UPDATED 17:45 EST / JULY 28 2016

Amazon Web Services logo NEWS

AWS blows past $10B annual run rate as Amazon crushes estimates

Growth of Amazon Web Services revenue slowed in the second quarter, but still grew an impressive 58 percent, indicating that more vigorous competition has failed to put a dent in Amazon’s dominance of the infrastructure-as-a-service market.

AWS pulled in $2.88 billion in revenue in the quarter, putting it on an $11.5 billion annual run rate, easily exceeding the $10 billion target CEO Jeff Bezos set late last year. AWS earnings were $718 million in the quarter with healthy margins of nearly 23 percent. The results helped propel Amazon.com to a record $857 million in net income, or $1.78 per diluted share, on $30.40 billion in revenue. Analysts were expecting earnings of $1.11 per share. Amazon had forecast sales of between $28 billion and $30.5 billion, so its results were at the high end of expectations.

The record profits indicate that Amazon, which has long shunned profits in favor of growth, is finally yielding to pressure to show bottom-line results.

Cloud revenue growth slowed somewhat from the 64 percent rate of the first quarter and 70 percent for all of last year, but Amazon’s cloud business is no so large that maintaining stratospheric growth rates is all but impossible. Analysts polled by The Wall Street Journal expected growth of between 53 percent and 60 percent.

The stock, which rose more than two percent during the day on expectations of strong earnings, added a little more than one percent in after-hours trading. With Amazon’s 303 price/earnings ratio already in nosebleed territory, there seems to be little room for big price moves.

Amazon also reaffirmed earlier guidance for third-quarter net sales of between $31.0 billion and $33.5 billion, reflecting growth of up to 32 percent compared with the third quarter of 2015. The $32.25 billion midpoint between the two estimates is higher than the $31.63 billion analysts’ consensus.

The company recapped several AWS milestones during the quarter:

  •  The service added 422 new significant services in the first half of the year, putting it on track to exceed last year’s total of 722.
  • Salesforce.com Inc. selected AWS as its preferred public cloud infrastructure provider and said it will expand use of AWS to Salesforce’s core services – including Sales Cloud, Service Cloud, App Cloud, Community Cloud and Analytics Cloud and more – for international expansion.
  • AWS announced a managed cloud-based file system called Amazon Elastic File System that makes it easy for customers to create petabyte-scale file systems with gigabytes of throughput that are accessible to multiple Amazon EC2 instances.
  • The Amazon cloud launched in Mumbai, India, its sixth AWS Region in Asia Pacific. AWS now provides 35 availability zones across 13 technology infrastructure regions. Nine new availability zones in four regions are planned for the next year, Amazon said on its earnings call.
  • The new X1 instances for EC2 went live, providing two terabytes of memory, which Amazon said is the most memory available in any cloud instance today from any cloud provider.  The instances are optimized for big data applications.
  • AWS achieved the new FedRAMP high-compliance certification, giving U.S. government agencies the ability to use the AWS Cloud for sensitive workloads like patient records, financial data and law enforcement data.

Amazon Chief Financial Officer Brian Olsavsky said the company is focusing its AWS investments on geographic expansion and high-level applications like Internet of things and machine learning. He said customers choose AWS for a combination of functionality, pace of innovation, partner ecosystem and experience. “We’ve been at this longer than anybody,” he said.

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