Amazon Web Services cranks out $11.6 billion in third quarter revenue

Amazon Web Services third quarter revenue hits $11.6 billion, which is a 29% increase year-over-year. (Pixabay)

Driven in part by digital transformations related to Covid-19, Amazon Web Services reported $11.6 billion in Q3 revenue, which was an increase of almost 29% from the same quarter a year ago.

While parent company Amazon posted solid Q3 numbers due to selling more goods during the Covid-19 pandemic, Amazon Web Services accounted for more than $3.5 billion of Amazon's nearly $6.2 billion in operating income in the quarter.

Amazon's sales grew 37% to $96.1 billion in the third quarter, which, in addition to Covid-19, was partially driven by early holiday shoppers. Net profit roughly tripled to $6.33 billion.

Businesses have accelerated their digital transformations due to Covid-19 as they move more services and applications to the cloud. Amazon Web Services, Google Cloud and Microsoft Azure have benefitted from the increased rate of digital transformations.

"In AWS, customer usage remained strong," said Amazon's Brian Olsavsky, senior vice president and chief financial officer, according to a Seeking Alpha transcript. "We continue to see companies meaningfully growing their plans to move to AWS."

While companies are moving to the cloud at a faster pace, Olsavsky said cloud was currently a mixed bag due to anomalies across different industries. While some verticals are rebounding from Covid-19, other sectors, such as hospitality and travel, are still down due to Covid-19.

"A lot of companies are in holding pattern in middle and some are doing really well with things like video conferencing, and gaming, and remote learning, and things tied to entertainment," Olsavsky said. "I would say that the majority of the companies though are looking for ways to cut down on expenses. Going to cloud is a good way to cut down on expenses long-term. (They're) trying to cut down on their short-term costs in the cloud by tuning their workloads and we're helping them do that. (We're) doing the best we can to help them save short-term dollars and again tune their usage against some of our benchmark.

Olsavsky said AWS has seen a large number of companies extend their contracts while the number of multi-year contracts has gone up quite a bit. He also said he felt good about the state of AWS' business during these uncertain times, and about the ability of AWS' sales team to drive value during this period.

AWS still leads the cloud pack by a wide margin

With AWS, Google's Alphabet and Microsoft reporting their respective earnings this week, AWS still leads the pack with its long-standing mark of around 33% market share, according to Synergy Research Group (SRG). Microsoft is second with a market share of 18% followed by Google (9%), Alibaba (5%), IBM (5%), Salesforce (3%), Tencent (2%), Oracle (2%), NTT (1%,) and SAP (1%), according to SRG.

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After the latest round of earnings, Amazon and Microsoft continued to account for over half of the worldwide market.

"While we were fully expecting continued strong growth in the market, the scale of the growth in Q3 was a little surprising," said John Dinsdale, a chief analyst at SRG. "Total revenues were up by $2.5 billion from the previous quarter causing the year-on-year growth rate to nudge upwards, which is unusual for such a large market. It is quite clear that COVID-19 has provided an added boost to a market that was already developing rapidly.

“Meanwhile, the companies competing for a share of the market have settled into three camps. Amazon and Microsoft are in a league of their own, while others are either aggressively seeking to grow their position in the market or are more focused on specific services, geographies or customer groupings.”