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Amazon (AMZN) Q4 Earnings to Benefit From Cloud Dominance

Zacks Equity Research

Amazon’s AMZN fourth-quarter 2018 results, set to be released on Jan 31, are expected to benefit from the dominance of Amazon Web Services (AWS) in the cloud computing space.

AWS accounted for 11.6% of Amazon’s net sales in the last reported quarter. The service is benefiting from rapid adoption rate and popularity. Amazon’s strategy to offer significant discounts for long-term deals is helping it win new customers.

Moreover, AWS generates significantly higher margins compared to the traditional retail business, which contributes significantly to Amazon’s profits.

Click here to know how Amazon’s overall fourth-quarter performance is likely to be.

AWS Dominates Cloud Market

Per Synergy Research report, AWS gained 1% market share over the trailing four quarters. AWS continues to dominate the market with 34% market share despite increasing competition from Microsoft MSFT, Alphabet’s GOOGL Google Cloud and Alibaba’s BABA cloud platform. Collectively, these four cloud providers grabbed market share from small-to-medium sized cloud operators.

Moreover, AWS is the dominant leader in the public Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) markets across North America, Europe, Middle East & Africa (EMEA), Asia-Pacific (APAC) and Latin America. Per Synergy research, AWS alone accounts for 40% of the market.

Amazon.com, Inc. Revenue (TTM)

Amazon.com, Inc. Revenue (TTM) | Amazon.com, Inc. Quote


In the last reported quarter, AWS net sales totaled $6.68 billion, up 45.7% from the year-ago quarter. Further, AWS operating income soared 72.6% year over year to $2.02 billion.

New Services Driving Customer Base

Amazon’s continuous efforts to launch new services, open more datacenters globally and lower prices provide it with a competitive advantage. Further, high performance rate and rapid deployability has made AWS’ tools desirable for small businesses and enterprises.

Notably, in the to-be-reported quarter, Amazon introduced VMware Cloud on its AWS Asia Pacific (Sydney) Region. The company also rolled out AWS GovCloud (US-East) Region, its second isolated infrastructure region for government agencies. Amazon also launched AWS Europe Region (Stockholm) that joined the existing regions in France, Germany, Ireland and the U.K.

Further, the company unveiled a robotic development service called AWS RoboMaker that was adopted by companies like Stanley Black & Decker, Robot Care System, Open Robotics and FIRST.

AWS’ expanding footprint and new services are helping it win customers. Financial institutions and banks like National Australia Bank, Open Bank, S.A., The Guardian Life Insurance Company of America, Amgen, Korean Air Lines, Mobileye, Ellie Mae and Pac-12 Conference have selected AWS for running the majority of their workloads and infrastructure.

Consequently, all these are likely to drive AWS revenues in the to-be-reported quarter. The Zacks Consensus Estimate for AWS revenues is pegged at $7.31 billion.

Currently, Amazon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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