Amazon Web Services saw its revenue in its second quarter increase 42 percent year-over-year to $4.1 billion, generating $916 million in operating income.
But that revenue growth saw its eighth consecutive quarterly decline as investments increased, prices were cut, and competitors made gains. Amazon as a whole, meanwhile, saw revenue of $38bn, 25 percent above that of the year before - but shares in the company fell as it posted a 77 percent drop in quarterly income to $197m.
Amazon.com CFO, Brian Olsavsky, said in an earnings call that AWS now had a current revenue run-rate (annual revenue extrapolated from a shorter period of time) of $16bn.
“AWS stepped up its run rate from a $14bn run rate last quarter to $16bn. So we saw the largest quarter-over-quarter and year-over-year increase in revenue in that business as well. And gross margin expanded 130 basis points.”
Olsavsky also explained why AWS’ operating margin had fallen (transcribed by Seeking Alpha): “Those margins, as we say frequently, are going to fluctuate quarter-to-quarter and always going to be a net of investments, price reductions and cost efficiencies that we drive. So I would say the biggest impact in the margin that you’re seeing in Q2 is really around the 71 percent increase in assets acquired under capital leases.
“Most of that is for the AWS business. So we’ve really stepped up the infrastructure to match the large usage growth and also the geographic expansion. And that is showing up in tech and content. On the marketing, if you look under the marketing expenses, they are also up, and that is driven by the increases we’re seeing in the sales team both in AWS and advertising. So I would point to those two as probably larger than normal impacts on Q2 operating margin.”
Spending grew across the Amazon business empire, with the company doubling down on video content and hires to speed up delivery times across the world.
Amazon warned that it plans to increase spending further in the current third quarter, with the company expecting to make somewhere between a profit of $300m and a loss of $400m.