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Amazon: Cloud continues to accelerate

Amazon posted strong Q4FY21 numbers: revenue grew 9% YoY to USD137.4bn – in line with management guidance and Street’s estimate. The company has consistently topped USD100bn for the past five quarters. Operating income declined by 50% YoY to USD3.5bn. EPS at USD27.75 topped Street’s USD3.77 estimate.

Revenue growth was driven by AWS, up 40% YoY as enterprises and developers continue to look to AWS for critical innovative cloud solutions. AWS continued to see strong usage and revenue growth. It also achieved its fastest pace of growth since Q1FY19. Amazon’s net income received a major boost from investment gains in Rivian Automotive. Amazon is not rated.

Cloud and advertising driving growth

Revenue from online stores/physicalstores/third party sellerservices/subscriptions services grew 1%/16%/12%/16% YoY, respectively. AWS shot up 40% YoY to USD17.8bn, surpassing analysts’ expectation of USD17.37bn driven by accelerated growth across a broad range of industries. Many big enterprises such as NASDAQ, Meta (Facebook), Best buy, Stellantis, Rivia, Goldman Sachs, etc. have signed up with AWS as their preferred cloud provider for a robust partner ecosystem. AWS currently contributes 13% to Amazon’s overall revenue. The advertising business grew rapidly at 33% YoY to USD9.7bn. Saw more than USD4bn in costs from inflationary pressures and loss productivity and disruption in operations.

Cost challenges to persist in Q1

Management guided Q1FY22 revenue in the USD112–117bn range, translating to 3–8% YoY growth, which anticipates an unfavourable impact of approximately 150bps from foreign exchange rates. Operating income is estimated at USD3–6.0bn compared with USD8.9bn in Q1FY21. Revenue guidance is at the lower end of analysts’ expectation. Management highlighted higher costs driven by inflationary pressures and labour shortage due to Omicron to continue in the near-term.

Outlook: Cloud acceleration to benefit Indian IT players

Management highlighted the fundamentals of retail business are strong and company is optimistic about a number of growth businesses and a strong innovation pipeline despite expectations of headwinds in the near-term. Moreover, AWS continues to grow at an accelerated pace as it benefits from broader adoption of cloud across majority industries and geographies.

The cloud business continued to grow at a fast pace as customers have expanded their commitment to the cloud and chosen AWS as their preferred cloud partner. This year, with economic recovery across majority industries, more businesses are accelerating their journey towards cloud, which bodes well for AWS. AWS has partnerships with many Indian IT services companies, and growth in AWS bodes well for the latter. Amazon is not rated.

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