- Amazon's cloud segment is growing much faster than the overall company, but expansion is slowing.
- Both Google and Microsoft recorded faster cloud growth in the second quarter.
Amazon said Thursday that revenue from its cloud segment rose 33% in the second quarter, beating analysts' estimates.
Amazon Web Services generated $19.74 billion in revenue in the period, according to a statement. Analysts polled by StreetAccount had expected $19.56 billion. The growth rate slowed from almost 37% in the previous quarter.
While Amazon still counts on retail for the bulk of its revenue, AWS is the company's profit engine and provides a significant source of diversity as the economy slows and consumers reel in spending. However, even areas of the high-tech market are seeing a change in customer-purchasing behavior.
Amazon was left with $5.72 billion in AWS operating income, up 36% year over year but below the StreetAccount consensus estimate of $6.04 billion. Yet it still played a crucial role across the e-commerce giant, which reported $3.32 billion in total operating income. The AWS operating margin narrowed to 29% from 35.3% in the first quarter. Operating expenses in the second quarter included higher stock-based compensation, Brian Olsavsky, Amazon's finance chief, told analysts on a conference call.
"AWS results include a greater mix of these costs, reflecting wage inflation in high demand areas including engineers and other tech workers as well as increasing technology infrastructure investment to support long-term growth," Olsavsky said. Amazon is also paying higher electricity rates in data centers, he said.
Earlier this week, Alphabet and Microsoft flagged slowdowns in their cloud-computing units. Both companies trail AWS, which controls an estimated 39% market share. Microsoft reported 40% growth in Azure revenue, while Google's cloud sales climbed 36% from a year earlier.
When asked on Tuesday what led to Alphabet's slowing Google cloud growth, CEO Sundar Pichai said "you do see a varying mix of some customers impacted in terms of their ability to spend, some customers just slightly taking longer times and maybe in some cases thinking about the term for which they are booking and so on."
At Microsoft, growth in Azure cloud consumption moderated during the quarter. CEO Satya Nadella told analysts on Tuesday that customers are "trying to make sure that they can do more with less." He said Microsoft is encouraging its salespeople to make sure that cloud bills shrink.
Amazon is ready to help its clients weather a more difficult economy, too.
"We are prepared to help customers optimize their costs and will help them — any who are scaling down," Olsavsky said.
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