Macroeconomic jitters further slow AWS growth in Q3

Macroeconomic conditions led by the pandemic and the geopolitical crisis in Ukraine have further slowed down growth of Amazon’s cloud computing unit, Amazon Web Services (AWS), in the third quarter of 2022.

Amazon on Thursday said AWS had raked in revenue of $20.5 billion for the quarter ended September 30, up 27.5% year-on-year.

However, revenue for AWS grew at 33% year-on-year at 19.74 billion in the previous quarter (ended June 30). For the quarter before that, revenue grew 36.5%.

The steady decline in growth can be attributed to macroeconomic conditions, due to which the company is seeing slowdown in customer expenditure, company executives said during an earnings call.

“We do see some of the consumers are cutting their budgets and trying to save money in the short run. I would say that although we had a 28% growth rate for the quarter for AWS, the back end of the quarter, we were more in the mid-20% growth rate. So, we’ve carried that forecast through to the fourth quarter,” CFO Brian Olsavsky said, according to a Motley Fool transcript.

Other factors affecting AWS growth, according to Olsavsky, were inflation in employee salaries due to stock-based compensation and rising energy costs alongside continued investments in its data centers.

“We’re also seeing energy costs that are materially higher than they had in pre-pandemic, electricity and the impact of natural gas pricing. So, we’re fighting through some of that as well, which is a new thing for the AWS business. But we’ll continue to look for ways to optimize our operations to use less energy,” the CFO said during the earnings call.

To continue its revenue momentum, AWS said it was working closely with customers to lower their costs or spend.

“When I talk about enterprise customers in AWS, yes, we’ve been working with customers to lower their bills. Just like all companies, they want to lower their spend when they’re faced with uncertainty in the market,” Olsavsky said while responding to a question on customer behavior.

During the quarter, rivals Microsoft and Google have increased their cloud revenue by 36% and 38% respectively.  

AWS, which still leads the infrastructure-as-a-service (iPaaS) space, also has been gradually losing ground to these rivals, according to a report from market research firm Gartner.

At the end of 2021, AWS retained 38.9% share of the market against 40.8% dominance in 2020, Gartner said.

Microsoft had increased its market share by 1.4% market share to control 21.1% of the entire iPaaS portfolio, the report showed.

Google had also gained a percentage point in market dominance in 2021 to control 7.1% of the market.