Amazon and Microsoft, the No. 1 and No. 2 public cloud providers, both reported earnings this week and said their respective cloud businesses again drove overall profits.
On Thursday, Amazon reported that fourth-quarter revenues increased 20 percent year over year to $72.4 billion in 2018. Operating income grew to $3.8 billion in quarter, an 81 percent year-over-year increase. And for the full year, operating income jumped nearly 203 percent, hitting $12.4 billion.
The company’s cloud unit, Amazon Web Services (AWS), saw revenue increase 45 percent, to $7.4 billion in the quarter. AWS’s operating income jumped 61 percent, to $2.18 billion.
But Amazon’s first-quarter guidance disappointed analysts and sent its stock falling more than 4 percent in after-hours trading on Thursday and into Friday. The company forecast first-quarter 2019 revenue of between $56 billion and $60 billion, or between 10 percent and 18 percent growth compared with first quarter of 2018.
And while the company’s cloud sales continue to grow, “it’s worth pointing out that these numbers are a far cry from the torrid 60-precent to 70-percent-plus growth rate the company enjoyed just a couple of years ago,” said Charles King, Pund-IT president and principal analyst. “I’m not disparaging AWS — growing by nearly half year over year is a terrific accomplishment. But as the company and the cloud market continues to mature and competitors keep strengthening their positions, I expect AWS’s sales will continue their slow decline.”
AWS’ top cloud competitor, Microsoft, also reported its quarterly earnings this week. The company said its revenue in its second quarter fiscal 2019 increased 12 percent year over year to $32.5 billion, and operating income hit $10.3 billion, an 18 percent increase. Wall Street, however, expected slightly higher revenue, and this sent Microsoft’s stock falling about 4 percent late Wednesday.
“The company’s earnings call disappointed some due to what was a considered a ‘stall’ by Azure earnings — which grew at the same 76 percent rate that they did last year,” King said. “The real question is whether Microsoft can accelerate Azure sales or if, instead, the company’s cloud revenues have peaked and are entering a cycle similar to AWS’. The answer to that is far from clear but it’s worth noting that a 76 precent growth rate in a multi-billion dollar business would be considered remarkable in most other circumstances.”
Unlike Amazon, Microsoft doesn’t disclose exact revenue for its Azure public cloud. The company did however say its commercial cloud revenue grew 48 percent year over year to $9 billion and Azure revenue increased 76 percent.
The company lumps Azure — along with its hybrid cloud Azure stack and other cloud services, plus its artificial intelligence (AI) and IoT products — into its Intelligence Cloud business unit. Microsoft said that unit’s revenue grew 20 percent to $9.4 billion in the second quarter.
And it forecast its Intelligent Cloud business will bring in revenue between $9.15 billion and $9.35 billion in its third fiscal quarter.
Can Microsoft Catch AWS?
“Within the next five years I don’t envision Azure catching up,” Brent Bracelin, an analyst at KeyBanc Capital Markets, told CNBC. He added that within 10 years Azure could be bigger if AWS is still part of Amazon.