The Six Five team discusses Amazon Q4 FY2023 earnings.
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Transcript:
Daniel Newman: All right, so last one, Amazon. So fourth quarter, and by the way, absolute banger. Great stuff. Beat by what, 20 plus percent on the earnings line. By the way, I still can’t get used to calling it LSEG versus Refinitiv. It took me like a year to get Refinitiv right. So they beat on earnings, they beat on revenue. It’s funny, when it’s like 170 billion versus 166, you’re like, oh, they only beat by $4 billion. Remember how much a billion is, by the way. It’s a lot. And Pat, they were in line on web services and they had a really good beat on advertising. I think the company showed the expected growth. It was holiday season in it. They did mention some of their results. Another company that made some substantial cuts, 27,000 workers cut. But on the more positive side, strong revenue growth and saw AWS grow, and back in double digits.
There is a theme here, Pat, by the way, now that we’ve done Amazon, Google, Microsoft. Cloud is accelerating again. Cloud’s accelerating again across every company. Now, this is where I say it’s interesting because they got their fourth quarter revenue to 24.2 billion, which, if you can quickly math it, Pat, that’s almost a hundred billion a year run rate for AWS. So you’re talking a really, really big number. But there is a question mark, because if Google Cloud’s growing 26 and Microsoft’s growing 30, is there market share being ceded? I mean, the logical answer is yes. The logical answer to that question is yes, but the problem is the construct of the cloud numbers is still confusing because AWS doesn’t have the app side of the business. So there’s some question mark. And I’d love to get your take on that too, while we talk.
It is down on a year-over-year growth. So when I say cloud overall is accelerating, AWS is double-digit growth and they’re growing by a lot. When you see 12%, 13% to 24 billion, you’re talking about billions of growth on a year-over-year basis. The other two though, are actually annually growing year over year as well. So there’s some market share questions that are going to need to be addressed. But I do still think it’s by a long shot, on the infrastructure side, AWS is the biggest.
Just a side note about Amazon, you and I don’t cover the commerce stuff as closely. It is really interesting, Pat, though, how big the advertising business has gotten. Their ads business now is almost $60 billion a year, 14.7 billion with a mid 20% growth. I mean, if the rates stay this way, within three or four years, web services and advertising will both be a hundred billion businesses, a hundred plus. Ads will catch up. So really good result. I mean, positive streak. Loved it. Absolute banger overall. Looking good. Pat, I’ll turn it back to you.
Patrick Moorhead: Yeah, so let me just fill in the cracks here. It was a good job, Dan. So I want to focus on AWS’ profitability. Actually, let me dial it back. The biggest turnaround on operating income is literally we saw almost a $6 billion turnaround in North America. And then internationally, we saw about a $1.8 billion turnaround, which was quite remarkable, which helped the bottom line because the year before, they had a net income of 278 million. Oh, they increased that by 10.4 billion to 10.6, right? So pretty remarkable. But let me point out some AWS. AWS may have increased their revenue. I think it was in the teens, but their operating income was up 38%. And that is just remarkable. And I also want to point out that AWS brought in more than half of the company’s operating income. So company did 13 billion, they came in with seven. So it is the cash cow. It is feeding everybody. And I’m wondering someday if we’ll ever see North America, International, AWS all making operating income.
I now want to swivel to some of the stuff that I thought was interesting that came off the call. If you remember, I think it was about a year ago, there was a lot of talk about customers looking to save money because there was this risk. Some demand was down, and companies were looking to do that. So some really good signs. Andy said, “Hey, our customer pipeline remains strong as existing customers are renewing their larger commitments over longer periods of time, and migrations are growing.” So I take that as a, we are back, baby. By the way, AI was brought up 40 times on the call, just for those who are counting. And hey, the chip story came out on the call too, and they essentially said, Graviton, 40% more price performance than other X86 alternatives. And they talked about trainium inferentia. What’s interesting is they didn’t talk about compared to GPUs, which I don’t know if that’s just a détente there, but they called it enabling an advantageous price performance versus alternatives.
