Q4 2019 Earnings Call
[music].
Thank you for standing by good day, everyone and welcome to amazon.com Q4, 2019 financial results teleconference. At this time, all participants aren't I listen only mode. After the presentation only conduct a question and answer session. Today's call is being recorded for opening remarks, I'll be turning the call over to the director of in.
Since Shelley K Piper. Please go ahead.
Hello, and welcome to our Q4 2019 financial results conference call joining us today to answer your questions or Brian Osowski, Our CFO and day filed director of Investor Relations.
As you listening to today's conference call. We encourage you to have our press release in front of view, which includes our financial results as well as metrics and commentary on the quarter.
Please note unless otherwise stated all comparisons in this call will be against our results for the comparable period of 2018.
Our comments and responses to your questions reflect management's views as of today January Thirtyth 2020, only and will include forward looking statements.
Actual results may differ materially.
Additional information about factors that could potentially impact our financial results is included in today's press release in our filings with the FCC, including our most recent annual report on Form 10-K and subsequent filings.
During this call we may discuss certain non-GAAP financial measures.
In our press release slides accompanying this webcast and our filings with the FCC each of which is posted on our IR website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures.
Our guidance incorporates the order trends that we've seen to date and what we believe today to be appropriate assumptions.
Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates changes and global economic conditions and customer spending world events the rate of growth of the Internet online commerce and cloud services.
And the various factors detailed in our filings with the FCC.
Our guidance also assumes among other things that we don't conclude any additional business acquisitions investments restructurings or legal settlements.
It's not possible to accurately predict demand for our goods and services and therefore actual results could differ materially from our guidance.
With that we will move to chew and <unk> operator, please remind our listeners how do we initiate a question.
At this time, we'll now open the call up for questions. We ask each caller. Please limit yourself to one question. If you might ask a question. Please press star one under keypad, we ask that when you pose your question you pick up your handsets provide optimum sound quality once again to initiate a question. Please press Star then one on your touched.
Tone telephone at this time, please hold all the poll for questions.
Thank you. Our first question is coming from the line of Heath Terry with Goldman Sachs. Please proceed.
Great. Thanks really appreciate this is just on the on the HW Es business as you as you look sort of it the strength that you saw in the quarter, particularly.
Represented by the the amount of dollars added.
Quarter over quarter is there anything in particular that you would you would call out either in terms of specific types of workloads regions I'm specific customer types that that you felt like drove this this strength, particularly relative to the.
Directional a directional growth that we were seeing in the earlier parts of the year.
Hi, He's no I would not.
Hi, slated to any one set of customers are products I think it's been pretty broad based and Ah.
Kind of the culmination of a lot of work on adding new products and features.
Adding to our sales and marketing teams and having a better penetration in enterprise customers and hitting a lot it varied and different industries.
So I think I think that's what you're saying you know we feel that are products that is it leads the market and though we add to it and quicker pace than our competition. So actually the gap on capacity and features is growing as we speak.
We also think that there's a real network effect, we use ADW last with the millions of active customers in tens of thousands global partners and you know continue expand we're now at 69 availability zones across 22 geographic region. So I think it's a combination of increased sales or support.
More and better products that a customer's needs and also the geographic expansion is what you're seeing.
Thank you. Our next question comes the line of Colin Sebastian with Robert W. Baird. Please proceed.
Thank you I'm, just hoping you guys could just aggregate a bit to strengthen seller services. How much of that was third party marketplace Commission specifically in are you seeing more of an up tick in somebody other content.
In services. Thank you.
Oh, and sellers or excuse me on seller services I would say it was just a very strong quarter. If that's your free to.
31% growth in revenue.
It was strong on a unit basis.
And as you said, there's probably a additional strengths in F b, which has higher fee set than m. offend does so but in general stuff away I think what you're seeing is born works patient of third party sellers in or one day delivery program as we move through the year I was particularly strong in Q4 and Ah.
I think you'll see that margin doesn't to 2020.
Thank you. Our next question comes Carolina, Justin Post with Bank of America. Please proceed.
