Wade Tyler Millward
Customers are looking to save money for their committed spending. We have options for them to do so. “They can better manage workloads, and they can switch to lower-cost products that have different performance profiles,” Amazon.com Vice President and CFO Brian Olsavsky said on the company’s third-quarter earnings call.
Amazon Web Services customers are “lowering their budgets and trying to save money in the short term” and the cloud vendor is focused on helping customers optimize their existing cloud spending and investments.
Brian Olsavsky, senior vice president and chief financial officer of parent company Amazon.com, attributed the cuts to inflation, the war in Ukraine, rising energy costs and other global economic problems.
“The business is growing in absolute dollars at a really good rate,” Olsavsky said on the company’s last quarterly call held Thursday. “We’re seeing some consumers cut their budgets and try to save money in the short term.”
He continued, “I think everyone is just wary and they want, once again, to monitor their spending. And as the CFO, I appreciate that. And we’re doing the same here at Amazon.”
How did Amazon perform in the third quarter?
Olsavsky gave results for Amazon.com’s third-quarter fiscal year ending September 30.
He said that financial services, mortgages and cryptocurrency were specific industries that saw lower demand during the quarter.
And while lower customer spending could hurt AWS in the short term, Olsavsky said he hopes demonstrating the flexibility that comes with customer cloud spending will become a selling point for AWS in the future.
“Customers are looking to save money on committed spending. We have options for them to do so. They can manage workloads better, and they can switch to lower-cost products that have different performance profiles. They can switch to graviton Chips with a higher cost-performance ratio,” he said.
“We think the advantage of cloud computing is really emerging now because we allow customers to convert what would normally be a fixed expense into a variable expense, and they can allow us to manage the ups and downs of inflation and other costs and electricity and everything else. … I think that’s exactly the case in 2020. These time periods are suitable for long-term adoption in cloud computing. But the opposite in the short term is that some companies have demand that is declining.”
In contrast to the height of the COVID-19 pandemic, when some companies slowed and others did very well, the overall landscape of cloud customers is one of caution, Olsavsky said.
Amazon also controls costs
As Olsavsky said, Amazon.com is also going through a period of cautious spending, including hiring.
“As we have done at similar times in our history, we are also taking measures to tighten the belt, including temporarily halting hiring in some companies and canceling products and services where we believe our resources are best spent elsewhere,” he said.
Although Amazon.com expects similar capital spending through 2021, it increased spending on AWS and technology infrastructure by $10 billion and reduced spending on its retail and transportation-related investments by $10 billion. It expects capital investments of $60 billion for the whole of 2022.
Amazon’s third quarter results
AWS sales reached $20.5 billion, an increase of 28 percent excluding foreign exchange rates. AWS reported operating income of $5.4 billion, an increase of 10 percent year over year.
AWS parent company Amazon.com reported net sales of $127.1 billion for the quarter, an increase of 15 percent year over year. Like other publicly traded tech vendors, Amazon.com mistook foreign exchange rates as a drag, costing the company $5 billion.
North American sales reached $78.8 billion, an increase of 20 percent year over year.
Amazon.com’s operating income nearly halved year-over-year to $2.5 billion in the quarter. North America incurred an operating loss of $400 million, nearly half of the losses incurred during the same period the previous year.
Amazon.com’s net income fell 10 percent year over year to $2.9 billion for the quarter.
Meanwhile, AWS has provided free training in cloud computing to 13 million people worldwide since 2020, with a goal of free training to 29 million by 2025.
Amazon.com stock was trading around $97 after hours, a drop of about 13 percent.
Amazon’s Fourth Quarter Guidelines
Amazon.com expects net sales to grow between 2% and 8%, putting it between $140 billion and $148 billion, according to the company.