Dive Brief:
- AWS’ net sales grew 16% year over year, yielding $5.1 billion in operating income for Q1 2023, Amazon reported Thursday. The cloud division remained the tech giant’s most profitable unit, as overall operating income grew nearly 30% year over year to $4.8 billion.
- Revenue growth has been slowing for Amazon’s cloud division as customers seek cost savings in workload optimization. “As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter,” Brian Olsavsky, the tech giant’s CFO, said during a Thursday earnings call.
- Enterprise cloud spending grew 20% year over year during the first three months of the year, according to Synergy Research Group, exceeding $63 billion worldwide. Amazon remained the dominant hyperscaler, commanding almost one-third of the market.
Dive Insight:
Amazon renewed its pledge to help cost-conscious AWS customers weather ongoing macroeconomic challenges.
“AWS sales and support teams continue to spend much of their time helping customers optimize their AWS spend so that they can better weather this uncertain economy,” Olsavsky said.
The focus is on optimization rather than spending cuts, according to Amazon CEO Andy Jassy.
“Customers are pretty explicitly telling us that this is not a cost-cutting effort where we intend on spending less money on technology or on the cloud,” Jassy said.
He characterized the trend as a reprioritization of business goals and reallocation of resources to initiatives that drive revenue, such as customer experience upgrades.
Microsoft and Google Cloud, AWS’ two primary competitors, expressed similar sentiments last week.
Satya Nadella, Microsoft’s CEO, said the company was focused on helping customers extract the most value from their digital spend during an earnings call.
Alphabet and Google CEO Sundar Pichai said Google Cloud was “leaning into optimization,” during the company’s earnings call.
Microsoft captured a 23% share of the cloud market in Q1 and Google Cloud, which posted a profit for the first time, dropped to 10% from 11% the previous quarter, according to Synergy Research Group’s analysis.
Olsavsky expects the slowdown in revenue growth to spill over into the next quarter.
“We are seeing these optimizations continue into the second quarter with April revenue growth rates about 500 basis points lower than what we saw in Q1,” he said.
