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August 3, 2023
AWS earnings on Thursday afternoon showed a slight dip in income for the world’s largest public cloud computing provider.
Amazon Web Services, the most profitable division of e-commerce giant Amazon, reported $5.4 billion in second-quarter 2023 income, compared to $5.7 billion during the same period a year ago.
Amazon’s Andy Jassy
Even so, Amazon CEO Andy Jassy, who used to run AWS, put on a happy face.
“Our AWS growth stabilized as customers started shifting from cost optimization to new workload deployment, and AWS has continued to add to its meaningful leadership position in the cloud with a slew of generative AI releases that make it much easier and more cost-effective for companies to train and run models, customize Large Language Models to build generative AI applications and agents, and write code much more efficiently,” he said in a prepared statement on Aug. 3.
To those points, the latest AWS earnings numbers revealed a 12% increase in year-over-year sales. Revenue went from $19.7 billion a year ago to $22.1 billion for the three months ended June 30.
But there’s a caveat. Looking at the figures compared to the first quarter of 2023, sales were almost neck and neck, with the latest round indicating some weakness. For January-March of this year, AWS recognized $21.35 billion in revenue. Certainly the past year has indicated that pandemic-driven cloud demand has reached its end, when AWS earnings, and those of other hyperscalers, soared, by the billions. The end of COVID-19 has represented the start of a new normal for cloud providers and their investors. End users continue to pay attention to and optimize their consumption, rather than buying mindlessly, and Wall Street is simply going to have to wrap its head around that reality.
Meantime, AWS is counting on generative AI and ongoing cloud computing demand to fuel its position as the No. 1 provider worldwide. However, as Microsoft Azure continues to flex its muscle in generative AI, and picks up the pace among cloud computing customers, future AWS earnings could start to slacken. Indeed, Evercore ISI analyst Mark Mahoney wrote in a client memo that investors will be looking to understand whether “AWS is likely to start showing revenue growth acceleration beginning in Q3.”
Some indicators that sales could pick up include AWS’ new expansion into Israel, as one example. The company this week took its new Tel Aviv data center live. That kickoff marked the first step in AWS’ strategy to spend $7.2 billion in Israel through 2037. The Israeli government already had chosen AWS as the preferred provider for its digital transformation efforts, dubbed Nimbus. AWS estimates that its investment will create 7,700 jobs annually and contribute about $13.9 billion to Israel’s gross domestic product through 2037.
Of course, AWS will have to prove strength in areas beyond data center capacity and growth. It will need to convince developers to adopt Bedrock at breakneck speeds, as one observation. And, as another, it will need to keep luring channel partners to sell, and use, its cloud services and marketplace offerings.
To be sure, the indirect channel could prove instrumental in whether AWS retains its reigning position among the hyperscalers. While the provider mainly targets and attracts large, enterprise-centric partners, it is starting to more openly embrace smaller managed service providers, resellers and consultancies.
However, there remains some work for it to do to convince those partners it does not compete against them. AWS pricing, particularly for basic cloud capabilities such as storage, also tends to go higher than that of independent vendors that offer more non-compete assurances to partners. Even though AWS provisions its Think Big for Small Business program, for instance, the company may do well to think about better smoothing the path for partners that may not have the heft or reach of their giant counterparts, but who hold tremendous sway over customers’ buying decisions.
Shares of Amazon were up about a half a percent in after-hours trading on Thursday.
Contributing Editor, Channel Futures
Kelly Teal has more than 20 years’ experience as a journalist, editor and analyst, with longtime expertise in the indirect channel. She worked on the Channel Partners magazine staff for 11 years. Kelly now is principal of Kreativ Energy LLC.
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