Amazon's cloud business reports 35% growth in the third quarter, trailing estimates

Key Points
  • Amazon Web Services continues to grow faster than its parent company.
  • Microsoft, the biggest competitor to AWS, reported 59% Azure revenue growth in the quarter.
Attendees at an annual cloud computing conference
Salvador Rodriguez | Reuters

Amazon said on Thursday that revenue in its cloud division increased 35% in the third quarter, slower than analysts had expected and the lowest growth rate in more than five years.

Amazon Web Services, which provides computing, storage and networking tools that companies can use to run a wide variety of applications, ended the quarter with $9 billion in revenue, according to a statement. Analysts polled by FactSet had expected $9.1 billion.

The segment's results had a negative impact on all of Amazon, which reported earnings that were lower than analysts had predicted. 

Revenue from AWS continues to grow faster than at its parent company, which had 24% growth overall. But growth in the cloud business moderated from the 37% growth in the prior quarter.

AWS, which launched in 2006, is the dominant player in cloud infrastructure, ahead of Microsoft, Google, Alibaba, IBM and Oracle. Microsoft, the No. 2 player, reported 59% revenue growth from its Azure cloud on Wednesday, though the company doesn't disclose actual sales figures for the unit.

For the past four years, AWS has provided the bulk of Amazon's operating income. In the third quarter, AWS operating income totaled $2.26 billion, up 9% from the year-ago period and below the $2.55 billion FactSet consensus estimate. AWS operating income grew 8.9%, which works out to the slowest growth in four and a half years.

"Costs associated with building AWS marketing teams and greater infrastructure spending, relative to the prior year, will continue to work against margin in the back half of the year," Stifel analysts, who have a buy rating on Amazon stock, wrote in a note distributed to clients this week. "We expect AWS margin, which fluctuates from quarter-to-quarter, will be down y/y due to investment."

In the third quarter, AWS delivered 71% of Amazon's total operating income and 13% of its total revenue.

AWS acquired start-up E8 in the quarter and announced the opening of a group of data centers in Bahrain for customers to use.

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