Macroeconomic jitters further slow AWS growth in Q3

Adam Selipsky (CEO - AWS)

Macroeconomic conditions led by the pandemic and the geopolitical crisis in Ukraine have further slowed down growth of Amazon Web Services (AWS), in the third quarter of 2022.

Amazon said AWS had raked in revenue of US$20.5 billion for the quarter ended September 30, up 27.5 per cent year-on-year. However, revenue for AWS grew at 33 per cent year-on-year at 19.74 billion in the previous quarter (ended June 30). For the quarter before that, revenue grew 36.5 per cent.

The steady decline in growth can be attributed to macroeconomic conditions, due to which the company is seeing slowdown in customer expenditure, company executives said during an earnings call.

“We do see some of the consumers are cutting their budgets and trying to save money in the short run," CFO Brian Olsavsky said, according to a Motley Fool transcript.

"I would say that although we had a 28 per cent growth rate for the quarter for AWS, the back end of the quarter, we were more in the mid-20 per cent growth rate. So, we’ve carried that forecast through to the fourth quarter."

Other factors affecting AWS growth, according to Olsavsky, were inflation in employee salaries due to stock-based compensation and rising energy costs alongside continued investments in its data centres.

“We’re also seeing energy costs that are materially higher than they had in pre-pandemic, electricity and the impact of natural gas pricing," the CFO said during the earnings call. "So, we’re fighting through some of that as well, which is a new thing for the AWS business. But we’ll continue to look for ways to optimise our operations to use less energy."

AWS to work with customers to lower their costs

To continue its revenue momentum, AWS said it was working closely with customers to lower their costs or spend.

“When I talk about enterprise customers in AWS, yes, we’ve been working with customers to lower their bills," Olsavsky said while responding to a question on customer behaviour. "Just like all companies, they want to lower their spend when they’re faced with uncertainty in the market."

During the quarter, rivals Microsoft and Google Cloud have increased their cloud revenue by 36 per cent and 38 per cent respectively. AWS, which still leads the infrastructure-as-a-service (iPaaS) space, also has been gradually losing ground to these rivals, according to a report from market research firm Gartner.

At the end of 2021, AWS retained 38.9 per cent share of the market against 40.8 per cent dominance in 2020, Gartner said.

Microsoft had increased its market share by 1.4 per cent market share to control 21.1 per cent of the entire iPaaS portfolio, the report showed. Meanwhile, Google Cloud had also gained a percentage point in market dominance in 2021 to control 7.1 per cent of the market.