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Amazon stuns Wall Street with cloud business profits

Aaron Pressman
Matt Weinberger Amazon Web Services boss Andy Jassy at AWS Summit San Francisco 2015 At long last, Amazon has finally revealed numbers for its cloud computing service, Amazon Web Services. $1.57 billion in the first quarter. This was around what most analysts had predicted — about $6 billion per year. It’s also profitable. It earned $265 million this quarter, putting it on track for $1 billion a year in profits. This also gave concrete proof to what nearly everyone in the industry expected: Amazon is, by at least one measure, the biggest cloud computing infrastructure player of them all. IBM wants to dispute that. Last week it told us, when you combine all the things it calls a cloud: on a trailing twelve-month basis its cloud revenue was $7.7 billion. But it also clarified that its the things that it is selling “as-a-Service” is on track to do $3.8 billion. That’s a more apples-to-apples comparison to the kind of cloud that Amazon sells. IBM is well known for selling something called the hybrid cloud, which is when companies buy hardware and software the old-fashioned way, and install it in their data centers but set it up so that it can tap into IBM’s cloud (hosted elsewhere) if they need more storage, or compute power or what-have-you. IBM also does well in “private cloud” which is when companies remodel their data centers with hardware and software to mimic the big internet companies, which are are fast and efficient. Microsoft’s cloud services are at $6.3 billion a year. Microsoft on Thursday also revealed its latest cloud computing numbers — its cloud computing business is on track to pull revenues of $6.3 billion this year. But this also isn’t quite apples to apples. Microsoft includes its software-as-a-service apps, Office 365 and Dynamics CRM (a Salesforce competitor) in its cloud revenue. Its cloud infrastructure service, Azure, competes most directly against AWS. And it’s some smaller portion of that $6.3 billion total. One person has told Business Insider that Azure revenue is at $1 billion lifetime since its debut in 2011, but is accelerating quickly. Google earns about $7 billion a year from all non-advertising businesses. Google is thought to be behind Amazon, Microsoft and IBM in this race (but catching up fast). Google also released earnings this afternoon, and it said that its “Other” segment, which includes all its enterprise apps and its nascent cloud computing business, had revenues of $1.75 billion this quarter, or $7 billion a year. But once again, this includes all businesses at Google outside of advertising, so there’s a lot more than cloud computing in there.  At stake is hundreds of billions of dollars in future revenue as companies stop buying all their own tech and start renting more of it from cloud providers.   Disclosure: Jeff Bezos is an investor in Business Insider through hispersonal investment company Bezos Expeditions. Read more stories on Business Insider, Malaysian edition of the world’s fastest-growing business and technology news website.

Jeff Bezos decided after nine years it was finally time to disclose the financial results of his pioneering cloud business, Amazon Web Services.

And so, along with its first quarter results, Amazon (AMZN) disclosed that the AWS unit had revenue of $1.6 billion, up 50% from last year, and operating income of $265 million, up a more modest 8% amid growing competition from Microsoft (MSFT), Google (GOOGL) and others.

“Amazon Web Services is a $5 billion business and still growing fast — in fact it’s accelerating,” Bezos crowed, referring to the unit's annualized run rate, in a statement accompanying the release.

Amazon shares jumped as much as 7% in volatile trading after the results came out on Thursday afternoon. That comes on top of gains of 26% so far this year, as investors are again excited about growth opportunities for the e-commerce giant.



The stock surge wasn't just about the cloud, however. Amazon also forecast second quarter operating income of as much as $650 million excluding the cost of stock-based compensation. That was much higher than most analysts had been assuming for what is typically a slow quarter for the company. Last year, Amazon reported a loss of $15 million in second quarter operating income.

The forecast ignited hopes that 2015 would be a year when Bezos decided to emphasize profits over investments, a "show me the money" year for investors.

The cloud business disclosure had competitors rushing to compare themselves to the market leader, but with considerably less transparency. IBM (IBM) said its cloud businesses had annual revenue of $7.7 billion, up 75% but the category includes a grab of products and services, some well beyond the basics that Amazon offers.

Microsoft too, lumps its Azure unit that competes head-on with AWS into a grab bag category that includes Office 365 subscriptions and a customer relationship management software offering. It cited an annualized revenue rate of $6.3 billion, with quarterly revenue up 106%.

Neither firm revealed operating income, expenses or margin, as Amazon did.

Most analysts were close to the $5 billion revenue figure in their guesses but virtually none expected to see profits. Cloud is viewed as a cut throat-market dominated by frequent cost cutting. But AWS hasn't cut prices in months, and competition may be shifting to other critical factors like reliability and software features.

Overall, Amazon reported first quarter revenue of $22.7 billion, up 15% from last year and ahead of analysts' estimates of $22.4 billion according to FactSet. Revenue would have increased 22% if not for the strength of the U.S. dollar against other currencies, Amazon said. The company lost $57 million, or 12 cents per share in the quarter, also better than the 14 cent loss analysts expected.