Amazon Q1 Earnings: AWS Is A Cash Cow

Amazon Web Services is highly profitable, with revenue growing fast and new users even faster, Amazon revealed Thursday in its long-awaited Q1 earnings call.

Breaking out AWS financials for the first time, and putting to rest rampant speculation about the financial status of the world's biggest cloud, Amazon Chief Financial Officer Tom Szkutak and Global Consumer Business Chief Financial Officer Brian Olsavsky told investors that AWS did $1.57 billion in business in the first quarter, generating $265 million in profits in the three-month period.

That marks a year-over-year revenue jump of 49 percent, the company said. According to Amazon, profits were 8 percent higher than those recorded in the first quarter of 2014, putting AWS easily on pace to exceed $1 billion in income for the year.

[Related: What Will Amazon's Q1 Earnings Reveal About AWS? Partners Place Their Bets]

"From our perspective, it’s a business that's really still in Day One. A lot of potential innovation [lies] in front of us, we believe," Olsavsky told investors, which, he added, is why Amazon is still heavily investing in capital expenditures.

It's taken nine years for Amazon to open the ledgers for its cloud. Now that AWS financials are no longer included in the category of "other," the business dynamics of a cloud market with rapidly declining prices come into sharper focus.

While Amazon Web Services has dropped its prices 48 times since its inception, the cloud operates at a healthy 16.9 percent margin, according to the e-commerce giant.

Olsavsky said the company's long-term model is to continue to innovate and use scale and position to pass savings on to customers. But the impetus to reduce costs amid a brutal price war isn't driving business strategy.

"Our primary motivator is really around the innovation that AWS delivers and the ability of developers to move really quickly," Olsavsky said.

Amazon had other positive Q1 results. Overall earnings and revenues exceeded Wall Street's expectations, sending Amazon stock up 6.41 percent in after-hours trading, to $415 per share.

Revenues were up 15 percent in the quarter, to $22.72 billion. Factoring out losses because of currency translation rates, they were up 22 percent.

But while Amazon's cloud is profitable, the same isn't true for the overall business. While earnings pleased investors by coming in above expectations, Amazon notched a net loss of $57 million in the quarter.

PUBLISHED APRIL 23, 2014