The Six Five team discusses Amazon/AWS’s latest earnings release.
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Patrick Moorhead:Amazon, which obviously includes AWS. They had their earnings. How was it?
Daniel Newman: Oh, boy. Well, the stock, at least in the post-market, pre-market, was ripping and roaring. Double-digit percent up, and if you had watched Amazon, it had lagged and lagged and lagged even as tech had come back. Now, that has changed in the last few months. A couple of strong Prime Days didn’t hurt the company. Some positive sentiment in the marketplace, the fact that they are, at least in North America here, in the US, they are the de facto for all of our ecommerce bad behavior. And their growth in subscriptions, memberships in Prime have been pretty sturdy. But what was the number everybody was going to be eyeballing? For you and I especially, it was going to be the cloud number. We saw Microsoft, despite all of its exciting AI news tumble when the cloud number was a little bit softer with expectations of spending on infrastructure going up and the actual cloud revenue slowing. At the same time, we saw Google, who did better and showed better numbers, got a bit of a jolt. But for Amazon, I think it was more about the fact that the company really did perform across the board.
Look, this is a company, Pat, that operates on a narrow, narrow margin. Its e-commerce business is massive, but it doesn’t make a ton of money in e-commerce. This also is some of the reason why the FTC and DOJ and the idea of possibly trying to split it from AWS has been met with a lot of resistance, because frankly, it would be very difficult for Amazon to continue to innovate in its e-commerce side if it didn’t have the profit machine we all call Amazon Web Services. But the company beat, Pat, they not only beat… They beat big. They almost beat by a 100%. They were expecting 35 cents on earnings. They got 65 cents. They were expecting 131 billion. That’s not bad, by the way, it’s a good amount of revenue in a quarter. Pat, that’s a little bigger than Moor Insights.
Patrick Moorhead: Just slightly.
Daniel Newman: Just slightly.
Patrick Moorhead: Slightly.
Daniel Newman: It’s almost as big as the two of us together. At least our egos.
Patrick Moorhead: Well, I don’t know, but our household might be the biggest buyer of Amazon products.
Daniel Newman: They beat on revenue. Here’s the thing. This is where I’m having a little bit of a problem though getting my head straight, is because we were really disappointed with 26% growth for Azure. We were not disappointed, but were, 28% for Google. We’d come to the conclusion that cloud had decelerated. Well, for AWS, it’s decelerated even more. It is 12%, but the good thing is, and this goes to show Wall Street behavior at its best, is that it’s not really deceleration that’s the problem, it’s guidance. Amazon guided that it may only, and a lot of the predictions and forecasts and models was mid-single digit growth. And again, there’s also a law of large numbers’ thing going on here, because Amazon is substantially larger from an IS and infrastructure and overall cloud business than its competitors. And now we actually know that, because Microsoft basically disclosed last quarter of their 110 billion of Intelligent Cloud, which is all their apps and such included, they’re about 55 billion, is their annual run rate. They said about 50% is Azure.
Well, Amazon’s reaching 90 billion, and I know sometimes with these law of large numbers, Pat, we become a little bit numb to how big that gulf is. But you’re talking about a run rate of something like $35 billion difference in terms of revenue year to date. That’s a lot of revenue. It’s substantially larger than Google, substantially larger than Oracle. But overall it’s a significant slowdown in growth, but it is a wide margin of scale, Pat. And I think that’s something that people need to pay a lot of attention to, is they’re almost a $100 billion a year, AWS now. At some point, it’s going to be hard to grow without either inorganic, meaning they acquire something, or they diversify in some substantial way. Like I’ve said for a long time, they’re not heavily in apps. They don’t heavily play in that space. Would it make sense at some point? Could AWS buy Salesforce? God, that would be a huge transaction, but I was saying this week, AWS-
Patrick Moorhead: Am I hearing a call here? A prediction?