Thanks, just wondering if you can go high level, what drove upside to your guidance on revenue in the quarter on the retail side anything there that you really call out and then on the AAMC investments or you know obviously you just talked about investments starting in three Q where are you in that in investment. Your your margins are still below peak.
Where are you kind of in that investment cycle. Thank you.
Sure.
Well I said on revenue we are came in at $87.4 billion, which exceeded the high end of our range of 86, and a half billion dollars, a 400 million up roughly 40 million to that was due to foreign exchange, but.
What we saw was essentially very strong.
Holiday performance from the Middle of November on Oh, We also had a.
Very big uptick in and response to the one day availability that's been built into the year I think prime as I've been very strong you noted we I mentioned that we have more than 150 million paid prime members globally now.
And we mentioned that well see more people join prime Q4 that or any other quarter before so a lot of good momentum there built up on the aggregation of benefits that we continue to to add to the pride program.
Most recently, the one day or.
Expansion of one day shipping.
I need of U.S.
Where are we in the cycle.
I talk more inch or 2018, when the margins in a eat up you asked for a it's closer to 30% about the efficiency of infrastructure spend and versus prior years. So we continue to since that point, we've continued to add a infrastructure.
Sure.
Facility and to support our global expansion as well, but what you're seeing probably more in the margins is.
The expansion of our sales and marketing effort at some of those costs as well as price decreases and or longer term contracts that we signed with.
Some of our customers you notice on our balance sheet that.
Our future commitments on the multiyear deals now stands at $30 billion at yearend and that's up 54% year over year. So you know there's a lot of a good momentum on the enterprise side as well.
Thank you. Our next question comes from line of Jason Helfstein with Oppenheimer and company. Please proceed.
Thanks, I'm just a just after about a ws again I mean, there's a investors have have become I guess recently concerned just about a year getting the slowing a diverse revenue and margin and whether it's a function of increased competition.
So maybe just talk about you know how you are reacting you did talk about spending on sales and price cuts, but it just anymore. You can talk about the competitive environment. Thank you.
Sure I I would.
Probably argued that with the growth comments you know as we see it here. We grew from a 30 billion dollar revenue run rate at the end of 2000 $18 billion to $40 billion referees long made its way into 2019. So we continue to be happy with our topline growth the.
Dollar terms as opposed to percentages, we had a larger dollar increase in revenues both year over year and quarter over quarter. So we're very.
Happy with the progress of the ER.
Revenue in and our adoption and acceptance by customers out as far as competitors come competitive set a is concerned we again, we think that we have.
Ill start with a very big lead in this space because of our many years of a investment not only in capacity, but also in services and features that we provide to customer we learn from customers. We just had a great re:Invent Conference in December where all of our is a great.
Aggregation partners and customers and developers and that those events. We are not only gets present, our new products and they were over 100 and Ah that were launched in December but we also gets a your customer issues and help is that helps to sign a or or educate our forward roadmaps.
So it's a great shared learning I think customers react to it customers will be at different stages of their adoption curve, a there's always a different phases for a first moving to the cloud than.
Organizing on the cloud and growing further so there's a lot of movement I said that repeatedly I think on that in this setting that you know any quarter quarter to quarter movements going to be a you know a little bumpy, but.
Generally what you're seeing is the convergence of a lot of investment a lot of operational efficiency and a lot of innovation on behalf of customers.
Thank you. Our next question comes on line of Stephen Ju with Credit Suisse. Please proceed.
Yeah. So thank you one of the switch it up a little bit just so you guys called this out in your press release, but I.
I'm wondering if you could talk about your first skip the SMB use and the Microcyn visa online in India. What exactly is involved from a practical perspective or do you need to have a door to door sales folks and you know what can you do you do reduce friction between logistics payments and somebody other factors there and so.
Hi, Good you know what are the you've got some be selling visit like small killed inventories at merchandise. So you can get to exports to global buyer base and you know do you think this could be content that could be exclusive to Amazon Becky.
Yes, Stephen a this is Dave thanks for the question.
Hi, guys you said I mean, there's some mentioned this in the release, where we're definitely continue to improve the experience in India for customers in sellers I'm excited by some of the response, we've seen a we are continuing to invest meaningfully and.
Digitizing those.
