Amazon Hopes Cloud Investments Will Stave Off Competition From Microsoft, Google

Reviewing Amazon.com, Inc. AMZN's first-quarter results, Oppenheimer said it believes investments in cloud will help the company stave off competition from Alphabet Inc GOOG GOOGL and Microsoft Corporation MSFT.

Smallest EBIT Margin Growth At AWS

Analysts Jason Helfstein, Timothy Horan, Jed Kelly and Alec Brondolo noted that Amazon's cloud business AWS reported the smallest year-over-year EBIT margin improvement in the recently concluded first quarter.

The analysts blamed this on the doubling-down on headcount relative to software and value-added services.

AWS Stats For Q1

  • AWS net sales: $3.66 billion or 10 percent of the total net sales, up 43 percent.
  • Operating expenses: $2.77 billion, up about 41 percent.
  • Operating income: $890 million, up 39 percent.

The sales growth at AWS slowed for the seventh consecutive quarter. In comparison, Azure's revenue rose 93 percent.

Investment In Cloud To Take On Competition

Oppenheimer believes the investments in AWS headcount is aimed at Google Cloud Platform and Microsoft's Azure, as the two competing platforms gain share.

With Google selling storage and processing at close to cost, Oppenheimer believes AWS's competitive advantage is its large and growing suite of software and value-added services. This, according to the firm, has kept the largest and most sophisticated enterprises on AWS.

"We view 1Q margin trends as supportive of this thesis," the firm said.

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Posted In: Analyst ColorEarningsLong IdeasNewsAnalyst RatingsMoversTechTrading IdeasAlec BrondoloAWSAzurecloudcloud computingcloud technologyJason HelfsteinJed KellyMicrosoft AzureOppenheimerTimothy Horan
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