AWS Cloud Operation Drives Almost Half Amazon’s Bottom Line

By Douglas A. McIntyre Updated Jan 12, 3:49AM EST · Published Feb 2, 6:55AM EST

Investors have worried for years that Amazon.com Inc. (NASDAQ: AMZN) posts strong revenue growth but a weak bottom line. Founder and CEO Jeff Bezos introduces product after product to drive new sales and customer loyalty. These often are costly and cut into operating income. In the most recent quarter, Bezos showed Amazon can post strong margins. However, a large share of the bottom line was not driven by the company’s traditional e-commerce business. It was due to its cloud business, Amazon Web Services (AWS).

Amazon posted total sales in the final quarter of 2017 that hit $60.5 billion, up 38% from the same quarter a year ago. Operating income of $2.1 billion was up 69% over the 2016 quarter.

Amazon’s international business was a loser. It lost $919 million, on revenue of $18 billion. The top line was higher by 29% in the fourth quarter, but the loss grew from $487 million in the same period a year ago.

Amazon’s North American operations posted revenue of $37.3 billion, up 42%. Operating income rose 107% to $1.7 billion. Clearly, Bezos did not give away the store to post strong holiday sales in its home market.

AWS had substantial margins and substantial growth. Its revenue rose 45% to $5.1 billion. Operating income rose 46% to $1.4 billion, very close to Amazon’s North American bottom line, but on only 14% of North American revenue.

Bezos repeatedly has said that AWS eventually will be larger than Amazon’s e-commerce revenue. That forecast is possible. Cloud computing has become among the largest segments of the tech industry, and it has been essential to the growth of other companies, particularly Microsoft and struggling IBM.

Amazon announced over a dozen new AWS products and listed a slate of impressive new customers:

Amazon Web Services (AWS) announced several enterprise customers during the quarter: Expedia, Ellucian, and DigitalGlobe are going all-in on AWS; The Walt Disney Company and Turner named AWS their preferred public cloud provider; Symantec will leverage AWS as its strategic infrastructure provider for the vast majority of its cloud workloads; Expedia, Intuit, the National Football League (NFL), Capital One, DigitalGlobe, and Cerner announced they’ve chosen AWS for machine learning and artificial intelligence; and Bristol-Myers Squibb, Honeywell, Experian, FICO, Insitu, LexisNexis, Sysco, Discovery Communications, Dow Jones, and Ubisoft kicked off major new moves to AWS.

Going forward, it is likely that AWS could be close to the majority of Amazon’s operating income. And Bezos’s vision for the business may very well turn out to be right.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.