Remember the days when people believed that Amazon Web Services was a loss leader for the rest of the company?
That notion started to fade last year when Amazon (AMZN) started breaking out the financial results of its cloud unit. And now that misconception has pretty much blown away, as AWS sales rose nearly 64% to $2.566 billion for its first quarter 2016, compared to $1.566 billion for the same period last year. Profit soared nearly 128% to $604 million from $265 million for the comparable quarter in 2015. And before factoring in the cost of stock option compensation—which Amazon is doing now for the first time—the profit figure this quarter would be $716 million.
On the earnings call, Amazon chief financial officer Brian Olsavsky said gross profit margin on AWS for the quarter stood at a healthy 23.5%, even counting stock-based compensation. But he also cautioned analysts that margins will remain “bumpy over time” as Amazon cuts prices, adds new features, and invests in more data centers to run cloud services in more regions. Five new data center regions are slated to come online this year, and data centers are pricey.
Amazon, which launched its first cloud product—the simple storage service or S3—just over ten years ago, pioneered the public cloud market by pooling together a ton of resources that customers could then rent out.
How Amazon Took Over the Cloud
For several years, it had the field to itself, but over the past few, Microsoft (MSFT) jumped into the pool with Azure, Google (GOOG) made a splash with Google Cloud Platform, IBM (IBM) joined in with SoftLayer, and so on. But none of those contenders appear to have made a dent in Amazon’s business as yet.
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That may be because AWS is a juggernaut but also because cloud usage in general is growing fast enough to float everyone’s boat, according to Gartner (IT) analyst David Smith. He said Amazon remains the number one provider by far, followed by Microsoft. The number three spot is up for grabs.