications without worrying about maintaining the underlying data center hardware.

AWS owned 30 percent of the market in the second quarter, more than double the market share of its closest competitor, Microsoft Azure, which had 14 percent, Matthew Ball, an analyst at Canalys,told CNBC last month.

"AWS seems to have settled into a sustainable competitive situation relative to Microsoft and Google," analysts at Canaccord Genuity wrote in a note on Oct. 19. "We expect growth to remain high for the foreseeable future."

Correction: A previous version of this story incorrectly stated that AWS surpassed $4 billion in sales for the first time. It recorded $4.1 billion in revenue in the second quarter.

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