AWS growth stumbles while Google Cloud celebrates milestone
The stock market reacted very differently to each of the public cloud vendor's Q2 results
Google and Amazon, two of the top three vendors in the public cloud space, both released their second-quarter results yesterday.
We've parsed the numbers to find out the key takeaways from each set of results.
Amazon Web Services
The retail giant's net sales increased 20 per cent year on year to $63.4bn (£51bn) for the three months ending 30 June 2019.
Though the revenue figure beat market expectations, its EPS of $5.22 fell short of what analysts had predicted.
Amazon Web Services (AWS), its cloud business, generated revenue of $8.3bn in the quarter, up 37 per cent on the same period last year, but falling slightly short of analyst expectations.
Its operating income contributed $2.1bn to its parent company's net income of $2.6bn in the quarter.
However, that 37 per cent figure marks the first time the cloud unit's quarterly growth has fallen below 40 per cent.
Arch rival Microsoft recently reported sales in its Intelligent Cloud division - which houses Azure - rise 19 per cent to $11.4bn.
Azure revenue grew 64 per cent, but Microsoft does not disclose the sales figure.
Despite this, AWS CFO Brian Olsavsky remained upbeat on an earnings call with investors.
"We had a growth year over year in our run rate from $24bn to $33bn, so 37 per cent growth," he said on the call, transcribed by Seeking Alpha.
"The $9bn that we increased our run rate by was second only to Q4 of last year [so far in our] history.
"AWS is continually being chosen as a partner to many companies because of our leadership position in technology, our vibrant partner ecosystem, and also the stronger security that we offer."
In its Q1 report, the CFO had said Amazon would be investing $800m in its datacentre infrastructure in order to make one-day shipping available to its Prime members.
This investment has eaten into its Q2 profit margins, resulting in lower than expected earnings. The company forecast Q3 operating income in the range of $2.1bn to $3.1bn, which is far lower than analyst expectations of $4.4bn.
In answer to an investor's concern about the lowered forecast for its third quarter, Olsavsky said that one-day shipping is the "biggest individual" contributor to this move.
"We had a meaningful step up in shipments in Q2 versus Q1, but we're still on our way and Q3 will be a step up over Q2 in North America and we'll see more in international," Olsavsky explained in answer to an investor's question.
"So it's that increase in one-day shipping and all the associated cost of additional transportation and getting capacity in place… new costs and things like expanding inventory, getting it closer to the customer.
"We expected a step up in 2019. We didn't see as much of it in Q1, mainly because of the timing of the seasonality of the year and getting things going. We're seeing more of it in Q2 and we'll see it through the remainder of the year."
Amazon's stock price fell three per cent in after-hours trading.
Google Cloud
AWS's growth may have slowed, but Google Cloud Platform's (GCP) growth is steadily on the rise. Google CEO Sundar Pichai reported that GCP had hit an annual revenue run rate of over $8bn during its second quarter.
Google's parent company, Alphabet, reported its results for the three months ending 30 June.
Overall revenue for the period was up 19 per cent year on year to $38.9bn.
GCP is grouped in the ‘Other' area of the business, which includes hardware and the Google Play app store. This segment reported a turnover of $6.2bn, a year-on-year increase of 40 per cent. This was fuelled by GCP's growth, CFO Ruth Porat said on an earnings call.
"Cloud was the largest driver within other revenues and the third-largest driver of revenue growth for Alphabet overall," she said.
"GCP remains one of the fastest-growing businesses in Alphabet and we're really pleased with how the team is executing on both."
Porat added that over 4,000 employees had joined the company since the last quarter, causing an increase in the firm's operational expenses. She said that the most sizeable headcount increases were in the cloud division for technical and sales roles.
"At this point, we expect that our 2019 headcount growth rate will be closer to the 2018 rate, in other words slightly higher than we originally forecast," she explained.
"Strategically, we are increasing our hiring in cloud and are incorporating the impact of the Looker acquisition, which we expect to close before the end of this year."
CEO Pichai added: "We continue to build our world-class cloud team to help support our customers and expand the business and are looking to triple our salesforce over the next few years.
"Customers are choosing Google Cloud for a variety of reasons; reliability and uptime are critical.
"Customers need flexibility to move to cloud in their own way. Anthos - announced earlier this year - provides advanced security and open architecture to support multi- and hybrid cloud environments."
Alphabet's share price rose nine per cent in after-hours trading.