Amazon’s (AMZN - Free Report) cloud division Amazon Web Services (“AWS”) has been a key catalyst behind the company’s scintillating growth in recent times. In recently concluded first-quarter 2018, AWS revenues surged 48.6% year over year to $5.44 billion primarily driven by expanding customer base.
High performance rate and rapid deploy ability has made AWS’ tools desirable for small businesses as well as enterprises. Moreover, Amazon’s continuing investments on infrastructure development globally are aiding growth.
These factors are helping AWS to not only attract new customers but also entice existing customers to expand their usage of Amazon’s wide range of services across computing, storage, database, analytics, networking, mobile, developer tools, management tools, Internet of Things (IoT), security and enterprise applications.
Telecom giant Verizon Communications (VZ - Free Report) is one such existing client which is now expanding AWS usage significantly.
The company will shift 1,000 business-critical apps and database systems to AWS. This will also involve migration of production databases to Amazon Aurora — AWS’ relational database engine, which also supports open-source MySQL and PostgreSQL databases. Notably, Amazon Aurora continues to be the fastest growing service in the history of AWS.
What the Expanded Verizon Deal Signifies?
Notably, Verizon is one of the frontrunners to deploy 5G in the United States. The company recently announced that it will be launching 5G in Los Angeles with the mobile network likely to be deployed late 2018. Sacramento is the first of the three/five cities in which the company is expected to deploy 5G.
Verizon’s selection of a public cloud provider to migrate its database is likely to prompt other telecom providers to move their workloads to cloud. Moreover, 5G is expected to provide faster connectivity and more cost efficient delivery. This will facilitate faster content download as well as live video streaming, consequently increasing workload exponentially.
We believe a distributed cloud model will be required to address this massive problem and AWS is well-poised to provide a solution. Based on its partnership with Nokia (NOK - Free Report) , the company has developed a converged (combining AWS’ and Nokia’s networking solutions) offering that will help it to address the needs of next-gen connectivity.
We believe the latest Verizon deal will aid Amazon to rapidly penetrate the telecom market. The increasing workload related to 5G and IoT deployments as well as customer base expansion will drive top-line growth. This will also boost its competitive prowess against Microsoft (MSFT - Free Report) , Alphabet (GOOGL - Free Report) and Alibaba (BABA - Free Report) .
Microsoft Gaining Momentum
Per latest data from Synergy Research, quoted by CNBC, AWS held 33% of the cloud infrastructure market in first-quarter 2018, flat on a year-over-year basis but down sequentially.
Meanwhile, Microsoft was the biggest gainer as market share of Azure increased to 13% from 10% reported in the year-ago quarter. Google’s market share also advanced to 6% from 5% reported in the year-ago quarter.
Synergy research stated that Microsoft, Google and Alibaba didn’t grow at the expense of Amazon. Instead the companies’ seized shares from small-to-medium sized cloud operators, who collectively lost market share.
Amazon with market share above 30% continues to dominate, per research firm Canalys’ data as quoted by CNBC. However, Microsoft has gained rapidly, while Google also experienced modest improvement.
Microsoft Azure is also benefiting from rapid increase in customer base. In the last reported quarter, revenues soared 89% at constant currency on a year-over-year basis. Strong adoption of its Office 365 suite is also anticipated to boost cloud top-line growth, going ahead.
Moreover, Microsoft invested around $3.5 billion in capital expenditures during the quarter, a majority of which was certainly on enhancing the features of cloud business. Data center expansion also continues with Azure now in 50 regions globally, more than any other cloud provider.
Google Cloud continues to gain modestly. Although the company doesn’t separately disclose cloud numbers, Alphabet’s “Google other revenues” category, which is comprised of the Google Play Store, Google Cloud offerings, and its hardware initiatives, surged 35% to $4.35 billion in the recently concluded the first quarter.
Solid Clientele to Aid Market Share Expansion
Nevertheless, we believe AWS’ rapidly expanding enterprise clientele that now includes Disney, Expedia, Comcast, GE, Salesforce.com, Workday and Netflix will continue to bolster share in the Infrastructure-as-a-service (IaaS) market.
In the first quarter, AWS added enterprise customers like GoDaddy, Shutterfly, NextGen Healthcare, Amway, and LG Electronics among others. Moreover, AWS launched two Availability Zones ("AZ") and one Local Region in Osaka, Japan during the quarter.
AWS now operates 54 AZ across 18 geographic regions globally. The company plans to open 12 more AZ across four regions (Bahrain, Hong Kong, Sweden) and a second GovCloud Region in the United States by early 2019.
We also note that AWS, which now contributes 11% of Amazon’s first-quarter revenues, is significantly profitable. Operating income of $1.4 billion was almost 73% of the company’s total operating income in the first quarter.
Currently, Amazon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Both Microsoft and Alphabet carries a Zacks Rank #3 (Hold).
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