Amazon's cloud computing business grew 46 percent in the third quarter, trailing analysts' estimates.
Amazon Web Services generated revenue of $6.68 billion in the quarter, compared with the average estimate of $6.71 billion, according to analysts polled by FactSet. AWS accounted for 12 percent of Amazon's total revenue. It's the world's biggest provider of public cloud infrastructure, well ahead of Microsoft, Alphabet and others.
While Amazon has a number of growth drivers in its core retail business and from Alexa-powered devices, AWS gives the company software margins and a level of profitability that it can't find anywhere else. AWS reported operating income of $2.1 billion for the quarter, above the $1.82 billion FactSet consensus estimate. AWS delivered 56 percent of Amazon's total operating income.
The AWS business enjoyed a 31 percent operating margin in the third quarter -- the highest it's been in more than four years.
The company continues to add features at a rapid pace while also slashing prices, as more large businesses move to the cloud. In the third quarter, AWS announced a price cut for its Lightsail virtual private server offering and introduced a new computing offering called T3, which the company says offers a 30 percent improvement in price to performance over its predecessor. Amazon also said HubSpot chose AWS as its preferred public cloud provider.
Revenue growth is down sequentially from the second quarter, when AWS reported 49 percent growth. On Wednesday Microsoft said its Azure cloud grew 76 percent year over year. Alphabet also reported results on Thursday. On February's earnings call, Google CEO Sundar Pichai said he and fellow executives believed the Google Cloud Platform was "the fastest-growing major public cloud provider in the world" based on publicly available data for 2017.
In a note distributed to clients on Friday, Stifel analysts led by Scott Devitt estimated AWS would generate $50 billion in revenue in 2020.
Amazon shares fell more than 6 percent in extended trading Thursday after the company's revenue and fourth-quarter outlook fell short of expectations.