AMAZON COM INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Stores Business: Focused on broad selection, low prices, fast/free delivery, and Prime member benefits. Made progress in fulfillment network cost structure, including improved inventory placement (+25% year-over-year inventory spread), rolling out same-day delivery facilities (over 40 million customers had free same-day delivery in Q3), and innovating in robotics with the 12th-generation fulfillment center design reducing processing time by up to 25%.
• Advertising: Pleased with progress, seeing growth on a large base, with opportunities to expand in areas like Prime Video ads and using Generative AI-powered creative tools.
• AWS: Continues to grow rapidly, with AI business growing triple-digit percentages year-over-year. Invested in custom silicon (Trainium2 ramping up, Inferentia for inference) and partnerships with NVIDIA. Amazon Q and other AI applications across businesses, including consumer tools (Rufus, AI Shopping Guides) and seller tools (Project Amelia), and advancements in Kindle products with new lineup and AI features.
• Pharmacy: Delivering medications to 95% of first-time Amazon Pharmacy customers in the US within two business days, planning to launch in 20 new cities next year to improve medication adherence.

Segment Performance

• Stores Business: North America segment revenue grew 9% year-over-year to $95.5 billion; International segment revenue grew 12% year-over-year to $35.9 billion. Sales growth in stores was 9% in North America and 12% in international.
• Advertising: Generated $14.3 billion in revenue, up 18.8% year-over-year. It remains a significant contributor with growth in areas like Sponsored Products and early stages of Prime Video advertising.
• AWS: Revenue was $27.5 billion, up 19.1% year-over-year, with an annualized revenue run rate of $110 billion. North America and international segments each had their seventh consecutive quarter of year-over-year operating margin improvement.

Guidance

• 2024 CapEx: Expected to spend approximately $75 billion, with the majority for AWS and Generative AI investments.
• 2025 CapEx: Likely to spend more than 2024, driven by Generative AI growth. AWS CapEx will be significant due to expanding AI services.
• AWS Margin: Acknowledges margin fluctuations based on investment, innovation, staffing, and capital for customer growth, but expects healthy margins over time as the market matures.

Risks

• Unpredictable Factors: Fluctuations in foreign exchange rates, global economic and geopolitical conditions, customer demand, inflation, interest rates, labor market constraints, world events, and technology trends. Guidance assumes no additional business acquisitions, restructurings, or legal settlements, but actual results may differ materially from guidance due to these unpredictable factors.

Question and Answer

Q: Talk about AWS margins and 2025 CapEx A: Brian Olsavsky discussed AWS margin drivers including accelerating demand, server useful life extension, and cost control. Andy Jassy mentioned 2025 CapEx is likely to be higher than 2024, primarily driven by Generative AI growth.

Q: International retail profitability and robotics A: Brian Olsavsky talked about international segment margin improvement driven by same factors as North America (lower cost to serve, advertising, etc.). Andy Jassy discussed robotics progress, early stages of deployment, and AI integration in fulfillment networks.

Q: Commerce ASPs, unit growth, and strategic initiatives A: Andy Jassy and Brian Olsavsky discussed consumer price consciousness, focus on everyday essentials (which skew more to 1P), and long-term strategies for lower ASP items and building on consumables consumption habits.

Q: Third-party unit mix and Alexa's future A: Andy Jassy explained third-party unit mix related to everyday essentials being more 1P-driven. He discussed Alexa's future with next-generation foundation models, emphasizing action-taking capabilities and being a leader in the personal assistant space.

Q: Cloud capacity and retail fulfillment advantages A: Andy Jassy talked about cloud demand exceeding capacity currently, with NVIDIA partnership and custom silicon driving growth. For retail, advantages include broad selection, fast delivery, and strong customer orientation prioritizing customer needs.