When Amazon.com Inc. reports its first-quarter earnings on Apr. 28, investors will be looking beyond how many books and diapers the retailer sold. They may be just as interested in a business that has been making waves throughout the technology industry: Amazon Web Services.

Lately the retailer’s cloud business, which provides computing and storage services to the likes of Netflix Inc., General Electric Co. and countless startups, has been a key driver for the company’s growth. AWS posted $7.9 billion in revenues last year, up 70 percent from 2014, a growth rate four times the retail operation’s. And revenues will grow to $12 billion this year and $16 billion in 2017, according to Morgan Stanley estimates.

Even more important, AWS is Amazon’s new profit engine. The unit’s $1.9 billion in operating profit in 2015 wasn’t far off the $2.8 billion operating profit of the entire $99 billion retail business even though AWS constitutes only 7 percent of Amazon’s overall revenues.

All that is why, especially in the customarily slower post-holiday first quarter that Amazon will report on Apr. 28, AWS’s tail could end up wagging the retail dog. Several analysts expect AWS to post $2.6 billion in revenues, up 65 percent from a year ago. Amazon’s expected to earn 58 cents a share, from a 12-cent loss a year ago, on just under $28 billion in revenues, up 23 percent from a year ago.

Massive investment

Even as web services profits and revenues gain more attention, they also reflect the importance of Amazon’s technical infrastructure to the rest of the company’s business. Amazon accounts for more than half of all the growth in e-commerce, and nearly a quarter of the overall growth in all of retail, including bricks-and-mortar stores. But the reason for that growing dominance isn’t just that Amazon stocks just about anything you want to buy, or that it has the distribution centers and delivery infrastructure to get stuff to customers within a few days (or a couple of hours).

At least as much, Amazon’s success is the result of its massive investment in data centers, analytics, and other back-room technologies–which were the genesis of AWS more than a decade ago. And AWS’s results may have yet another outsized impact on Amazon. Robert Peck, an analyst with the investment bank SunTrust Robinson Humphrey, said in an Apr. 4 report that based on AWS’s growth and gross profit margins of up to 55 percent, the unit is worth more than $100 billion. That’s more than a third of Amazon’s $295 billion overall valuation.

At that heady level, suddenly AWS is starting get the attention of investors, even those who aren’t sure what it’s all about. In fact, in his April report, Peck noted that one of the most common questions of investors is “What exactly is ‘cloud’?”

Amazon itself recently tried to provide at least a frame for an answer when it recently elevated AWS chief Andy Jassy (pictured) to the title of CEO of the unit. Amazon Chief Executive Jeff Bezos implied in a recent letter to shareholders that the company aims to extend AWS services to offer ways to run “just about every type of application or IT use case imaginable.” Jassy’s new title “sends a strong message to the market and customers about the importance that Amazon places in AWS,” said Brian Gracely, an analyst with Wikibon, which is owned by the same company as SiliconANGLE.

New competition

The increased attention on AWS also comes at a time when it increasingly has some sharp-elbowed company from other companies providing cloud services, such as Microsoft, IBM and Google, which held a high-profile cloud conference featuring the first public appearance of cloud and enterprise Senior Vice President Diane Greene, appointed last year. And traditional IT companies such as Hewlett-Packard Enterprise are starting to offer similar cloud services inside customers’ premises. All the new competition could start to challenge AWS’s so far unchallenged growth.

One analyst at Credit Suisse said recently that AWS’s growth is about to slow for the first time since early 2014. It’s not clear whether that’s because of the mostly still distant competition or the inevitability of a slowing as AWS approaches $10 billion in revenues. But some companies are moving from Amazon to rivals.

Social sharing widget and data company ShareThis Inc., for instance, is in the process of moving all its storage and analytics from AWS to Google’s cloud partly because it’s easier to manage. Also, said Isaac Mosquera, ShareThis’ vice president of data, engineering and insights, “We found them more economical than AWS.”

Amazon remains at least three years ahead of rivals, by Deutsche Bank’s reckoning, and its shares have risen 15 percent since getting hit during Google’s cloud conference last month. But it will need to continue spending a lot on engineers and data centers to stay ahead. On Thursday, investors will decide whether the results are worth the expense.

Photo by SiliconANGLE