Amazon’s Web Services reported $4.10 billion in revenue for the second quarter, a 42 percent year-over-year growth rate, making it a bright spot in Amazon’s less-than-stellar quarterly earnings report.
Despite posting healthy revenue gains and a net income of $197 million on revenue of $38 billion, Amazon missed its second quarter expectations with higher-than-expected operating expenses. The company reported operating expenses increased to $37.33 billion, compared to $29.12 billion a year ago.
The company attributed the rise in expenses to a 42 percent jump in headcount, primarily from hiring more software engineers and sales people to support AWS and its advertising department. Amazon said it needs the additional software engineers because of the accelerating usage of AWS. “Usage of AWS has led us to step up in infrastructure. We increased leases by 71 percent through the end of the second quarter compared to last year,” Amazon CFO Brian Olsavsky said during the quarterly call with investors.
AWS’ run rate increased from $14 billion last quarter to $16 billion, which was its largest sequential and year-over-year dollar rise in revenue.
Olsavsky said that AWS customers migrated 30,000 databases to the cloud in the past 18 months. The company highlighted several key customer wins including Ancestry.com, Hightail, and California Polytechnic State University. The company also said it was opening new regional centers in France, Sweden, and Hong Kong.
While AWS remains the market leader, growth is slowing. The business saw 64 percent growth in the first quarter of 2016, compared to the 42 percent growth it saw this quarter.
Meanwhile competitor Microsoft Azure is reporting strong growth. In Microsoft’s fiscal fourth quarter, which it reported earlier this month, the company reported $7.4 billion in revenue from its “Intelligent Cloud” business, which includes more than just Azure. This was an 11 percent increase from the same quarter in the previous year. Within that business unit, server products and cloud services revenue increased 15 percent, driven by Azure revenue growth of 97 percent, the company said. Microsoft also reported its annual cloud run rate was $18.9 billion.
Alphabet, another cloud competitor, reported that in the second quarter the company’s Google Cloud Platform (GCP) closed a number of new deals worth more than a half million dollars. Alphabet does not break out its cloud revenue so it’s difficult to compare. Nevertheless, the company said it continues to invest in data centers, opening new GCP regions in Virginia, Singapore, Sydney, and London.