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Amazon CFO: Strong AWS Performance, Subscription Demand Gave Company Q3 Lift

Continued growth in Amazon Web Services (AWS) and strong demand for subscription services helped Amazon report stronger results for its third quarter (ended Sept. 30), according to CFO Brian Olsavsky.

It was a “very strong quarter” for AWS, with revenue growth the same as in the second quarter, he said Oct. 26 on an earnings call with analysts. “Now, we’re at an $18 billion run rate, whereas last quarter when I had this call, we were at $16 billion, so” Amazon was “very pleased with the customer response in the AWS business,” he said, adding “usage growth is actually growing a lot higher than revenue growth.” Amazon was “particularly pleased with the new customers that we’ve added and the additional workloads that we’ve picked up from existing customers,” he said.

Total Amazon subscription revenue grew 59%, which was 600 basis points higher than in Q2, he said. That included fees associated with Amazon Prime membership, digital music, digital video, audiobooks and e-books, he said. Amazon’s monthly program is “gaining traction and is an attractive option for a lot of people,” he noted, adding the other subscription services, “music especially,” work well with Amazon’s artificial intelligence (AI)-driven Echo devices that it’s also seeing growth in as the number of its Echo devices grow.

In only the past month alone, Amazon introduced five new Alexa-enabled devices, expanded Alexa to India, announced integration with BMW cars, integrated Alexa with Sonos speakers and “taught Alexa to distinguish between two voices,” Amazon CEO Jeff Bezos said in the company’s earnings news release.

He pointed out that, “because Alexa’s brain is in the AWS cloud, her new abilities are available to all Echo customers, not just those who buy a new device.” To date, consumers have bought “tens of millions of Alexa-enabled devices” and “active customers are up more than 5x since the same time last year,” he said, adding that, “with thousands of developers and hardware makers building new Alexa skills and devices, the Alexa experience will continue to get even better.”

Amazon’s total Q3 revenue soared 34% from a year ago, to $43.7 billion, including $1.3 billion this time from its recent purchase of Whole Foods Market. Excluding Whole Foods and the $124 million favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, Q3 sales increased 29% from a year ago. Profit grew to $256 million from $252 million.

Company head count grew 77% from a year ago, including the impact from its acquisitions of Whole Foods and Middle East e-commerce company Souq over the summer, Olsavsky said on the call. Excluding those purchases, Amazon head count grew 47%, up from 42% in Q2 this year, he said, pointing out “a lot of the additional pickup in Q3 was tied to our ramp for the holidays.” But Amazon also continues to “hire a lot of software engineers” and “we continue to hire a lot of sales reps and it’s tied directly to our major investment areas of AWS, Prime Video and devices,” he said.

Amazon is going to “continue to invest in video and increase that investment in 2018 … because the video business is having great results with our most important customer base, which is our Prime customers,” Olsavsky went on to say, adding: “It continues to drive better conversion of free trials, higher membership renewal rates for existing subscribers and higher overall engagement. We’re seeing the engagement go up year-after-year in video and also music and a lot of the other Prime benefits. We also know Prime members who watch video also spend more on Amazon.” Amazon shares were up 13.4% at $1,103.15 in afternoon trading Oct. 27.