Daniel Newman: No, I don’t think we can make that call. I’m just saying that would give it a layer that would make it look a lot more like Microsoft.
Patrick Moorhead: Yeah.
Daniel Newman: I don’t know that there are a ton of options for those kinds of acquisitions that could be made. Only a couple other things, Pat. They did beat on advertising again. They now have 11 billion… Almost 11, 10.7 billion a quarter in advertising dollars.
Patrick Moorhead: I know, it’s crazy. Them and Apple are really driving that.
Daniel Newman: It is crazy and we’re missing this as it’s happening right before our eyes, and I’ll let you hit with that on Apple. But the company overall delivered strong. It’s showing strength, its AI story, I’ll let you maybe touch on that a little bit more, has been a bit nascent. But it’s starting to tell it and it’s telling it in a very different way than the other hyper scale cloud providers especially other than… And I think there’s a chance that could play out. As we’ve seen these single large language models lose some of their luster as a differentiator, the ability to be a bit more agnostic could become a very good strategy, especially when you have so much infrastructure, so much data running on your existing infrastructure. Meaning, if you can keep attrition low, you can drive your AI revenue.
Other than that, the Prime Day’s obviously hit, and Pat, the only thing I’ll say is the sentiment of the US economy. Is there anything that’s more indicative that the world is feeling somewhat positive than when they spend like crazy on Prime Day, or are we just not paying attention? I’m not sure, but the numbers were good and that’s always a good indicator that maybe people are still feeling pretty optimistic.
Patrick Moorhead: It’s good insights, Dan. I think investors were really happy that one of the three business units… Alright, Amazon splits it up into three businesses, that North America actually made money coming off a massive loss. And a lot of this was driven by a bunch of layoffs and OPEX reductions that the company made, and I think people were pretty excited about that. The funny part is who knows if it’s going to continue out there? But I think the good news is it wasn’t just AWS fluttering out there. I actually spent a day meeting with folks at AWS. Obviously we didn’t talk about earnings or anything at all, but I did meet with probably seven executives and pretty much talked about AI the entire time. It’s pretty exciting. And one thing that really struck me, and this is the second quarter in a row that the first paragraph after some of the bullet point numbers, the company talked about Trainium, it talked about Inferentia, and it talked about Bedrock.
And you can tell 100% the priority of a company based on where they put stuff in press releases. What do they talk about first? What do they talk about last, typically? And it’s just crazy, not crazy, it’s smart for AWS to flex their muscle. And quite frankly, they’re the only one of the cloud giants that has custom silicon at scale. Not just for general compute with Graviton, but also with Inferentia and Trainium. And the company did talk about a bunch of customers that it rolled out as well using generative AI and AI, Omnicom, Royal Philips, 3M, Old Mutual, a bunch of different customers that are in there. Google got a pretty big lift by some of its disclosures. I think it was their AI day that they hosted and they talked about pulling in a lot of unicorns. And here AWS is leaning into these gigantic companies, and that’s not me inferring that Google doesn’t have gigantic companies also doing generative AI, but I think it was smart for the company to roll out some of its wins.
I really think that AWS is going to get into communicating more than it normally does. I think the appetite for what AWS is doing in generative AI is a lot bigger than standard fare. Heck, when AWS came out with their first service 14 years ago, it had no competition, and whether it’s six or seven years later, Azure popped up. You just have to compete differently with times of competition. I feel really good where AWS is on their generative AI play. They’re very focused specifically on businesses. They’ve taken an open model approach there. At some point they’re going to connect this with SageMaker, Bedrock and SageMaker are separate, but I do expect those two to be connected. Good performance by the company and I think you nailed it in one of your tweets that said, “Hey, this is kind of a bellwether for IT, and it’s a bellwether for consumer, with the spend there. Hopefully that’s indicative of where we are at in the economy.
Daniel Newman: Nailed it.
Patrick Moorhead: You did.
Daniel Newman: Nailed it.