The Amazon Web Services (AWS) business that Amazon CEO Andy Jassy (AMZN) used to run is starting to catch wind as the economy declines and competition from Microsoft and others in the cloud.
Despite growing 29% year-on-year (“YoY”) in 2022 at $62 billion [billion] revenue base, AWS is facing short-term headwinds right now as companies are becoming more cautious in spending given the current challenging macroeconomic conditions,” Jassy acknowledged in Second annual shareholder letter Thursday.
Jassy, who took over the CEO mantle from billionaire founder Jeff Bezos in July 2021, also deals with Layoffs and generally slower growth elsewhere.
“While these short-term headwinds dampen our growth rate, we like a lot of the fundamentals we see in AWS,” Jassy added in the letter to shareholders. “Our new customer pipeline is strong, as are our active migrations.”
Stabilizing the AWS business is a critical task in the minds of Wall Street.
“Slowing cloud demand remains a key concern as the business shifts its focus from accelerating cloud migration to optimizing cloud costs,” said the Jefferies analyst. Brent Teal wrote in a client note earlier this week. “AWS estimates continue to contract, with consensus implying year-over-year growth declines in Q2 2013. With AWS comprising the vast majority of Amazon’s operating income, stability in the cloud is critical to stock outperformance. “
Thill’s analysis shows that estimates for 2023 sales for AWS continue to decline, with projections currently 12% lower than in February 2022 and 5% lower compared to the start of the year. Thill noted operating margin estimates for AWS are declining faster, with AWS operating margin estimates for 2023 declining 27% compared to what they were in February 2022.
Thill lowered AWS’ operating margin estimate for 2023 by 3.5% in the new note. The analyst does not see an improvement in operating margins for AWS until 2024.
Other AWS stats to consider from Thill’s analysis:
Consensus estimates indicate that the growth rate of AWS will slow in the second quarter of 2023.
AWS net sales growth has slowed annually for four consecutive quarters.
AWS backlog growth has slowed for three consecutive quarters.
AWS operating margin remains under pressure since peaking at 35% in Q1 2022, with AWS operating margin for Q4 2022 at 24.4% which is the lowest levels since Q2 2017.
Thill asserts that the slowdown in AWS is the main reason why Amazon stock has underperformed its tech competitors over the past year.
Amazon stock is down 35% in the past year, trailing slight declines in cloud rivals Microsoft (MSFT) and Salesforce (CRM).
Amazon stock is down 44% since Jassy took over as CEO, compared to a 6% drop for the S&P 500 during that time.
Meanwhile, Jassy has scooped around $250 million in total compensation, according to the company’s agent’s statement as well. Apply today.
Brian Suzy He is the Executive Editor of Yahoo Finance. Follow Suzy on Twitter @employee and on linkedin. Deal tips, mergers, activist positions, or anything else? Email [email protected]
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