M.S. and these micro small medium size businesses, we did pledged to invest a billion dollars to help digitize a treat or send us those micro small businesses across India, and we've got to gold, bringing more than 10 million online by 2025. So this billion dollar investment we'll.
Hope to enable $10 billion and cumulative Indian exports by 2025 a lot of.
A lot of different facets of those types of investments I wont go into too much for specifics but.
A lot of work being done there were also focused on a job job growth job creation over there since we launched over in.
India in 2013, we created over 700000 direct and indirect jobs. So we also recently announced plans to create an additional 1 million jobs in India by 2025. So a lot of I think innovation ideas investment that team over there continues to agree to a great job a loquacious taking a lot.
For the.
Tenets that you know we've had to Amazon around a innovation building and it really a run without over there and have done a great job of coming up with some interesting into service and features that I think our specific to chew that region and hopefully you know as we continue to do that will keep identifying areas over in India and Toolsets features over in India.
So that we can bring back to other regions to health benefit other sellers and the other websites more broadly.
Thank you. Our next question comes on line of Brian Nowak with Morgan Stanley . Please proceed.
Thanks for taking my question I have I have to just the the first one Brian I think on one of the the media interviews you talked about how you're becoming more efficient with one day and your continued it was next day delivery continuing to do so and talked about a billion dollars of costs in a in the current quarter, maybe just sort of talk to us about sort of some of the largest qualitative.
Fixed and variable cost sort of still associated with one day and the the processes and the opportunities for efficiency to really get that number down as we go throughout 2020.
And then maybe any specific product categories are a good categories, where you've seen a celebration in demand from one day that you call out.
Sure, let me and make sure the numbers are understood.
We had talked about last year about an initial and Ah step up in cost of close to $800 million in the second quarter.
We are that carried into Q3 was slightly higher in Q3, and then in Q4 last time around this call I mentioned that we estimate Q4 would be a billion into half a <unk> dollar penalty was slightly under that despite the higher volumes and revenue growth and is in our guidance and looking ahead to Q1, we.
Made approximately a billion dollars of additional costs year over year and again in Q2 will start to lap this and that doesn't mean that delta goes to zero. It means that yeah there'll be a step up as we grow and expand on a volume basis, and then we'll see where our rates are on actually delivering and fulfilling a one day.
So I will keep you posted.
Posted on our results and and Ah guide in the future as to.
<unk>, where we see those costs going.
If you look at the efficiency or the caught first the cost they generally are falling into few buckets.
Obviously transportation, where you're building out new transportation modes, you're adding new deliveries partners, you're adding new routes.
Hey times, they start with you know subscale volumes and you know you build them out you get more efficient you get more volume more package density and that that creates efficiency.
When we started this I again Q2 of last year. We also had an abrupt change to our fulfillment network in that.
Ones tuned for today deliveries on the most part when you move to one day and a lot of cases, its advantageous from a cost and transportation standpoint to have that inventory closer to the customer. So we are last year were in the middle of that transition. We still are as we shift inventory to be more locals who will enable local deliveries.
It's a shorter cutoff times, so that that we'll continue to become more efficient we do see a.
We want to scale, our fulfillment center network a further.
Through the square footage for Fulfillments and transportation like 15% each of the last two years and though we look look ahead and see a step up in that this year as we as we start to build more capacity for the one day.
Haven't guided beyond Q1, but that that's certainly something that will step up.
But we can't efficiencies as we as we learn and grow and handle more one day volume.
Third area is Ah Ah forgone ship revenue just simply because we're having free shipment in the villa charging for it that unfortunately doesn't leveraged but are you starting to lap after awhile. So so I would say that or you know just as we've had other you know shocks or a warehouse system over the years.
Yeah, I'm going to you know from media to almost every product you can imagine to having a cycle of increased third party presence in the F.B.A. program now to one day you know we have a we have a history here where we can.
Look for opportunities to be more efficient and lower the call any cost penalties as we look forward.
Thank you.
Next question comes on line of Dan Salmon with BMO capital markets. Please proceed.
[noise]. Thanks for taking my question guys, Brian I'm, just a follow up on one day shipping you noted that you begin to lap the beginning of the initiative here in the second quarter net.
