Amazon Focuses on LATAM: Should Google & Microsoft Worry?

Amazon AMZN intends to expand its Amazon Web Services’ (“AWS”) in Latin America (“LATAM”) by setting up new data centers, per Reuters.

This initiative is in the same vein as Amazon’s expansion drive in cloud computing business via new and advanced data centers in Argentina and Chile. The company opened a new AWS office in Buenos Aires, Argentina, which will aid in promoting the utilization and innovation of cloud-based technologies.

The company’s strong initiatives to expand operations globally have been strengthening its cloud computing business. Moreover, AWS, which manages data computing in cloud for its enterprise clients, is expected to achieve more efficiency and accuracy in data management with the increasing number of data centers worldwide.

These factors are likely to provide Amazon a competitive edge in the cloud computing market, where it is facing stiff competition from the likes of Microsoft MSFT Azure, Alphabet’s GOOGL Google cloud and Alibaba BABA.

Per Synergy Research, AWS maintained dominance in the cloud infrastructure services market in first-quarter 2018. Microsoft, Google and Alibaba gained share from small-to-medium sized cloud operators.

The robust performance of high-margin AWS has aided Amazon in delivering strong results in the recently concluded quarter. Shares have returned 35.6% on a year-to-date basis, outperforming the industry’s rally of 19.4%. Moreover, the return is better than Microsoft and Alphabet’s gain of 14.1% and 2.9%, respectively.
 

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Cloud Competition Intensifies In LATAM

With growing opportunities in cloud market, Amazon, Google and Microsoft are investing regularly in order to reap benefits from the emerging trend.

Rising demand for public cloud services is further aiding growth of these cloud service providers. Per a Gartner report, the global market for public cloud services is expected to grow 21.4% in 2018 from 2017 to exhibit revenues of $186.4 billion.

Additionally, the market for cloud system infrastructure services is growing at a rapid pace and is anticipated to reach $40.8 billion in 2018, up 35.9% from 2017.

Amazon’s strong focus toward expansion of its cloud business in the Latin American region is likely to bolster its competitive position against the other two.

Notably, Microsoft Azure was the biggest gainer in the last quarter by acquiring 13% of market share, up from 10% in the year-ago quarter. The company provides cloud facilities to Latina America through its data center in Brazil. It also has an availability zone in the Latin American country.

Google Cloud’s market share has gained 6% in the first-quarter 2018, up from 5% in the prior-year quarter, indicating improvement. The tech giant also has three availability zones in the LATAM region with Sao Paulo, Brazil being the newest one.

However, AWS rules the roost with 33% market share in the previous quarter which remained flat year over year. Amazon is way ahead in the LATAM as well with offices in Brazil, Chile, Colombia, Argentina and Mexico. The company intends to solidify its position with further expansions.

The company’s operational drive in LATAM stems from the region’s abundance of new and skillful talents and immense growth opportunity that it presents. This will provide more expertise to the company which will benefit the production efficiency and business model. Consequently, it is believed that the expansion will continue to benefit the market position of AWS.

AWS Global Expansion Remains Positive

AWS currently operates 55 availability zones across 18 geographic regions globally. This figure is higher than Google Cloud’s figure of 46 availability zones in 15 regions.

However, Microsoft Azure’s total number of available regions is 40 in 140 countries which is a big number. Further, the company is planning to set up 10 more regions worldwide.

Nevertheless, we believe that Amazon will maintain its dominant position on the back of its expansion plans worldwide.

AWS already has strong presence in LATAM and is gearing up to expand in Middle East countries. The company plans to open 12 more availability zones across four regions — Bahrain, Hong Kong, Sweden and a second GovCloud Region in the United States by early 2019.

The new AWS region in Bahrain will include three availability zones which will help the customers and APN Partners to store their data with lower latency.

AWS launched two availability zones and one local region in Osaka, Japan in the last quarter. Also, the company’s ongoing plan of setting up AWS Edge Network Location in the UAE also remains a catalyst.

Further, AWS has shown strong interest in $550-$650 million submarine cable project which is expected to stretch some 20K kilometers from Patagonia to China.

Zacks Rank

Currently, Amazon carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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