#Amazon 's cloud service, #AmazonWebServices, has grown into a massive $12 billion annual revenue business, just 10 years after its launch. #AWS, in fact, has done so well that it's never missed street estimates since 2015, when Amazon first started breaking out its numbers. But it finally hit the wall in Amazon's most recent quarter. It fell 2% short of the $3.6 billion street estimates, failing to meet Wall Street's lofty expectations for the first time. Still, most investors remain confident in AWS's future. And some of them believe AWS saw stronger growth last quarter than what it appears to be, pointing to a rather typically overlooked part of Amazon's business: unearned revenue. Unearned revenue Unearned revenue is the amount of money that has not been recorded as revenue — yet. For example, if you sign a $1,200-a-year contract, only a quarter of the amount (or $300) gets recorded as revenue in the first quarter, with the remaining $900 going to unearned revenue. Each passing quarter, another $300 would get added to revenue, while the same amount would get reduced from unearned revenue. In the fourth quarter, Amazon had $4.8 billion in unearned revenue. That's a $600 million jump from the previous quarter, an unusually big spike compared to recent quarters. It increased $350 million sequentially in the third quarter and just $90 million in the second quarter of 2016. Part of Amazon's unearned revenue comes from its annual Prime memberships, but according to Deutsche Bank's estimates, a "healthy portion" of the increase came from AWS contracts. That means AWS has hundreds of millions of dollars in backlog revenue just sitting on its balance sheet waiting to get recorded in the near future. “It likely points to stronger-than-realized growth at AWS," RBC Capital's Mark Mahaney wrote in a note Friday.
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