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AWS Growth Slows Slightly, But Profits Ramp With Data Center Efficiencies

Amazon's cloud division delivers more than half the e-commerce giant's profits in Q3 as margins climb to new highs.

Even as growth slowed slightly for Amazon Web Services in the third fiscal quarter, Amazon's cloud division became more profitable than ever due to more-efficient data center operations, according to Amazon's CFO.

Brian Olsavsky told investors in an earnings call Thursday they shouldn't read much into the down-tick in revenue expansion for AWS after three sequential quarters of year-over-year acceleration.

"This growth rate is going to bounce around," Olsavsky said. And 46 percent year-over-year growth for AWS, resulting in $6.68 billion in revenue for the quarter ended Sept. 30, is "still very strong."

[Related: Amazon CFO: AWS Sees Rapid Growth Due To 'Pace Of Innovation']

On those cloud sales, Amazon netted more than $2 billion in profit.

AWS grew by 49 percent in the previous sequential quarter. But in Q3, AWS margins were up several points from Q2 to roughly 32 percent, delivering more than half the Internet giant's total operating income.

Those escalating margins resulted from "a good year for gaining greater efficiencies from our infrastructure costs," he said. Amazon is always looking to take costs out of operating its data centers for AWS and the larger e-commerce business that sits on top of it.

Olsavsky encouraged investors to look at the cloud division's annualized run-rate, which has now surpassed $26 billion. That figure was roughly $18 billion after the third quarter of 2017.

Amazon remains happy with the growth it's seeing in AWS, he reiterated, which is driven by momentum in signing enterprise customers.

Amazon's overall business grew by 29 percent to $56.6 billion in Q3, with $3.7 billion in profit.

That came as a disappointment to Wall Street, which was expecting $57.1 billion in revenue.

With guidance offered between $66.5 billion and $72.5 billion also lower than consensus expectations, the stock sank in after-hours trading.

Amazon closed Thursday at $1,782.17, but fell to $1,645.56 at publication time, a loss of almost 8 percent that wiped out slight gains made over the day.

Amazon did deliver earnings per share of $5.75 that surpassed consensus estimates of $3.08.

Dave Fildes, Amazon's director of investor relations, said the company's pricing philosophy as far as AWS is to "work relentlessly" to reduce costs, then pass those savings to customers in the form of lower rates for its cloud services.

It’s the same approach Amazon pursues aggressively across all its businesses, he said.

AWS has lowered prices 67 times since it launched, including a few decreases in the last few months, Fildes said.

That's a "normal part of our business for us."

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