AWS fuels more than half of Amazon's operating income

Amazon Web Services continues relentless growth march

Amazon Web Services (AWS) contributed more than half of Amazon's operating income in the internet giant's Q4.

Amazon saw its overall revenue hit $72.4bn (£55.3bn) in its quarter ending 31 December 2018, while its cloud computing arm saw revenue leap 45 per cent to $7.4bn.

AWS contributed $2.2bn to Amazon's overall $3.8bn operating income.

The cloud arm's growth is flat sequentially, coming soon after Microsoft reported a slowdown in growth for Azure.

On an earnings call, Amazon CFO Brian Olsavsky said the company would invest in growing its headcount in its AWS team in 2019.

"Headcount only grew 14 per cent year over year, but the areas that were growing in that mix were things like technology teams, device areas, AWS and especially sales and marketing," he said on the call, transcribed by Seeking Alpha.

Dave Fildes, director of investor relations at Amazon, added on the call that employee figures in its AWS sales team and its core retail business are growing "considerably" higher than the overall 14 per cent growth.

"In a lot of ways, 2018 was about banking the efficiencies of investments in people, warehouses and infrastructure that we had put in place in 2016 and 2017," he explained.

Olsavsky told investors that although Amazon scaled back investments across hiring and capital expenditure in 2018, they should expect spending to pick up in 2019.

Amazon's capital expenditure stagnated in Q2 and Q3 but grew 17 per cent in the fourth quarter.

"Our capital lease expenditure in Q4 was a bit higher than the prior three quarters," he told investors.

"That had a slight impact on the operating margin. We've said quite openly that this is going to bounce around.

"We're getting more and more creative around getting efficiency up and getting our cost of acquisition down.

"At any point in time, this business is going to be a combination of lowering prices, expanding geographically, adding people - especially tech teams and sales teams - to build new and innovative products and staying very relevant and ahead of our customers' minds."

Fildes added that he expects investments to increase relative to 2018.

Amazon's shares dropped more than five per cent in extended trading hours as a result of this declaration of heavier investment in its new fiscal year.