Tom Szkutak Amazon CFO

Tom Szkutak, Amazon CFO

AWS Growth Slows: Should Investors Worry?

Amazon Web Services usage grew 90 percent year over year, but investors are concerned about a weak quarter with missed marks regarding profits.

Amazon Web Services (AMZN) is taking a bit of a beating from its investors. The cloud company recently released the financial report for its second quarter of 2014, and it looks as though Amazon continues to experience difficulties when it comes to profit.

At a time when AWS is seeing a 90 percent year-over-year increase in usage, the company's profits for its cloud computing services are still a little foggy. That's not to say it is losing money, of course, but according to its own financials, its growth has slowed—from 60 percent year over year in the first quarter of the year to 38 percent in the second quarter. Contrast that to 64 percent year-over-year growth a year prior, and there seems to be a downward trend.

According to Tom Szutak, CFO of Amazon, the reason for the slower growth is that the price cuts Amazon has been making on its cloud services haven't quite had the effect executives had hoped for. Amazon has found and attracted new customers, but with the ongoing price war, Amazon isn't coming out the clear winner that it used to be.

During the second quarter of the year, AWS grew its team significantly (by the thousands, according to the company), expanded its infrastructure and boosted its enterprise and public sector sales capabilities. At the same time, it made significant price reductions and challenged its competitors by launching such services as Amazon Zocalo, a fully managed and secure enterprise storage and sharing service that competes directly with the likes of Dropbox and Box.

It may just be talk around the Wall Street water cooler, but it looks as though investors are starting to become discouraged with Amazon. They may very well be jumping the gun, as few technology initiatives are out-of-the-gate profitable, but Amazon's growth rate has definitely slowed. Not surpising, of course, considering the evolution of cloud computing and the rate at which major competitors are joining and growing within the market.

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