AWS Customers ‘Cutting Their Budgets’ Amid Economic Woes

‘Customers are looking to save money versus their committed spend. We have options for them to do that. They can manage workloads better, they can switch to lower-cost products that have different performance profiles,’ Amazon.com Senior Vice President and CFO Brian Olsavsky said on the company’s third-quarter earnings call.

Amazon Web Services customers “are cutting their budgets and trying to save money in the short run” and the cloud vendor is focused on helping customers optimize their current cloud spending and investments.

Brian Olsavsky, senior vice president and CFO for AWS parent company Amazon.com, attributed the cuts to inflation, the war in Ukraine, high energy costs and other global economic woes.

“The business is growing in absolute dollars at a really good clip,” Olsavsky said on the company’s latest quarterly earnings call, held Thursday. “We do see some of the consumers are cutting their budgets and trying to save money in the short run.”

He continued: “I think everyone‘s just cautious and they want to, again, watch their spend. And as CFO, I appreciate that. And we’re doing the same thing here at Amazon.”

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How Did Amazon Do In The Third Quarter?

Olsavsky gave results for the third quarter of Amazon.com’s fiscal year ended Sept. 30.

Financial services, mortgages and cryptocurrencies were specific industries that saw lower demand during the quarter, he said.

And although less customer spending could hurt AWS in the short run, Olsavsky said he is hopeful that showing customers the flexibility that comes with cloud spending becomes a selling point for AWS in the future.

“Customers are looking to save money versus their committed spend. We have options for them to do that. They can manage workloads better, they can switch to lower-cost products that have different performance profiles. They can switch to Graviton chips that have a higher-cost-per-performance ratio”, he said.

“We think the benefit of cloud computing is really showing up right now because we allow customers to turn what can normally be a fixed expense into a variable expense, and they can let us manage the highs and lows of inflation and other costs, electricity and everything else. … I think this is just like in 2020. These time periods are good for long-term adoption on cloud computing. But, the opposite in the short run is that some companies have demand that drops.”

Unlike during the height of the COVID-19 pandemic, when some companies slowed and others performed very well, the overall cloud customer landscape is one of caution, Olsavsky said.

Amazon Also Controlling Costs

As Olsavsky said, Amazon.com is also in a cautious spending period, including with hiring.

“As we’ve done at similar times in our history, we’re also taking actions to tighten our belt, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere,” he said.

Although Amazon.com expects similar capital spending to 2021, it has increased spending on AWS and technology infrastructure by $10 billion and decreased spending on its retail-tied fulfillment and transportation investments by $10 billion. It expects $60 billion in capital investments for full-year 2022.

Amazon Third-Quarter Results

AWS sales reached $20.5 billion, an increase of 28 percent excluding foreign exchange rates. AWS reported operating income of $5.4 billion, a 10 percent increase year over year.

AWS parent company Amazon.com reported that net sales were $127.1 billion for the quarter, an increase of 15 percent year over year. Like other publicly traded tech vendors, Amazon.com faulted foreign exchange rates as a hindrance, costing the company $5 billion.

North America sales reached $78.8 billion, a 20 percent increase year over year.

Amazon.com’s operating income was almost halved year over year to $2.5 billion for the quarter. North America sustained an operating loss of $400 million, almost half the loss experienced during the same period a year prior.

Amazon.com’s net income decreased by 10 percent year over year to $2.9 billion for the quarter.

AWS, meanwhile, has provided free cloud computing training to 13 million people worldwide since 2020, with a goal of free training to 29 million by 2025.

Amazon.com stock traded at about $97 after hours, a decrease of about 13 percent.

Amazon Fouth-Quarter Guidance

Amazon.com expects net sales growth of between 2 percent and 8 percent, putting it at between $140 billion and $148 billion, according to the company.