Amazon’s cloud growth gains steam as earnings bounce back

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Amazon reported accelerating sales growth in its cloud division and a healthy outlook for the start of the year, as earnings came in ahead of Wall Street’s expectations.

Sales at Amazon’s closely watched cloud computing division AWS, a key profit driver for the business, rose 13 per cent to $24.2bn in the three months to December.

Growth had been slowing at the cloud division, as some of the biggest customers began looking for ways to cut costs. Despite the increase, AWS sales growth remains far below the 40 per cent reported at the end of 2021.

Amazon shares, which are up about 50 per cent in the past 12 months, rose as much as 5 per cent after the earnings report.

The Seattle-based company reported a rebound in pre-tax earnings, which climbed to $13.2bn compared with $2.7bn in the same period in 2022, well ahead of analysts’ expectations for $10.4bn. Overall, Amazon’s revenue rose 14 per cent to $170bn, ahead of analysts’ forecasts for $166.3bn.

Looking ahead to the first quarter of 2024, Amazon said it expected revenues of between $138bn-$143.5bn and pre-tax earnings of between $8bn-$12bn, broadly in line with analysts’ forecasts.

Amazon’s North American business, which includes its online store, swung back to an operating profit from losses a year ago. The segment’s improving margins have been helped by efforts to cut costs, a reorganisation of its vast US logistics network and resilient consumer spending during the busy holiday season.

“This Q4 was a record-breaking holiday shopping season and closed out a robust 2023 for Amazon,” said chief executive Andy Jassy.

The company has sought to maximise the logistics network it built out during the pandemic — for example by rolling out its Buy with Prime service that allows merchants selling on other platforms to utilise its delivery service.

Amazon has also been expanding its high-margin advertising business, including by introducing ads to its Prime Video streaming service. Advertising revenue growth accelerated to 26 per cent during the final quarter of 2023, stripping out the impact of currency moves.

Analysts have been looking for signs in Big Tech earnings this week that huge investments into generative artificial intelligence will translate into higher sales and profits, and whether the technology will accelerate cloud growth at rivals Microsoft and Google.

One key area of focus is how Amazon compares to early-mover Microsoft, which has captured much of the excitement around the technology. “Amazon remains an obvious number two in generative AI,” Deutsche Bank analysts said in January.

Amazon rolled out a rival to Microsoft’s generative AI assistant last year alongside a suite of AI services and hardware, and on Thursday unveiled a new AI shopping assistant that will answer customer questions and make recommendations.

Microsoft, the number two cloud-computing provider, this week said demand for AI services had boosted its Azure cloud platform revenues in the latest quarter more so than it had done during the prior three months. But forecasts for continued AI-driven cloud growth had failed to impress Wall Street.

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