Tech

Amazon cloud revenue jumps 29%, in line with expectations

Key Points
  • Amazon Web Services exceeded estimates on operating income in the third quarter.
  • Estimates from analysts suggest that Microsoft's cloud is about 54% the size of AWS.
Attendees at Amazon.com Inc annual cloud computing conference walk past the Amazon Web Services logo in Las Vegas, Nevada, U.S., November 30, 2017.
Salvador Rodriguez | Reuters

Amazon's cloud business increased revenue by 29% in the third quarter as demand for products that rely on it, such as Slack and Zoom, remained high during the coronavirus pandemic.

Amazon Web Services continues to rule the market for cloud infrastructure, with 45% share in 2019, technology research company Gartner estimated. Schools, governments, start-ups and large companies use computing, storage and networking tools from AWS to operate their websites and applications.

In the third quarter AWS revenue totaled $11.60 billion, which is just short of the FactSet consensus estimate of $11.61 billion, Amazon said on Thursday. Revenue growth is consistent with the 29% growth in the second quarter.

Companies that want to cut costs can do that by going to the cloud, and AWS is helping existing customers save money by refining workloads to make the most of cloud resources, Brian Olsavsky, Amazon's chief financial officer, told analysts on a conference call.

Amazon's closest competitor is Microsoft's Azure. Microsoft provides quarterly revenue growth rates for Azure but doesn't disclose Azure revenue in dollars. Analysts at Mizuho and William Blair estimated $6.3 billion in third-quarter Azure revenue, which would amount to 54% of AWS revenue during the same period.

AWS generated $3.54 billion in operating income, up 56% and more than the $3.45 billion FactSet consensus. The segment had a 30.5% operating margin, compared with 31.1% in the second quarter.

Around 57% of Amazon's operating income came from AWS in the third quarter, and Amazon derived 12% of its revenue from AWS. Earlier this month Democratic staff members of the U.S. House Judiciary antitrust subcommittee said in a 449-page report that market participants had expressed concern that "Amazon uses its high and steady profits from AWS" to help fund less profitable parts of its business.

Continuing a shift that emerged in the second quarter, Amazon grew other portions of its business faster than AWS in the third quarter. North America revenue increased by 39%, and international revenue rose 37%. All of Amazon grew 37%, making AWS the laggard.

In the third quarter AWS introduced a tool customers can use to run live video streams that resemble those on the Amazon-owned Twitch service. It said for the first time it would hold its annual Reinvent customer conference online instead of in Las Vegas, because of the pandemic. The show will run from Nov. 30 to Dec. 18.

Also in the quarter the Pentagon said that after reevaluating proposals from Amazon and Microsoft, it would stick with Microsoft for the Joint Enterprise Defense Infrastructure, or JEDI, contract that could be worth up to $10 billion. Amazon continues to protest the Pentagon's decision in federal court.

WATCH: Amazon adds retired general Keith Alexander to its board of directors

VIDEO0:4800:48
Amazon adds retired general Keith Alexander to its board of directors