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5 Things We Learned About AWS from Amazon's Q3 Earnings

Read MoreHide Full Article (AMZN - Free Report) is known for its gigantic e-commerce business that allows its customers to purchase any item from a 5 pound bag of gummy bears to a book about a peach boy, and will arrive at your door in 2-days. Whatever you are looking for, there is a very high possibility Amazon has it in stock.

They use their immense inventory and all the services provided in the Amazon Prime membership as the basis of their successful “reverse funnel” business model (also read: Why Amazon Prime Should Offer Monthly Payments & How Amazon’s Business Model Threatens Google).

Despite their e-commerce and Amazon Prime services garnering the majority of the attention from the mainstream public, there is a relatively unknown service Amazon offers that generates serious profits for the company – Amazon Web Services (AWS). The success of AWS was one of the key takeaways from the company’s Q3 earnings report (please read Amazon Beats on Earnings and Revenue for Q3 to view all the key EPS and revenue figures).

Amazon Web Services is a multi-faceted cloud computing service that Amazon provides businesses the ability to not have to house physical servers in the bases of operations (essentially). All the applications needed to perform business are done via the cloud services AWS provides. The video below can help explain the overall function of AWS:

Now, let’s examine 5 important takeaways about Amazon Web Services from the company’s 2015 Q3 earnings report that may have been overlooked, yet are vital to the overall success of Amazon.

1.)    Impressive Year-to-Year Revenue Growth

AWS brought in $2.1 billion in revenue for Amazon this quarter, compared to the $1.2 billion revenue figure the service brought in during the 2014 3rd-quarter. That is a year-to-year change of 78%, which is incredible considering the revenue growth rates of the other Amazon segments.

2.)    AWS Had The Largest Year-to-Year Growth of Any Amazon Segment

Speaking of the other Amazon segments, the AWS growth rate crushes the growth rates of the North American and International sales revenue figures. North American sales grew by 28% this quarter and International sales grew by 7%. The overall consolidated sales growth for Amazon was 23%.

3.)    8% of Amazon’s Total Revenue

For a segment that has no relation to the primary e-commerce business, AWS contributing to 8% of the total revenues is a solid figure. Amazon’s North American sales contributed to 59% of the total revenue and International sales contributed to 33% of the total revenue.

4.)    AWS Snowball

According to the earnings report, AWS Snowball is a “petabyte-scale data transport appliance that can securely transfer 50 TB [terabytes] of data per appliance into and out of AWS for as little as 1/5th the cost of high-speed Internet.” Essentially, AWS Snowball is a product the service provides that allows businesses to easily move 50 TB (50,000 GB) from a company’s physical, on-location server to Amazon’s AWS cloud servers.

5.)    Profits AWS Takes in is More Than North American & International Sale Profits Combined

Lastly, and most importantly, Amazon Web Services is a highly profitable operation. AWS brought in $521 million in profits this last quarter. Profits from North American and International sales total to a combined $472 million. It should be noted that North American sale profits were $528 million compared to the $56 million loss generated by the International segment.

Looking back to the 2014 Q3 earnings for Amazon, its AWS segment was the only one to generate a profit, bringing $98 million. Both North American and International segments produced net losses for profits that year, losing $60 million and $174 million respectively.

Final Thoughts

For being a relatively new and unknown service, AWS brings in essentially 50% of Amazon’s profits, which is rather unfathomable since its e-commerce business is the company’s most recognizable segment. Low operating expenses, relative to the operating expenses of the North American and International e-commerce segments, have been critical for AWS to generate serious profits.

Furthermore, with many businesses and services shifting towards cloud based technologies, AWS will only continue its growth and generate more profits for Amazon. Without AWS, Amazon would most likely have to reconsider its business model.

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