Despite higher-than-expected cloud computing revenue growth, Amazon.com Inc. saw its shares fall about 7% in after-hours trading on a second-quarter revenue shortfall and lower-than-expected guidance for the current quarter.

For much of the past year, the pandemic helped Amazon.com Inc. reach new heights as more people shopped online and more businesses flocked to the cloud, and not even the easing of pandemic restrictions seemed to slow it down.

But that pandemic boost appears to be over now, even as the Delta variant threatens to send more people into relative isolation once again. The retail and cloud giant said today that its second-quarter profit jumped 50% from a year ago, to $7.8 billion, or $15.12 a share. Revenue rose 27%, to $113.1 billion, though without the benefit of positive currency exchange rates, growth was 24%.

Amazon had forecast revenue of $110 billion to $116 billion for the June-ending quarter, but analysts on average had predicted revenue of $115.4 billion, so the company fell short there. Still, Amazon’s profit easily beat the consensus $12.28 a share.

Amazon Web Services Inc., the company’s cloud computing unit, saw revenue rise 37%, to $14.8 billion, beating the $14.2 billion analysts had reckoned. As usual, its profit was the star, as the unit earned $4.2 billion in operating profit, up 25% from a year ago. That’s more than half of Amazon’s overall profit even though AWS represents less than 10% of its revenue.

The results are the first to be announced under new Chief Executive Andy Jassy (pictured), previously CEO of AWS, who took over July 5.

In prepared remarks, Jassy called out the efforts of Amazon’s consumer business during the pandemic, as well as those of the cloud unit he headed. “AWS has helped so many businesses and governments maintain business continuity, and we’ve seen AWS growth reaccelerate as more companies bring forward plans to transform their businesses and move to the cloud,” he said.

Amazon’s shares fell about 7% in after-hours trading. In regular trading today, its stock had fallen slightly under a percentage point, to $3,599.92 a share, on a mildly up day for the overall market. Amazon’s stock has risen about 12% year-to-date.

Investors also didn’t like Amazon’s newly issued outlook for its third quarter. It said it expects net sales to rise between 10% and 16%, to a range of $106 billion to $112 billion, which includes a favorable foreign-exchange impact of about 0.7%. Operating income is forecast to fall from the $6.2 billion it earned a year ago to between $2.5 billion and $6 billion, including the impact of about $1 billion in costs related to COVID-19.

In comments on an analyst conference call, Brian Olsavsky offered some color on revenue trends, noting that as Amazon hired hundreds of thousands of new employees last year, it caught up to demand and revenue growth rose to the 35% to 40% range. “In Q2 we began to comp this growth rate,” he said. “Year-over-year growth rate has dropped into mid-teens by mid-May.” However, he said Amazon’s two-year compound annual growth rate going forward would generally be in the range of 25% to 30%.

In the cloud

Amazon remains a formidable force in a broad swath of consumer goods and services as well as business services from cloud computing to its massive marketplace for other sellers. But as Jassy’s elevation partly indicates, AWS remains a big focus despite its still relatively small size compared with the rest of Amazon.

Although AWS remains far in the lead in cloud infrastructure services, Microsoft Corp. and Google LLC have been picking up the pace and likely growing faster. Direct comparisons are difficult because those two companies include revenue from software as a service such as Office 365 and Gmail. But Microsoft and Google both issued earnings results this week that showed more rapid growth in cloud revenue, in the 50% year-over-year range, than AWS.

“While Amazon is slowing down due to traditional retail being open and available, AWS is gaining steam, accelerating growth,” said Constellation Research Inc. analyst Holger Mueller. “This is remarkable, as slowing growth rates are typical for market leaders and have been the character for AWS growth in the last years. Overall, Amazon can take a slowdown while AWS is growing, as AWS is the key contributor to Amazon profit, and we know that is the mother’s milk of all growth.

Martin Garner, chief operating officer at CCS Insight, attributed the acceleration in AWS revenue to several factors. “During the pandemic many of AWS customers deliberately limited their spend and some of this is now coming back,” he said. “Some, like airlines, saw their business very hard hit, but are now recovering. Others accelerated their digital transformation and are spending more.”

AWS’ operating margin did dip back to 28%, he noted. “This was because of costs associated with expansion, price decreases, discounts on new deals and a foreign currency hit,” he said. “Amazon said that its investments in the area are lumpy and it expects the margin to fluctuate as AWS continues to grow.”

Subscription services, including Amazon Prime memberships and digital video, music and books, thrived in the quarter rising 28% in constant currency, to $7.9 billion. Advertising, which has become something of a juggernaut lately, also appeared to do well. Although Amazon doesn’t break it out specifically, it’s thought to be the bulk of “other” revenue, and that segment jumped 83% in constant currency, to $7.9 billion.

Amazon will face other challenges in coming quarters as well. Like other big tech companies such as Google and Facebook Inc., Amazon faces a number of regulatory obstacles. The Federal Trade Commission is looking into its alleged use of outside seller data to make its own Amazon Basics-branded goods, and it’s also reviewing its proposed $8.45 billion purchase of Hollywood studio MGM.

Even those could pale next to whatever new FTC Chair Lina Khan might do. The Amazon critic, a former antitrust professor at Columbia Law School, had published a piece for the Yale Law Journal entitled “Amazon’s Antitrust Paradox,” proposing changes in the antitrust regulatory framework. Amazon has called on Khan to recuse herself from antitrust cases as a result, though Khan herself recently appeared to throw cold water on that request.

Photo: Robert Hof/SiliconANGLE