That's really costs can flow up with volumes, but just to be clear would you is the idea here as we anniversary at that sort of incremental expansion of one day shipping either regionally or certain skews is functionally finished I just want to make sure I understand that properly and then just oh, we can see the other number reported just any color within there.
On the advertising business and in particular, we'd love to hear an update just a bit on some of your brand initiatives. There I know that probably wasn't the focus in the holiday season, but it seems to be an important growing part. Thank you.
Sure let me start on the one day. So yes, we do see expansion of the one day program as we move through the year, we've been expanding since we started this effort in Q2 of last year I expansion means additional cities additional routes additional zip codes, but.
But more I think.
What you'll see more in 2020 is also in Internet more I've heard internationally more cost internationally, we have a greatly improved our selection of one day in particularly in Europe , and Japan, We started with a higher one day or percentage of our shipments in those geographies, but we do.
Take steps and are taking steps to increase that and we expect that to be Oh, you know it started being a little more balanced cost globally as we move into 2020.
Yeah, Dan in terms of a question around a branch you know what we're focused on.
Yeah, certainly brands as an advertising customer set and a lot of focus on providing.
The products and tools that are going to help customers and really inspire them. So you know things there are really excited about stores. So brand can customize it curator yeah.
If I page store at last into better tell customers, who they are sure. Their story. So we can help deepen the brand engagement the customer loyalty through that type option. Some some other things like post which helps customers.
Discover products and brands, it's through a curated feed the tough features the brands lifestyle content and it's a on a mobile detail page and yes. There is international expansion and some other areas I think you know broadly with advertising. So much of this is about you know.
Having developing great relationships with each of advertisers good. They appreciate the fidelity, we can provide around shopping outcomes were.
We're uniquely positioned to do this given given our retail business.
Well, the advertising or been sorry, rather I should say other or other revenue that line item grew about 41% year over year.
Advertising is the biggest piece of that or that line item is a growing at about the same rate advertising revenue is a subset the growing at about the same rate year over year in the fourth quarter itself and it didn't third quarter.
Thank you.
Next question comes on line of Eric Sheridan with <unk>. Please proceed.
Thanks for taking my question, maybe a two part question I need of U.S.. If I can you called out or the depreciation change with respect to either U.S. going forward just wanted to better understand some of the decisions were made on useful life that drove that decision and how to think about that from a modeling perspective going forward and then the second.
Part would be what does that mean in terms of the way you're thinking about forward capex cycles for the Ws business, if you're assuming useful life is moving out maybe than prior assumptions. Thanks. So much.
Sure. Thanks for bringing that up so you know we are as a practice my monitor and review the useful life of our depreciable assets on a regular basis to make sure that our financial statements reflect our best estimate of how long assets are gonna be used in operations.
Well in Q4, and we've been looking at it at a a in both the F. season fulfillment centers and also E.W. us annually.
As we as we.
Look in Q4 of 2019.
We believe it's there's enough trend down to show that the useful life is ER exceeding four years, we had been for servers and we had been depreciate them over three years. So we're going to start depreciating them on a four year basis.
It doesn't unwind any depreciation that's already been booked it just takes the asset from its current stat status and extends the depreciation period and then do assets will be put into play will extend out for four years instead of three and and we'll continue to revisit this I do want to point out this not.
Just an accounting related change, it's rather a reflection of the work that we've done to make our server capacity last longer we've been operating at scale for 13 years in this business and we continue to refine our software to run more efficiently on the hardware. It then lower stress and extends the useful life. Both for the service that we use a in the idea.
Yes business and also the surface that we used to support our own.
Uh huh.
Amazon businesses so.
Oh, you know and despite that we do we give eight of the as customers and actually because of this eight of as customers continue get access to at least technologies more quickly than ever before so we are.
Essentially reflecting the fact that we've gotten better at extending the useful life here and now building that into our financials moving forward, yes, you're right. It should also impact our need and our timing of capital I would say that it's also been part of the.
Reason that we've been able to.
Keep capital relatively under in check the last two years and they are in the infrastructure area, but it's it's a $800 excuse me 800 million dollar lower depreciation expense in the quarter and it will be.