Daniel Newman: We could test that at Signal 65. I would love to do some of that.
Patrick Moorhead: No, totally, totally. Because one thing for a company to say, and it’s another for a third party to say it. Couple of adders here on the security side. Very rarely does AWS talk about gaining share, or even saying superior stuff like that. But they came right out and said, “AWS’s advantaged security capabilities and track record relative to other providers.” I thought that was a harpoon that was sent at-
Daniel Newman: That again, I want to hear that again. I want to make sure.
Patrick Moorhead: “With AWS’s advantaged security capabilities and track record relative to other providers, we see momentum around customers wanting to do their long-term generative AI work with AWS.” Scud missile at Azure.
Daniel Newman: I know. I was trying to hear where that was going. That wasn’t even veiled. Surprised they didn’t just say it.
Patrick Moorhead: No, no, no, no. I know. And the final thing I’m going to say is, I wish AWS would just talk about how much AI is layering on improving their business. But they did say ultimately it’ll drive tens of billions of dollars for revenue for Amazon over the next several years. Kind of soft. But I don’t know if Amazon or AWS needs that. Dan, that is it. Any other ruminations or anything on Amazon?
Daniel Newman: I mean, no. I didn’t talk about it. I’ll just point out in my online commentary, I did point out that I like the bedrock strategy. I like the open approach, the multimodel. I think Amazon’s going to be very much what Amazon’s done with Silicon. It’s going to be what they do with generative AI. It’s going to be merchants, it’s going to be use whoever else’s model, use ours.
Patrick Moorhead: Does anybody not have that, Dan?
Daniel Newman: No. I think we’ve seen the pivot, but definitely, everyone didn’t start that way. But I also think there’s, just like a funnel, Pat. There’s the funnel that starts with we have our own and we are going to proprietary lead with our stuff. And if you really want to, you can use theirs. They’re, I think, the opposite of this. And so what I mean is there’s two continuums. No, everyone realized it, Pat, because after the near hostile takeover of OpenAI, I think the one thing Microsoft realized is they had something to button up there. But I think AWS has one inherent advantage, and that is the massive amount of infrastructure deployed around the world and companies that aren’t going to move it.
And so all that data and all that infrastructure, there’s going to be AI applications that are going to sit on top of it. It’s substantial. And the ISVs that sit on top of AWS are substantial, and they’re going to be building gen AI on top. So having said that, no, there aren’t. But yes, there are. So I hear a lot of testing opportunities. By the way, some economic validation opportunities too in there.
Patrick Moorhead: Totally.
Daniel Newman: All on the podcast. But if you’re listening to this, ring the phone, man. Ring the phone, let’s help you.
Patrick Moorhead: Yeah, so it’s one thing to make a claim about performance benchmarks. I would say that vendors making those claims, there’s like a 10 to one ratio on believability. Get a third party to do that, like Signal 65. And then when it comes to translating the superior performance or power into total cost of ownership or total economic value, you should also consider doing a third party study, which I think, Dan, you might offer that.
Daniel Newman: We do. We do.
Patrick Moorhead: What’s it called?
Daniel Newman: The economic validation? Are you talking about that?
Patrick Moorhead: Yeah. What’s the official name of it?
Daniel Newman: I don’t know.
Patrick Moorhead: Okay.
Daniel Newman: It’s a really great question. I wish you’d given me a chance to prep for that.
Patrick Moorhead: I’m sorry.
Daniel Newman: Hold on. Let me see if I can-
Patrick Moorhead: It’s being built.
Daniel Newman: Let me see if I can find it now because I think I shared it. Didn’t I share it with you?
Patrick Moorhead: You did.
Daniel Newman: I shared it with you, didn’t I? Yeah. I’m getting a little old for this, but I think it’s called Futurum Group’s Total Economic Value Study.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
