AWS Earnings Preview: Layoffs, Andy Jassy, Margins On Deck
Can Amazon Web Services increase operating margins? Just how much did AWS sales grow in the current economy? Will Amazon’s massive layoff round effect AWS? CRN breaks down the five most important thing to watch during Amazon’s fourth quarter earnings report next week.
Will Amazon CEO Andy Jassy make an appearance during next week’s financial quarterly earnings results amid the largest layoff round ever executed at Amazon?
Is Amazon Web Services on pace to achieving a $100 billion revenue milestone in 2023?
Will AWS’ operating margins continue to decrease?
CRN breaks down the five most important things to watch for next week on Feb. 2 when Amazon reports AWS earnings result for its fourth fiscal quarter 2022 at 4:30 p.m.
AWS And Amazon Earnings
AWS is one of the most strategic assets of Amazon, not only because of its technology innovation, but its profitability helps keep Amazon in the black.
The $80 billion cloud market share leader has also been increasing sales at a much faster rate than its parent company. For example, in third quarter 2022, AWS sales increased 28 percent year over year to $20.5 billion, representing a much higher revenue increase compared with Amazon’s 15 percent growth year on year.
The Seattle-based cloud market share leader is so important to Amazon that the company selected AWS’ former CEO Andy Jassy to take over the reins of Amazon in 2021, replacing longtime CEO Jeff Bezos.
Public Cloud Spending Is Soaring
Worldwide public cloud revenue jumped 21 percent in 2022 to a record $544 billion, according to new data this week from IT market research firm Synergy Research Group.
“Revenues from cloud services are now more than three times those of cloud infrastructure hardware and software revenues, and service growth continues to outpace the infrastructure market,” said John Dinsdale, chief analyst at Synergy Research, in an email to CRN.
Synergy is forecasting that public cloud ecosystem revenues will double in size by 2027, meaning spending on public cloud solutions and services will balloon to well over $1 trillion in the next four years.
Q4 Will Show If AWS Can Break $100 Billion Ceiling This Year
AWS fourth quarter 2022 ran from October to Dec. 31, 2022. This time period was marked by a slew of IT companies announcing layoffs. Many companies blamed the layoffs on hiring too many people over the past few years along with a slowdown in customer spending as they pulled back in the second half of 2022.
At such a turbulent time in the technology industry, it will be interesting to see if AWS was able to keep up with its typical high year over year sales growth.
For AWS’ fourth quarter 2021, sales reached $17.78 billion, an increase of 40 percent year over year.
If AWS witnessed similar growth during its fourth quarter 2022, AWS sales will hit $24.89 billion.
If AWS hits the nearly $25 billion sales mark, it will prove that AWS is clearly on its way of surpassing a historic $100 billion run rate this year.
However, during Amazon’s third quarter 2022 earnings report in October, Amazon CFO Brian Olsavsky said it wasn’t appearing AWS would be growing sales by 40 percent year over year in the fourth quarter.
“Although [AWS] had a 28 percent growth rate for Q3, the back end of the quarter, we were more in the mid-20-percent growth rate. So we’ve carried that forecast through to the fourth quarter,” he said. “We’re not sure how it’s going to play out, but that’s generally our assumption.”
The Effect Of Amazon’s 18,000 Layoffs On AWS
This month, Amazon announced it would be making its most sizable employee cuts in history by terminating 18,000 employees over the coming weeks.
Amazon leaders will most likely address the layoffs in the earnings call next week.
Listeners should keep a keen ear to what exactly Amazon top executives have to say regarding the layoffs in terms of: how it will impact Amazon’s overall profitability moving forward, the likely billions of dollars associated with the layoffs Amazon will need to pay out, including severance costs, as well as any official statement on if AWS will be impacted in any way, shape or form.
In a blog post to employees on Jan. 4, CEO Jassy said during the company’s annual planning process, leaders reviewed workforce levels, investments and prioritized what mattered most to customers for the “long-term health” of Amazon.
“This year’s review has been more difficult given the uncertain economy and that we’ve hired rapidly over the last several years,” said Jassy. “Between the reductions we made in November and the ones we’re sharing today, we plan to eliminate just over 18,000 roles.”
The majority of the cuts will be at Amazon stores and the People, Experience and Technology (PXT) organization which is mainly Amazon’s human resources department.
However, statements by executives regarding the layoff impact on AWS should be discussed during the earnings.
Will Andy Jassy Show Up?
Amazon CEO Andy Jassy has yet to participate in his company’s quarterly earnings financial report since becoming CEO, which includes fielding questions mostly from analysts.
Since Jassy took over the reins in 2021, Amazon’s earnings calls have been led by Brian Olsavsky, chief financial officer, along with Dave Fildes, vice president, investor relations.
However, the 18,000 layoffs that Jassy personally announced in his blog post are the largest cuts ever conducted at Amazon.
It could be very beneficial to both investors and employees for hear Jassy reassure the public that his company is still healthy, especially at a time when many Amazon employees are getting their layoff notices this week and next.
Andy Jassy was the longtime CEO of AWS before taking over the reins at Amazon in 2021. Since the CEO is a fan favorite of AWS, it might also be possible to officially shed light on whether AWS employees will be affected by the 18,000 layoff round.
Or even better, reassure employees, partners and investors that AWS—one of the most valuable assets for Amazon—will not be impacted.
AWS Operating Margins
In its most recent third fiscal quarter 2022, AWS operating margin was 26.3 percent of AWS net sales, down from 30.3 percent operating margins year over year.
Additionally in second quarter 2022, AWS operating margin was 29 percent, approximately 3 percent points higher than third quarter 2022.
It will be interesting to see if AWS’ operating margins can increase or if it will continue to steadily decrease like AWS has been over the past two quarters, after reaching 35.3 percent margins in first quarter 2022.
When asked about the operating margins drop during the third quarter, Amazon CFO said AWS operating margins dropped for various reasons including inflation to wages and higher energy prices for electricity and natural gas.
“We did see a deceleration or a drop in operating margin sequentially quarter over quarter,” said Olsavsky in October. “The broad disclaimer on AWS margins is that they will fluctuate over time as we balance investments versus renegotiating pricing with the long-term customer commitments, all as headwinds to the business, offset by increasing productivity and efficiencies in our data centers which drive profitability.”
Update On Lifting Or Keeping AWS Hiring Pause
CRN learned this month that AWS is currently in a hiring pause across most of the organization made up of tens-of-thousands of employees.
“There is a confirmed pause on hiring for most roles at AWS,” one CEO from a top AWS partner, who declined to be identified, recently told CRN. “And there has been an impact on AWS recruiting teams from this—less resources needed to recruit talent, obviously, if there is a hiring pause.”
AWS has reportedly remained in a hiring freeze since late 2022.
It will be interesting to see if Amazon executives comment specifically on AWS’ hiring freeze on whether AWS is planning to continue the hiring pause during the first few months of 2023 or if profits are good enough to restart hiring at AWS in certain areas.
Although Amazon has around 1.5 million employees, it does not break out how many thousands of employees officially work at AWS.
As of Jan. 25, Amazon Web Services had around 180 open jobs available on its website on a global basis.