Consistent it'll change quarter to quarter, we'll we'll update you but.
As you can see our financial statements.
It's about 2.3 billion dollar impact Q2, a 2020.
Yeah understood just kind of modeling points you on that that $800 million is in Q1, we do you think that yeah that accounting.
Impact effectively we expected.
Adam out, we'll we'll do it decreases we we go through the year and its shot you know tech infrastructure assets, so its or I should say the surface our tech infrastructure assets. So when you think about segments. The majority of these relate to the eight of U.S. segment.
Thank you.
Next question comes on line of Ron Josey with JMP Securities. Please proceed.
Great. Thanks for taking the question, Brian I, just wanted to ask a little more about the holiday season, given that the beat on the topline and see there's anyway to quantify maybe the impact from the shortened holiday shopping season, I mean, it doesn't seem like much just given the better results in an online sales in retail third party seller services, but so anyway to think about leased six less days and then also you mentioned last quarter.
Were you know what impact from the Japanese consumption tax any sort of impacted that go according to plan or any thoughts there would be helpful. Thank you.
Ah, Yes, Ah first of all on that there were two items, we discussed last quarter over there Japan consumption tax raising from.
8% to 10% effective October 1st the net result was a pull forward of some purchases by Japanese customers into Q3, and also some negative elasticities effects post October 1st the other Ah item was the volley timing to the India holiday, which is.
As a very large swing factor on international revenues is.
It move more into the third quarter this year versus 2019 versus 2018. So it was a help to Q3 and a penalty to Q4 those two items impacted the Q4 growth rate negatively by about 300 basis points that was our estimate and ER.
We believe that was the actual outcome.
On the international on the International segment excuse me yeah.
The sorry, the first question was.
Oh, the holiday season, Yeah, we don't see that is a factor actually I I mentioned that last call as it wasn't a.
Incorporated into our guidance in a negative fashion.
The way, we look at it and the way we believe it works at least in our business is that you know customers will.
I have a holiday budget and they will spend it between generally the middle of November its creeping up to the early part of November through the holiday season, and yeah, We do see obviously spikes and Black Friday, and cyber Monday, and we also see relative tick up in trends as we get closer to the to the holiday in the.
Before the shipping thresholds cut off so there's a polarization of tend to be at polarization to early shipping at or excuse me early purchase in late purchases, but as far as a the six days on the short time period between Thanksgiving and Oh, The Christmas holiday, we we don't see a an impact on that or perhaps.
It's a bigger issue for stores.
Does foot traffic, but we don't notice sitting in our business.
Thank you. My next question comes on line of Doug and I went to 18 Morgan. Please proceed.
Thanks for taking my question I, just wanted to shift gears to grocery I mean, you added a amazonfresh into prime kind of removing the previous 14 99 month.
Component there putting into prime.
Talked about that the 2000 U.S. cities and towns with two hour delivery can you just talk about what the early impact there is bundling kind of freshman to prime at this point and then just how you're thinking about your grocery strategy.
As your position now thanks.
Sure.
Thanks for your question so.
Early results are are good we are grocery delivery orders from the combination of Amazonfresh and whole foods market more than doubled in the fourth quarter year over year. So we believe customers are I'm starting to notice and take advantage of this will you wanted to take Oh, we will see a where people's tastes and.
Preferences, we'll take them, we or whether they go to the store at a whole foods market store, what they use prime now or Amazon delivery for their groceries right. Now, we're really just testing and reacting to the customer demand and customers' preferences and we'll do so.
For the foreseeable future.
Thank you our final question will come from the line of Mark Mahaney with RBC capital markets. Please proceed.
Okay. Thanks for including Me, then I'll I'll throw up to three quick ones just talk a little bit more about gross margins in the quarter you had the year over year trend was negative last quarter, but it turned reversed and was up this quarter.
Is there any unusual factors you'd want to call out there second the I don't want to read over a lot into your guidance, but <unk> every year for the last five years, you've always guided to operating margin operating profit down sequentially. Any you may be delivered better than that but you always guided down this year in your high into your range is actually above a you know what.
