Cloud computing has another killer quarter

Big cloud earnings—and profits—from Amazon, Google, and Microsoft extend cloud momentum, make billions for Jeff Bezos

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To most people, Jeff Bezos’ Amazon is known as the company reshaping the way people buy everything from books to shoes to groceries. But the part of Amazon that is driving Bezos within shouting distance of becoming the world’s richest person doesn’t really sell anything, it rents computing power in the cloud.

The cloud is more profitable than e-tailing

As the New York Times put it on Thursday, “The profit Amazon can make on cloud-computing services is significantly bigger than in its retail sales, and that has helped turn the Seattle company from a consistent money-loser to a respectable moneymaker.”

And that, as Boomberg noted, sparked a jump in Amazon’s stock price in after-hours trading that added more than $3 billion to Bezos’ nest egg, topping $80 billion for the first time and putting him within $5 billion of becoming the world’s richest person.

The first quarter numbers tell the tale. Amazon Web Services (AWS) booked a whopping $890 million in operating income in the period ending March 31, accounting for most of the company’s profits: the company as a whole recorded just $1.01 billion in net income. AWS revenue grew 43 percent, which is amazingly not quite as fast as previous quarters, to hit $3.66 billion. But even with the remarkable growth, competition and price cuts, AWS’s net profit margin topped 24 percent, higher than in Q1 2016. Put it all together and AWS delivered almost 90 percent of the company’s profits. That’s a really big deal, for reasons I’ll discuss later in this post.

The big three all made big bucks in the cloud

Microsoft and Google ‘s parent company Alphabet also recorded strong first-quarter cloud numbers, though apples-to-apples comparisons are difficult because the companies don’t break out their results in the same ways.

For example, number-two cloud player Microsoft said its Azure cloud hosting business grew 93 percent year over year. That’s more than twice as fast as AWS, but it’s hard to tell exactly what that means because Microsoft didn’t reveal the actual numbers. Similarly, Microsoft’s Office 365 productivity software as a service business grew 45 percent, but to what level the company isn’t saying. (In contrast to Bezos, Bill Gates’ fortune actually slipped, as Microsoft’s mixed overall results drove down the company’s stock in after hours trading.)

Alphabet, unfortunately, also does not break out it cloud revenues, lumping them into a category called “Google other revenues,” which was up 49 percent since the same period last year. In the company’s earnings call with analysts, Ruth Porat, Alphabet’s chief financial officer, reportedly described the Google cloud platform as one the company’s “fastest-growing businesses,” though most observers peg it as a distant third in the cloud hierarchy. (Google co-founders Sergei Brin and Larry Page did get richer, though, as the company stock was buoyed by strong mobile ad sales.)

Cloud growth—and profits, too!

It’s frustrating for cloudwatchers that the number two and three players in this all-important industry don’t share more financial information, but no amount of financial fog can obscure the continued and phenomenal rise of cloud computing.

Still, unlike many other hot internet sectors—think ride sharing, for example—the cloud’s growth isn’t being fueled by speculative venture capital investment. The cloud is actually earning big bucks even as it experiences hypergrowth. Now that’s a real unicorn.

Copyright © 2017 IDG Communications, Inc.

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