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Amazon Stuns Wall Street As Cloud Sales Soar In Q3

Cloud services continue to be a boon as AWS margins rose to 25 percent, helping Amazon beat expectations and turn a profit in the third quarter.

Amazon's cloud dominance can't be stopped.

The e-commerce powerhouse had a high-flying quarter, and once again its market-dominating public cloud juggernaut, Amazon Web Services, was a standout in the company's financial results.

AWS brought in $2.09 billion in revenue in the third quarter, a 15 percent uptick from the second quarter and 78 percent above the same quarter of the prior year when it brought in $1.17 billion in sales.

AWS also became more profitable in the third quarter of 2015, with margins expanding from the previous quarter's 21.4 percent to 25 percent, according to Amazon CFO Brian Olsavsky.

On the strength of AWS, Amazon blew away financial analysts' expectations by 30 cents, bringing in a profit of $79 million, or 17 cents per share, for the third quarter, ended September 30, compared to loss of $437 million, or a loss of 95 cents per share, in the same quarter a year ago. Amazon's ability to turn a profit for the quarter when Wall Street had projected it would be in the red (predicting a loss of 13 cents per share, according to Thomson Reuters) sent shares up more than 10 percent after the close of the market.

[Related: AWS Once Again The Star Of Amazon Earnings Call]

Olsavsky credited the sustained AWS growth to innovation in the cloud platform, which he said has been enhanced with 530 significant new features during the year.

"We enjoy leading this business," Olsavsky said. "Customers responded well. We believe we're adding new services and features at a rate faster than any others."

Those new features, independent of price cuts, enable AWS customers to lower the cost of their infrastructure. AWS has also dropped prices eight times since a large reduction in April 2014 received much public attention, Olsavsky added.

Olsavsky and Phil Hardin, Amazon's director of investor relations, pivoted away from investor inquiries about the sustainability of AWS' current margin levels and what margins might look like in the future.

In response to that question from a financial analyst, Hardin only said, "This is a young and rapidly growing business," one in which growth rates, margins, and capital expenditures "can be lumpy."


That lumpiness is especially evident when bringing new data center regions on line, which the world's largest cloud is doing now in several parts of the world, adding the servers it needs to keep pace with demand, according to Hardin.

AWS is concerned only with long-term results, he said, and tends to look past short-term financial fluctuations.

"The team's focused on just keeping their heads down and continuing to accelerate the pace of innovation, grow the functionality gap we offer," Hardin told investors.

Amazon emphasized a number of milestones its cloud reached over the last year, many of which were publicized or unveiled at the recent AWS re:Invent conference that drew 19,000 attendees to Las Vegas.

Those include the Aurora database having become the fastest growing service in its history, a new AWS Business Group within global consulting powerhouse Accenture, and many new technical features, including a comprehensive Internet-of-Things platform.

PUBLISHED OCT. 22, 2015

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