On Thursday, Amazon (AMZN) is announcing its Q1 earnings results — but it won’t be the typical quarterly report. For the first time in its history, the Seattle-based e-commerce giant is busting out the specific financials for Amazon Web Services, aka AWS. While on the earnings call, Amazon is expected to provide information on how much revenue AWS is generating, along with whether the cloud services business has been a burden on the firm’s retail side — and if so, to what extent.
For the first time in its history, Amazon is busting out the specific financials for AWS.[/pullquote]
“We just think it’s an appropriate way to look at our business for 2015,” Amazon CFO Tom Szkutak said earlier this year, according to GeekWire.
For the first quarter of 2015, analysts are expecting Amazon to have reached a revenue of $22.4 billion and a loss of 12 cents per share. Back in January, Amazon stunned investors when it released higher-than-expected Q4 earnings results: In fact, the firm downright crushed consensus predictions with an EPS of 45 cents (more than twice the 17-cent estimate). Despite the fact that it missed the $29.6 billion revenue estimate by a slight margin at $29.33 billion, that was quite a dramatic turnaround from the disappointing Q3 results.
A rising focus on cloud services
It makes sense for Amazon to finally offer some transparency in terms of its cloud computing business. After all, it has become increasingly clear that AWS is a top priority — and an area with notable potential for profit, if the firm can rise above its rival cloud providers. More and more small businesses are outsourcing their infrastructure, and Amazon has clearly been capitalizing on this: Usage growth of AWS spiked nearly 90 percent year-over-year in the fourth quarter of last year, according to the company.
In the past, Amazon has offered up very few financial details about AWS. The company has always lumped this aspect of the business under the category of "other"— which also includes ad services — that generated $1.67 billion in revenue during Q4 (up from $1.17 billion the previous year).
But Amazon did report that in 2014, AWS reached 1 million active customers, and that the company churned out a whopping 515 service and feature releases for these services (up more than 80 percent year-over-year).
Moreover, at a SXSW panel in March, Amazon CTO Werner Vogels spent the majority of his time discussing the company’s cloud enterprise business. To attendees’ awe, he also revealed that Amazon jobs are growing at such a fast pace that many engineers are spending 30 to 40 percent of their time on hiring. And one look at the 87 Amazon job listings for the Boston/Cambridge area shows that nearly one-third of those openings are for the Amazon Web Services team.
“We are investing very heavily both in terms of people and capital for that business," CFO Tom Szkutak added on the company’s Q4 earnings call.
Responding to competitive pressures
Still, some are surprised that Amazon would separate out the financial details on AWS. As the Puget Sound Business Journal reported, this decision fueled rumors that Amazon may be planning to ultimately spin off AWS—which isn’t entirely unfounded, considering the fact that this cloud computing business has highly unique resource and equipment demands in comparison to the firm’s retail division. Other analysts, meanwhile, maintain that Amazon will hold onto AWS since it’s proven to be a key revenue-generating division of the business. Some are even confident that AWS could be bigger than previously thought. For example, Robert W. Baird estimated that the business unit could be worth as much as $50 billion, while Deutsche Bank speculated that the division’s revenue is worth roughly $6 billion — nearly 10 times that of Microsoft’s competing cloud services. Their predictions aren't totally out of the realm of possibility: CEO Jeff Bezos previously suggested that AWS could eventually expand into a larger business than the company’s e-commerce side.
Seeing as Amazon faces increasing pressure from rivals like Microsoft and Google, investors are likely eager to get a grasp on just how well AWS is performing. And interestingly, GeekWire noted that these other tech giants don’t offer exact financials for their cloud services in earnings reports. Presumably in order to gain a competitive advantage, Amazon slashed prices on several of its cloud services earlier this year. Now it’s time to see if the firm’s intensive efforts are paying off.
AWS logo courtesy of Flickr/Creative Commons (via GBPublic).
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