On Oct. 27, e-commerce and cloud computing titan Amazon (AMZN -1.11%) reported financial results for the third quarter of 2022. The stock plummeted as a result. Studious investors undoubtedly read the official press release and noted slowing revenue growth, a steep decrease in operating income, and weak financial guidance. 

However, one of the biggest numbers for Amazon -- $104.3 billion, to be exact -- is found not in the official earnings press release, but rather in its quarterly filing with the Securities and Exchange Commission (SEC). And it's the most important number for Amazon shareholders to be aware of, in my opinion.

Amazon Web Services has a massive backlog

Amazon Web Services (AWS) is Amazon's cloud-computing platform, helping companies like Netflix in creating its video content, Verizon in building out its 5G infrastructure, and even Vertex Pharmaceuticals in developing new drugs.AWS is so big that there's a good chance it's powering something you use today behind the scenes.

To access AWS' services, companies sign contracts with Amazon. Payments are then made to Amazon over the life of the contract. According to the company, it has $104.3 billion in future contracted revenue. The average time remaining on these contracts is 3.8 years.

On one hand, this backlog for AWS is massive. Consider that AWS has recorded net sales of $58.7 billion through the first three quarters of 2022. At this run rate, Amazon's AWS backlog represents 133% of AWS' net sales for an entire year.

On the other hand, AWS' backlog growth slowed in Q3, as the chart below illustrates.

Quarter Contracted obligations for AWS YoY growth QoQ growth
Q4 2021 $80.4 billion 61% 21%
Q1 2022 $88.9 billion 68% 11%
Q2 2022 $100.1 billion 65% 13%
Q3 2022 $104.3 billion 57% 4%

Data source: Amazon's SEC filings. Chart by author. YoY = year over year. QoQ = quarter over quarter.

In its conference call to discuss Q3 results, Amazon's management tried to reassure analysts regarding this slowdown. The company said that "the new customer pipeline is healthy." But they also admitted that companies right now seem to be more focused on looking for cost savings for their businesses. They're not looking for new places to sign long-term spending contracts. 

Why AWS matters for investors

Through the first three quarters of 2022, AWS has only accounted for 16% of Amazon's total revenue. However, it's Amazon's only profitable segment. AWS has a 30% operating profit margin so far this year, generating a whopping $17.6 billion in operating income. By contrast, Amazon's North American and international e-commerce operations are responsible for operating losses of $2.6 billion and $5.5 billion respectively over the same time span. 

This is why some investors have jokingly said that if you buy Amazon stock, you're buying AWS and getting its e-commerce operations for free. Indeed, AWS by itself has $21.2 billion in operating income over the past 12 months. With a market capitalization of $910 billion as of this writing, Amazon stock trades at 43 times AWS' operating income. While not necessarily cheap on an absolute basis, that's not the worst valuation I've seen in a stock over my career as an investor.

However, the reality is that Amazon's e-commerce operations don't come free -- they are part of an Amazon investment, and these segments are unprofitable. AWS is the segment driving profits for the company. Therefore, what happens to AWS from here will largely determine what happens with Amazon stock.

As we've seen, AWS' growth may be slowing, as evidenced by its slowing backlog. Management believes Q3 results were a fluke and the company will enjoy better growth in the near future. 

Management's commentary may be validated in coming quarters. However, I would approach an Amazon investment cautiously right now -- it can't afford to have AWS growth stall. But fortunately, this isn't a pressing concern for shareholders. As already stated, the weighted average for time remaining on AWS contracts is 3.8 years. Therefore, investors can calmly and patiently watch how this plays out for now. A further deceleration in the upcoming fourth quarter would be more alarming. 

My recommendation would be to hold Amazon stock if you already own it, continuing to monitor the growth trends for AWS.