Amazon released its earnings report, saw a modest 20% quarter-over-quarter increase to $21 billion from the same period last year. However, perhaps even more concerning is the fact that, during the earnings call with analysts, the company revealed that growth for the first month of the new year dropped even further, reaching the mid-teens, as customers seeking cost reductions continued the general slowdown in the cloud.
“We anticipate that these optimization efforts will continue to be a barrier to AWS growth for at least the next few quarters,” according to our outlook. In his opening remarks to the conference call, CFO Brian Olsavsky stated, “AWS year-over-year revenue growth is in the mid-teens so far in the first month of the year.”
Mid-teens growth represents an extraordinary drop for a division that has enjoyed high growth rates for years, and it was noted during the earnings call. Olsavsky really wasn’t ready to predict anything beyond this quarter, but analysts were certainly curious as to whether it was a longer-term trend.
Therefore, regarding the AWS growth rate, I am unsure whether I can accurately predict what will occur after this quarter. Economically, this is uncharted territory.
It is important to note that Olsavsky also reported a run rate of $85 billion in annual revenue, indicating that AWS is still a very healthy business in spite of the challenges it faces with the economy. However, taking a step back, our pipeline of new customers remains healthy and robust, and many customers are still making preparations to migrate to the cloud and commit to AWS for the long term.
According to Amazon CEO Andy Jassy, who led AWS for a significant portion of his career, there will be a short-term growth deceleration as customers seek to cut costs, but there will still be plenty of cloud market to conquer following the downturn.Therefore, I believe it is also useful to keep in mind that 90 to 95 percent of global IT expenditures remain on-premises. And if you hold that belief, the equation will change.
Maybe, but the current slowdown at AWS has to be troubling for a business that has been the company’s growth engine for a long time.