Amazon reveals that its AWS cloud service is a $5 billion business
For the first time, the e-commerce giant reports sales results for Amazon Web Services -- and they're whopping.
Ben Fox RubinFormer senior reporter
Ben Fox Rubin was a senior reporter for CNET News in Manhattan, reporting on Amazon, e-commerce and mobile payments. He previously worked as a reporter for The Wall Street Journal and got his start at newspapers in New York, Connecticut and Massachusetts.
Amazon CEO Jeff Bezos has been one of the industry's big spenders as he strives to make the company all things to all people, fashioning Amazon as a grocery store, entertainment producer and device maker.
The company on Thursday reported results for the first three months of 2015 that show Bezos' earliest spending effort -- a business that rents data storage and computing services over the cloud -- is paying for itself.
For the first time, Amazon broke out the financial results for its Amazon Web Services business, which the company launched in 2006. The numbers showed that AWS was by far Amazon's most-profitable business, by operating margin.
"Amazon Web Services is a $5 billion business and still growing fast -- in fact it's accelerating," Bezos said in a statement Thursday.
Shares jumped 6 percent, to $414.50, after hours, as overall sales beat analysts' estimates, though the company swung to a loss as it continues to spend on new projects.
"That's pretty healthy," Benchmark Co. analyst Dan Kurnos said of the AWS results. "So, for investors that are wondering is Amazon just investing in empire building or are they actually investing in profitable businesses, I think that's got to be a significant positive."
For the past few years, Amazon has sacrificed profit for growth as the company entered the mobile-device market with its own tablets and a (failed) smartphone. Its Amazon Web Services business has become a major force in the tech industry, and it now competes directly against similar services from Google, Microsoft and others. And Amazon's Hollywood production arm has created noteworthy programs, including the "Transparent" series about a transgender parent.
The company has also been exploring new ways to boost its e-commerce sales: Its Prime membership service -- for which customers pay $99 a year for free two-day deliveries, free movie streaming and other perks -- has been working on increasing sales and customer retention with a handful of new options. Amazon now offers some Prime members one-hour delivery service of essentials like batteries and paper towels, has launched a test program to deliver goods directly to buyers' car trunks and is pushing the federal government to allow it to use delivery drones.
Along with being the most profitable, AWS was also Amazon's fastest growing business, posting 49 percent higher sales of $1.57 billion for the quarter. North America sales, the company's biggest business, reported a 24 percent increase in sales to $13.41 billion, while international sales dropped 2 percent.
In the past, AWS sales were included in a miscellaneous category called "other," but in January Amazon said it would breaking out its results starting with the first quarter. Strength in this business could reassure investors concerned about Amazon's spending.
AWS is the dominant provider of cloud-based data storage and computing services, renting out its data center space to thousands of companies of all sizes, including Netflix, Etsy, Pinterest and NASA. AWS and services like it let customers invest more on the products they're developing -- and not on computer servers and the people they would need to manage them. AWS now commands 30 percent of the $16 billion market for so-called cloud infrastructure services, ahead of its rivals.
For the quarter, Amazon swung to a loss of of $57 million, or 12 cents a share -- in-line with analysts' expectations -- compared with a year-earlier profit of $108 million, or 23 cents a share.
Overall revenue rose 15 percent, to $22.72 billion, ahead of the $22.39 billion expected by analysts polled by Thomson Reuters. But operating expenses rose 15 percent, too, to $22.46 billion.