AWS revenue growth rate falls as enterprise customers seek to cut costs

Rising energy costs and customers looking to cut costs are both cited as reasons why Amazon Web Services (AWS) recorded its weakest revenue growth rate to-date during the three months to 30 September 2022.

The public cloud giant’s third-quarter results show AWS generated $20.5bn in revenue during this period, which is up 27.5% on the same quarter the previous year. However, this is markedly down from the 33% revenue growth figure it reported during the second quarter and is the lowest revenue growth it has reported in its history.

Since the firm’s parent company, Amazon.com, started providing a separate breakdown of AWS’s financials in its quarterly results in 2014, the firm has seen its revenue growth rate hit a high of 78% in 2015, before hovering between the 40-50% mark for several years after.

Over time, these results have seen analysts repeatedly try to predict over the years when its revenue growth rate might start to slow down because – as per the law of big numbers – it is considered unsustainable for a company of its size to continue to grow at such a rate long term.

During and in the aftermath of the Covid-19 pandemic, the AWS revenue growth rate has remained between the 30-40%, and – for quarter three of 2022 – analysts had expected the firm to report a revenue of $21.1bn, which would represent 31% year-on-year (YoY) growth.

Meanwhile, AWS also reported a profit of $5.4bn, which is up from $4.8bn in the third quarter of 2021.

During a conference call with analysts, transcribed by the financial tracking website Motley Fool, Amazon chief financial officer Brian Olsavsky attributed the slowdown in revenue growth to “ongoing macroeconomic uncertainties” and an “uptick in AWS customers focused on controlling costs”.

The company’s e-commerce arm achieved a revenue of $127.1bn, up 15% on the previous year, and saw its profit shrink to $2.5bn from $4.9bn in the third quarter of 2021.

Amazon’s business as a whole is feeling the impact of multiple economic factors coming into play, continued Olsavsky.

“The continuing impacts of broad-scale inflation, heightened fuel prices and rising energy costs have impacted our sales growth as consumers assess their purchasing power and organisations of all sizes evaluate their technology and advertising spend,” said Olsavsky.

And this has, as stated in a response to a question posed by an analyst during the conference call, led to some enterprise customers – especially those based in Europe – seeking assistance from AWS with lowering their bills.  

“Just like all companies, they want to power their spend when they’re faced with uncertainty in the market,” said Olsavsky.

Similarly, Amazon is taking steps to tighten its own belt by pausing recruitment in “certain businesses” and axing products and services that are using up resources that could be better spent elsewhere.

“We aim to strike the right balance between investing for our customers for the long-term while driving operational efficiency improvements and accomplishing more with less,” said Olsavsky.

“When faced with an uncertain economy or some kind of discontinuous event, customers tend to double-down on companies that they believe have the best customer experience and that take care of them the best. And that is where our efforts remain focused.”