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Dark Clouds for Amazon Web Services?

Growth for the public cloud platform may have peaked.

When is good news not-so-good news? When record-breaking earnings are overshadowed by trends in the wrong direction.

That's what happened with Amazon's latest reporting period. Whether it portends future struggles is unknown, but it has to be concerning for Amazon Web Services (AWS), the public cloud leader.

In line with Wall Street estimates, the cloud unit raked in $3.66 billion for the period, up by 3.5% from the previous quarter. That figure also represents a 43% year-over-year increase -- a not-insignificant jump by most companies' standards.

However, AWS' growth rates have declined every quarter since Q2 of fiscal 2015, when revenue ballooned by a whopping 81%. Its year-over-year growth has slowed with every earnings report since then. In the previous quarter, AWS revenue grew by just 47% year-over-year, which, until Thursday, was its slowest since AWS began breaking out the unit as a separate line item.

Operating income for Q1 increased year over year by 48% to $890 million, but declined by 3.9% from the previous quarter's operating income of $926 million.

Despite signs that its growth rate may be reaching a plateau, AWS is still Amazon.com's fastest growing segment. The retail giant's two other segments, the North America and International e-commerce units, grew by 24% and 16% year-over-year, respectively. AWS comprises a tenth of Amazon.com's overall revenue.

Executives touted several recent AWS milestones in the earnings report, including the launches of two productivity-oriented solutions -- the Chime unified communications service, and Connect, a cloud-based customer service platform. The company also underscored some of the product announcements from the recent AWS Summit in San Francisco, including the general availability of the Lex AI language service and the launch of tools like CodeStar, DynamoDB Accelerator and Redshift Spectrum.

Overall, Amazon.com reported $35.7 billion in revenue for the first quarter, just beating analyst estimates of $35.4 billion. Earnings per share came in at $1.48, compared to the expected $1.13. Operating income was $1.0 billion.

About the Author

Gladys Rama is the senior site producer for RCPmag.com and senior editor of AWSInsider.net.

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