Burgess COMMENTARY

Peter Burgess

Amazon lifts lid on AWS money factory, says it's a $5 BEEEELLION biz ... But dragging retail meant it lost money for the quarter anyway

IMAGE Amazon Web Services

Amazon lifted the veil from the financials of its Amazon Web Services (AWS) cloud computing business for the first time on Thursday, and it looks to be off to a fine start for the first quarter of the company's fiscal 2015.

While Amazon's total revenue of $22.72bn for the quarter represented 15 per cent year-on-year growth – a respectable figure by any means – the AWS division's revenue grew by 49 per cent.

'Amazon Web Services is a $5 billion business and still growing fast – in fact it's accelerating,' Amazon CEO Jeff Bezos said in a canned statement accompanying the report. 'We are so grateful to our AWS customers and remain dedicated to inventing on their behalf.'

Make no mistake, the AWS revenue remains just a drop in the tidal wave of money that flows in and out of Amazon's coffers each quarter. At $1.57bn for the three months ending on March 31, AWS sales represented just 7 per cent of the total.

The picture looks different, however, when you consider operating income. Amazon's North American retail operations are healthy and growing, but its losses overseas deepened this quarter. Altogether, its retail unit brought in operating income of $441m. But AWS, despite bringing in a paltry fraction of the revenue of the retail operations, generated $265m in operating income all on its own.

And unfortunately for investors, the high overhead of Amazon's retail business forced the online giant to post another net loss this quarter. This time it bled out $57m, compared with net income of $108m for the year-ago quarter.

Bezos' firm only posted a loss of $0.12 per diluted share, though, which meant both its earnings and its revenue just managed to outperform what the Wall Street oracles were predicting, on average.

But while it was generally good news for AWS-watchers this quarter, Amazon's rent-a-server business is hardly exploding. Its revenues are way up compared to last year's quarter, but its operating income only grew by 8.2 per cent, which suggests that continued price pressure from the likes of Google and Microsoft are making it difficult to capitalize on its data center assets.

Amazon keeps pouring money into its data centers, too. It said the AWS division owned property and equipment worth $6.04bn as of December 31, 2014, which was more than that held by any other division. But its expenditures there seemed to slow down, at least for these past three months. It spent $871m on property and equipment in Q1 of 2015, which was 19.3 per cent less than it spent in the year-ago quarter and a 23.86 per cent drop sequentially.

In all, investors seemed excited to get a look at how the AWS clock ticks – and to know that the business isn't, after all, just a money sink. Amazon's share price began climbing swiftly on the news, sending it up more than 6 per cent in after-hours trading. ®

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