Amazon ( AMZN ) CEO Andy Jassy’s Amazon Web Services (AWS) business is starting to take a nosedive as the economy slumps and competition from Microsoft and other cloud companies intensifies.
“Despite growing 29% year-over-year (“YoY”) to $62B in 2022 [billion] “On a revenue basis, AWS now faces short-term upside as companies become more cautious about spending given the challenging, current macroeconomic conditions,” Jassi acknowledged in his statement. Second Annual Shareholder Letter Thursday.
Jassi, who took over the CEO role from billionaire founder Jeff Bezos in July 2021, also handles Redundancies Elsewhere overall growth slows.
“While these short-term headwinds will moderate our growth rate, we like many of the fundamentals we see in AWS,” Jassi added in a letter to shareholders. “Our new customer pipeline is strong and we have active migrations.”
Consolidating the AWS business is mission critical on Wall Street’s mind.
“Slowing cloud demand is a key concern as businesses focus on optimizing cloud costs from accelerating cloud migration,” Jefferies analyst Brent Dill wrote in a client note earlier this week. “AWS valuations continue to shrink, with consensus indicating year-over-year growth tanks in 2Q23. As AWS comprises the majority of Amazon’s operating revenue, a stabilization in the cloud is key for the stock to outperform.”
Dill’s analysis shows that 2023 sales estimates for AWS continue to decline, with forecasts now 12% lower than in February 2022 and 5% lower than at the start of the year. Operating margin estimates for AWS are falling at an alarmingly fast pace, with AWS operating margin estimates for 2023 down 27% from where they were in February 2022.
He lowered his 2023 AWS operating range estimate by 3.5% in the new note. Analysts don’t see operating margins improving for AWS until 2024.
Other stats on AWS to consider from Dil’s analysis:
Consensus estimates indicate that AWS growth rates will bottom out in the second quarter of 2023.
AWS’s year-over-year net sales growth has declined in four quarters.
AWS backlog growth has declined for three straight quarters.
AWS operating margin has been under pressure since peaking at 35% in the first quarter of 2022, with fourth quarter 2022 AWS operating margin of 24.4% representing the lowest level since the second quarter of 2017.
Dil says the primary reason Amazon’s stock has underperformed tech rivals over the past year is AWS’s slowdown.
Amazon’s stock has fallen 35% in the past year, falling slightly behind cloud rivals Microsoft ( MSFT ) and Salesforce ( CRM ).
Amazon’s stock has fallen 44% since Jassi took over as CEO, compared to a 6% decline for the S&P 500 during that time.
Meanwhile, Jassi earned about $250 million in total compensation, according to the company’s proxy statement. Filed today.
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