The Cloud

Amazon Rides to Q3 Profit on Cloud Growth

Amazon Web Services accounted for about 8% of total revenue but nearly half of the company's total profits.
Matthew HellerOctober 23, 2015 has posted a surprise third-quarter profit of $79 million, or 17 cents a share, as its fast-growing cloud computing division generated almost as much operating income as its North American e-commerce business.

Income swung positive from a net loss of $437 million, or $0.95 a share, in the year-ago quarter and beat Wall Street analysts’ estimates of a loss of 13 cents a share. Revenue grew 24% to $25.4 billion, topping estimates of $24.9 billion.

The cloud division, known as Amazon Web Services (AWS), accounted for about 8% of total revenue, but nearly half of its total profits. AWS’ operating income of $521 million almost matched the North America e-commerce business ($528 million).

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Operating margins for the cloud business were 25%, compared with 3% for North America e-commerce. AWS is “killing it,” Wired said. “And it adds, in a big way, to Amazon’s new profitability.”

Amazon CFO Brian Olsavsky sounded a cautious note, telling analysts in a conference call that “The [cloud business] model remains early days. Growth rates and margins will remain lumpy and bumpy, but we’re very encouraged.”

But investors reacted with enthusiasm to the third-quarter results. Amazon shares rose as much as 11% percent in after-hours trading, closing at $618.

“There is a better understanding on the Street now about how large Amazon Web Services can be,” Colin Sebastion, an analyst with the investment bank Robert W Baird, told CNBC. “Each quarter that goes by, I think we all reset our expectations higher, as there is still meaningful growth there, and a significantly large market.”

Amazon’s cloud services provide the infrastructure backbone to companies as big as Netflix and Spotify. In the second quarter, AWS increased its revenue more than 80% and quintupled its operating income.

Amazon projected fourth-quarter revenue of $33.5 billion to $36.8 billion, compared with analysts’ average estimates of $35.1 billion, according to data compiled by Bloomberg. Total e-commerce sales in the United States are expected to hit $79.4 billion in November and December, up 14% from a year earlier.