On Thursday, Amazon's cloud business reported a 27% revenue growth rate for the third quarter, the slowest expansion since the company started disclosing the number in 2015.
CFO Brian Olsavsky hinted things could get even worse. During Thursday's analyst call, Olsavsky said AWS's growth rate decelerated as the third quarter progressed, falling down to the "mid-20% growth rate" in the latter part of the period.
Amazon's investor relations lead Dave Fildes said the company "exited" the third quarter in the mid-20% growth rate, and "that's informed how we're thinking about the guidance ranges heading into the fourth quarter."
"With the ongoing macroeconomic uncertainties, we've seen an uptick in AWS customers focused on controlling costs," Olsavsky explained.
AWS's slowing pace of growth was one of the main reasons for Wall Street's sell-off on Thursday, which dropped Amazon's stock by roughly 20% in after-hours. Amazon also gave a disappointing fourth-quarter sales outlook and a dwindling profit margin forecast. As a result, Amazon's market value dropped below $1 trillion for the first time since 2020.
RBC Capital's Brad Erickson wrote in a note Thursday that AWS was the "primary downside contributor" to Amazon's earnings report. Baird Equity Research's Colin Sebastian also noted that AWS "was the biggest disappointment" in the third quarter report.
"The speed of cloud slowdown is going to surprise many investors," Mirabaud analyst Neil Campling wrote in a note Thursday.
Olsavsky said AWS customers are cutting budgets and trying to save money as the economic outlook darkens. To help those customers, AWS is offering lower-priced options and a more cost-efficient chip processor service, he said.
AWS's operating profit of $5.4 billion was also below Wall Street estimates of $6.4 billion. Olsavsky blamed the inflation-driven salary growth of AWS engineers and "materially higher" energy costs that more than doubled over the last couple of years.
Still, Olsavsky noted that Amazon continues to invest in AWS, adding new headcount and other services. He said the company saw a $10 billion year-over-year increase in technology infrastructure, which is mostly focused on AWS services.
"We continue to ramp up our investments in AWS, adding product builders and sales and professional services headcount to help customers save money, invent more quickly in their businesses and transition to the cloud," the CFO said.
Do you work at Amazon? Got a tip? Contact reporter Eugene Kim via the encrypted-messaging apps Signal or Telegram (+1-650-942-3061) or email (ekim@insider.com).
