AWS says growth dropped to mid-teens to start new year as customer cost-cutting continues

Yesterday Amazon reported earnings, with AWS growing a modest 20% for the quarter over the prior year to $21 billion. But perhaps even more troubling, the company reported in the earnings call with analysts that growth dropped even further into the mid-teens for the first month of the new year, as the cloud continued a general slowdown with customers looking for ways to slash bills.

“As we look ahead, we expect these optimization efforts will continue to be a headwind to AWS growth in at least the next couple of quarters. So far in the first month of the year, AWS year-over-year revenue growth is in the mid-teens,” CFO Brian Olsavsky said in his comments to open the call.

For a division that has enjoyed high growth rates for years, mid-teens growth represents an extraordinary drop, and it didn’t go unnoticed during the earnings call. Analysts were certainly curious whether it was a longer-term trend, but Olsavsky really wasn’t ready to predict beyond this quarter.

“So on the AWS growth rate, I’m not sure I can forecast for you with any level of certainty what is going to happen beyond this quarter. This is a bit of uncharted territory economically. And as we mentioned, there’s some unique things going on with the customer base that I think many in this industry are all seeing the same thing,” he said.

It is worth noting that Olsavsky also reported an annual revenue run rate of $85 billion, suggesting that AWS remains an extremely healthy business in spite of the economic headwinds it’s facing. “That said, stepping back, our new customer pipeline remains healthy and robust, and there are many customers continuing to put plans in place to migrate to the cloud and commit to AWS over the long term.”

Amazon CEO Andy Jassy, who spent a good part of his career at the company running AWS, says that as customers look to cut costs, there will be a short-term growth deceleration, but still sees plenty of cloud market to conquer post downturn.

“So I think it’s also useful to remember that 90% to 95% of the global IT spend remains on-premises. And if you believe that, that equation is going to shift and flip. I don’t think on-premises will ever go away, but I really do believe in the next 10 to 15 years that most of it will be in the cloud…It means we have a lot of growth in front of us in the AWS business,” he said.

Perhaps, but for a business that has been a growth engine for the company for many years, the current slow-down at AWS still has to be worrying.