While Amazon's cloud business was only 11% of its overall sales last year, it delivered more operating income than all other business units combined.

Mitch Wagner, Executive Editor, Light Reading

January 31, 2019

3 Min Read
AWS Drives More Than Half of Amazon's Operating Income

For Amazon, the cloud is the little engine that could. Amazon Web Services comprised just 11% of the company's overall sales in 2018, but delivered more operating income than all other business units combined.

In financial results delivered Thursday, Amazon Web Services Inc. drove $7.43 billion sales for the quarter ending December 31, up 45% from $5.11 billion year-over-year. (See Amazon Reports Q4 Sales Up 20% to $72.4B.)

That's the same year-over-year growth rate (Q4 2018 over Q4 2017) for AWS that it saw in the year-ago quarter (Q4 2017 over Q4 2016).

Operating income for AWS was $2.17 billion, up from $1.35 billion in the year-ago quarter.

For calendar 2018, AWS sales were $25.65 billion, up 47% from $17.45 billion year-over-year. Sales growth accelerated in 2018 over 2017 compared with 2017 over 2016, which saw 43% sales growth.

Figure 1: Amazon is cleaning up in the cloud, much as the author's cat cleans itself in this Amazon box. Amazon is cleaning up in the cloud, much as the author's cat cleans itself in this Amazon box.

For AWS's sales growth to accelerate in that fashion is noteworthy because AWS is by far the leader in cloud market share, ahead of second-ranked Microsoft Corp. (Nasdaq: MSFT) by a wide margin; accelerating growth speaks to overall strength for AWS and the cloud market in general.

Operating income for AWS was $7.29 billion in 2018, up from $4.31 billion in 2017.

AWS represents a growing share of Amazon.com Inc. (Nasdaq: AMZN)'s overall revenue (by a smidge) -- 11% in 2018 compared with 10% in the previous year, and 10% in the fourth quarter of 2018, compared with 8% in the year-ago quarter.

And AWS is the lion's share of Amazon's operating income: Nearly 58% in the fourth quarter of 2018, and nearly 59% for the full year.

For Amazon overall, including its mainstay retail business, for the quarter, sales were up 20% to $72.4 billion after a strong holiday season. Net income increased to $3 billion in the fourth quarter, or $6.04 per diluted share, compared with $1.9 billion or $3.75 per diluted share in the year-ago quarter.

For the full year, net sales were up 31% to $232.9 billion. Net income increased to $10.1 billion, or $20.14 per diluted share, compared with $3 billion or $6.15 per diluted share in 2017.

The Echo Dot was the best-selling item across all products on Amazon globally, Amazon CEO Jeff Bezos said in its earnings press release. "Alexa was very busy during her holiday season," he said.

For the first quarter of 2019, Amazon anticipates net sales of $56 billion to $60 billion, up 10-18% year over year. Operating income is expected to be $2.3 billion to $3.3 billion, compared with $1.9 billion in the first quarter of 2018.

Amazon stock traded at $1,634 after hours, down 4.93%.

Amazon is the second major US cloud provider to report quarterly earnings this month. Microsoft reported that Azure revenues rose 76% Wednesday -- not an apples-to-apples comparison with AWS, as Microsoft breaks out its cloud finances in multiple pieces and reports those pieces mixed in with other business units. (See Microsoft Azure Revenues Climb 76%.)

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About the Author(s)

Mitch Wagner

Executive Editor, Light Reading

San Diego-based Mitch Wagner is many things. As well as being "our guy" on the West Coast (of the US, not Scotland, or anywhere else with indifferent meteorological conditions), he's a husband (to his wife), dissatisfied Democrat, American (so he could be President some day), nonobservant Jew, and science fiction fan. Not necessarily in that order.

He's also one half of a special duo, along with Minnie, who is the co-habitor of the West Coast Bureau and Light Reading's primary chewer of sticks, though she is not the only one on the team who regularly munches on bark.

Wagner, whose previous positions include Editor-in-Chief at Internet Evolution and Executive Editor at InformationWeek, will be responsible for tracking and reporting on developments in Silicon Valley and other US West Coast hotspots of communications technology innovation.

Beats: Software-defined networking (SDN), network functions virtualization (NFV), IP networking, and colored foods (such as 'green rice').

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