The cloud continues to rise—and fast

Wall Street fretted when AWS’ earnings grew ‘only’ 47% in Q4 of 2016. Here’s why analysts are wrong to worry about the cloud.

The cloud continues to rise—and fast
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Now that the big three cloud vendors—Amazon, Microsoft and Google—have released their financial results for the fourth quarter of 2016, it’s time once again to take stock of how fast the cloud is growing. 

The short answer remains: very, very fast. 

That conclusion comes in spite of some carping from analysts about the latest numbers from Amazon Web Services (AWS), but I don’t think those complaints add up to much when comes to the health of the cloud computing industry. But let’s take a closer look, and you can decide for yourself. 

AWS posted strong growth 

AWS revenue grew 47 percent in the quarter to $3.5 billion. The business earned $926 million in the quarter, up from $540 million in Q4 2015. 

And if you look at 2016 as a whole, AWS boasted more than $12 billion in revenue, compared to almost $8 billion the year before. Also, AWS earned a healthy $3.1 billion in 2016.

Still, some Wall Street analysts are complaining about this quarter registering “only” 47 percent growth, noting that the figure doesn’t quite match the 69 percent year-over-year quarterly growth for Q4 of 2015 or the 55 percent growth in Q3 2016. 

Sheesh. Some people are never satisfied. 

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These numbers are amazing, especially given the scale that AWS has already attained. Growing a $12 billion business by almost 50 percent? That doesn’t sound like trouble to me. Heck, just about any business would be out of their minds ecstatic to see that kind of percentage growth on revenue a fraction of what AWS is making. 

Just as important, these numbers capture revenue, not usage, and AWS—like the cloud industry over all—continues to lower prices (AWS reportedly made seven price cuts in Q4). That suggests AWS usage may be growing even faster than revenue. 

Plus, given AWS’ fat profit margins, this growth would seem to reflect real demand, not an unsustainable loss leader fueled by investment-funded discounts. With those kinds of margins, AWS can easily afford to continue to cut prices to maintain its growth and market share—and still deliver healthy profits 

Microsoft is doing great, too 

Microsoft doesn’t break out its cloud numbers as cleanly as Amazon does, but things still look pretty rosy up in Redmond. 

In the fourth quarter, the company's enterprise cloud business grew 8 percent to $6.9 billion. Critically, the company said that included a whopping 93 percent growth in revenue from Microsoft Azure, which is most comparable to AWS. Azure is generally considered to be in second place in the cloud market, and the latest growth figures still leave it far behind AWS’ estimated 40 percent market share in the global public cloud, according to Synergy Research Group.

Microsoft also claims an annual cloud run rate of more than $14 billion. And the company says that figure is on track to top $20 billion by its fiscal 2018. Of course, run rate is not the same as revenue, and Microsoft’s numbers include other cloud businesses,such as Office 365, not just Azure.

Google says it’s doing well in the cloud, too

Unfortunately for cloud watchers, Google mixes results from its Cloud Platform in a general “other” category, which includes a bunch of unrelated businesses. Nevertheless, it’s worth noting that Q4 “other” results hit $3.4 billion, up 62 percent ,and the company says Google Cloud performed well.

Put it all together, and any concern over the cloud’s growth slowing seems silly. The cloud doesn’t just remain ascendant; it’s increasingly dominant.

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