Amazon Q1 Earnings Preview: How Much Will AWS Grow?

In what promises to be one of the busiest days of season, several of the world’s biggest tech companies, including the likes of Alphabet (GOOGL – Free Report) and Microsoft (MSFT – Free Report) , are set to post their latest reports on Thursday. Nevertheless, investors can expect internet behemoth Amazon (AMZN – Free Report) to hog the attention when it releases its first-quarter results after the market closes.

Over the past several years, Amazon has transformed from an e-commerce innovator into a bonafide powerhouse in every corner of the tech world. The company now boasts a portfolio that includes a burgeoning media department, millions of premium members, and the fast-growing Amazon Web Services (AWS) unit.

Amazon Web Services is a collection of enterprise-level platforms designed for websites and companies that can’t afford the time or money it takes to develop their own server farms. In short, AWS provides cloud-based storage and templates for companies to quickly boost their computing capabilities.

The cloud computing industry is thriving, and AWS is booming. What’s more, the segment offers Amazon some reliable profitability, allowing the company some leeway to burn cash on other projects. All one needs to understand about AWS can be found when looking at its growth rates and margins.

Amazon Web Services revenues came in at $3.536 billion for the fourth quarter, marking year-over-year growth of 47%. These results brought the segment’s full-year total to $12.219 billion, up more than 55% from its prior-year total of $7.880 billion.

And at the same time that Amazon has been able to grow the AWS division, it has also been able to make it more profitable.

Keeping the unit’s 2015 and 2016 revenue totals in mind, note that its operating income in 2016 was up to $3.108 billion from $1.507 billion in 2015. This means that the Web Services unit operated with an EBITDA margin of 25.4% in 2016, which was a nice improvement from the EBITDA margin of 19.1% it posted in 2015.