Amazon Stock (NASDAQ:AMZN)
AWS is a cloud computing platform that offers a wide variety of services to both consumers and businesses. These services include the provision of storage space, computing power, and database management. Customers range from small businesses just getting started to those in the Fortune 500, making it one of the largest and most widely used cloud computing platforms in the entire globe.
The Rapid Expansion of AWS
AWS has experienced explosive growth over the past decade, with annual sales forecasted to reach $45 billion in 2020, up from $2.6 billion in 2012. This expansion has been driven by a variety of factors, including the increased adoption of cloud computing by enterprises, the flexibility and scalability of the AWS platform, and the ability to quickly and effectively spin up new services. All of these factors have contributed to this growth.
The Amazon Web Services (AWS) division, which Amazon (NASDAQ:AMZN) CEO Andy Jassy used to lead, is beginning to lose steam as a result of the deterioration of the economy and the intensification of competition from Microsoft and other companies operating in the cloud.
“Despite growing 29% year-over-year (“YoY”) in 2022 on a $62B [billion] revenue base, AWS faces short-term headwinds right now as companies are being more cautious in spending given the challenging, current macroeconomic conditions,” Jassy acknowledged in his second annual shareholder letter on Thursday. “AWS faces short-term headwinds right now as companies are being more cautious in spending given the challenging, current macroeconomic conditions.”
Jassy, who took over as CEO of Amazon in July 2021 after billionaire founder Jeff Bezos’s retirement, is also coping with layoffs and a general slowdown in the company’s growth elsewhere.
“While these short-term headwinds soften our growth rate, we like a lot of the fundamentals that we’re seeing in AWS,” Jassy noted in the letter to shareholders. “We like a lot of the fundamentals that we’re seeing in AWS.” “Our active migrations and new customer pipelines are both in healthy states at the moment.”
Wall Street is of the opinion that it is mission vital to stabilize the Amazon Web Services business.
“Slowing cloud demand remains a key concern as businesses shift focus from accelerating cloud migration to optimizing cloud costs,” a Jefferies analyst named Brent Thill said earlier this week in a client note that “Slowing cloud demand remains a key concern.” “AWS projections continue to decrease, and the consensus forecast indicates that year-over-year growth will hit a low point in 2Q23. Given that Amazon Web Services generates the vast majority of the company’s operational income, achieving stability in the cloud business is essential for Amazon shares to outperform.
According to the findings of Thill’s research, expectations for AWS sales in 2023 continue to fall, with current estimates being 12% lower than what they were in February 2022 and 5% lower than what they were at the beginning of the year. According to what Thill has noticed, operating margin predictions for AWS are frighteningly falling quicker. For example, AWS operating margin estimates for 2023 have been reduced by 27% in comparison to where they were in February 2022.
In the new note, Thill lowered his estimate of the operating margin that AWS will have in 2023 by 3.5%. The analyst believes that it will be 2024 before AWS sees an improvement in its operating margins.
Thill’s investigation also brings to light the following other statistics regarding AWS.
The majority of experts agree that Amazon Web Services’ annual growth rate will hit its lowest point in the second quarter of 2023.
AWS’s net sales growth compared to the prior year has been slowing for the past four consecutive quarters.
A slowdown in AWS backlog growth has been observed during the past three consecutive quarters.
The operating margin of AWS has been under pressure ever since it reached its all-time high of 35% in the first quarter of 2022. The operating margin of AWS for the fourth quarter of 2022 was 24.4%, which was the lowest level since the second quarter of 2017.
According to Thill, the key explanation for Amazon’s stock’s poor performance relative to that of its competitors in the technology sector over the course of the past year is the slowdown in AWS’s growth.
Amazon’s share price has dropped by 35% over the past year, trailing the more modest declines experienced by cloud competitors Microsoft (NASDAQ:MSFT) and Salesforce (NYSE:CRM).
And since Jassy took over as CEO of Amazon, the company’s stock price has decreased by 44%, but the S&P 500 index has decreased by 6% during the same time period.
According to the proxy statement that was also submitted today by the corporation, Jassy has raked in almost $250 million in total remuneration.
Featured Image: Unsplash @ Christian Wiediger
