Revenue growth at Amazon’s cloud computing division, Amazon Web Services (AWS), continued to slow in the fourth quarter as enterprises advanced their cost-cutting measures, brought on by uncertain macroeconomic environment.
Despite a 20 per cent year-on-year increase in revenue, reaching US$21.4 billion in Q4 2022, this growth rate is slower compared to the 27.5 per cent and 33 per cent growth seen in Q3 and Q2, respectively.
“Starting back in the middle of the third quarter of 2022, we saw our year-over-year growth rates slow as enterprises of all sizes evaluated ways to optimise their cloud spending in response to the tough macroeconomic conditions,” Brian Olsavsky, CFO at Amazon, said during an earnings call with analysts. “As expected, these optimisation efforts continued into the fourth quarter,” Olsavsky added.
Enterprises’ cost optimisation to persist for next two quarters
AWS expects the slowdown in customer spending to persist for at least the first half of fiscal year 2023, spanning the next two quarters.
“As we look ahead, we expect these optimisation efforts (reduced spending) will continue to be a headwind to AWS growth in at least the next couple of quarters,” Olsavsky said. In January, AWS revenue growth was in the mid-teens, the CFO added.
The slowdown in spending, according to Olsavsky, is impacting all industries with financial services, cryptocurrency and advertising being particularly sluggish.
“…as there’s lower advertising spend, there’s less analytics and compute on advertising spend as well,” Olsavsky said, according to a Motley Fool transcript. Amazon CEO Andy Jassy added that enterprises are seeking to lower their short-term AWS bills by performing certain tasks less frequently.
Both, Jassy and Olsavsky stated that AWS was working with customers to lower costs in the short term through solutions such as switching to lower-cost products or offering different types of storage for different data types.
Cloud computing industry faces the heat
Microsoft and Google, which compete with AWS for cloud computing market share, have reported similar reduction in customer spending, impacting growth in their respective cloud businesses.
Microsoft, which reported Q4 earnings last month, saw its Azure and other cloud services revenue growth slow to 31 per cent from 35 per cent in the previous sequential quarter. Note that Microsoft does not separately report Azure revenue.
Google’s cloud revenue growth also slowed to 32 per cent for Q4, down from 38 per cent in the previous sequential quarter. In Q4, Google Cloud reported revenue of US$7.3 billion and an operating loss of US$480 million.