You, obviously did in the fourth quarter or you just trying to remind people tell people educated people on how the mix shift in the business towards ADW Essen advertising is just changing the profit profile of the business. So anymore color. There and then last one since Sunday is coming up I know you talked about the ADW s. customers and you mentioned, the Seattle Seahawks, but what about the 40 niners.
Thanks.
Good luck 40 Niners.
Yeah, I'll get that out there first good luck, Kansas Chase fans.
We're indifferent.
Let me start with your second one on grow our.
Sorry, the started gross margin yeah. So I think there's anything.
I was surprised you caught there I think you know we continue to see some good growth in the third party business you saw that accelerate some you know we're continuing to see that trend of.
More EFI, a seller signing and ticking up a larger percentage of the you know the totaled three P mix of units that are sold through so that continues to do well and as Brian mentioned earlier. We think you know some of that has to do with the program keeps getting better with faster shipping and what whatnot, we've invested a.
Many billions of dollars in that program to it to make it even better for for sellers.
You guys had a strong quarter course, so that helps on the gross margin side as well and then.
You know transportation I think you saw the the outbound shipping costs to grow around 43% year over year UBS, So certainly up or stop a good deal versus the trend line. We songs in 2018, but of course, that's that's reflective of of one day and.
Overall relative to our expectations as Brian said with the 1.5 billion, we guided to acumen a bit under that so some of that was certainly part of some some better than expected trends efficiencies and on the comment on seasonality of guidance and ER Q1, yeah that I I think the historic trend of peaking.
A bit in operating income in Q4, and then stepping down in Q1 has been broken up a little bit as we've had the balance of VW us in some other things, but if you actually looked back to Q1 of last year. It was the highest operating income quarter on record and that's one of the makes it difficult comp this year, because we had the.
If you remember the slowdown in expenditures in 2018, a in things like fixed the adding of stuff head count.
Warehouse space infrastructure costs, not to zero, but like down off of a prior investment levels. In 2000, Sixteen's 2017, a lot of that continued a that cost baseline continued into Q1 of 2019 and it actually was a super efficient quarter from a cost and and profit standpoint.
Q2 of last year, we started to again make larger investments, particularly in one day and.
So that's now or something that is lapping in Q1 that this year 'cause. It we didn't really have one day in Q1 up last year, but.
So I think there's a you know it's hard to draw this up parallels between quarters anymore. I will they'll mentioned the guidance that we do have the $800 million of below depreciation from Mark.
Extension of our server <unk> useful lives, which is you know part of the range that we gave you a $3 billion to $4.2 billion.
Thanks for joining us today on the call for your questions. A replay will be available on our Investor Relations web site at least through the ended the quarter. We appreciate your interest in Amazon and we look forward to talking with you again next quarter.
[noise].
[music].
Thank you for standing by good day, everyone and welcome to amazon.com Q4, 2019 financial results teleconference. At this time all participants are they listen only mode. After the presentation. We conduct a question and answer session. Today's call is being recorded for opening remarks, I'll be turning the call over to the director of Investor Relations.
Okay Piper. Please go ahead.
Hello, and welcome to our Q4 2019 financial results Conference call.
Joining us today to answer your questions or bridal soft <unk>, our CFO and Dave filed director of Investor Relations.
As you listen to todays conference call. We encourage you to have our press release in front of view, which includes our financial results as well metrics and commentary on the corridor.
Please note unless otherwise stated.
All comparisons in this call will be against our results for the comparable period of 2018.
Our comments and responses to your questions reflect management's views as of today January Thirtyth 2020, only and will include forward looking statements.
Actual results may differ materially.
Additional information about factors that could potentially impact our financial results is included in today's press release in our filings with the FCC, including our most recent annual report on Form 10-K subsequent filings.
During this call we may discuss certain non-GAAP financial measures.
In our press release slides accompanying this webcast and our filings with the FCC each of which is posted on our IR website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures.
Our guidance incorporates the order trends that we've seen to date and what we believe today to be appropriate assumption.
Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates changes in global economic conditions and customer spending.
World events the rate of growth of the Internet online commerce and cloud services.
And the various factors detailed in our filings with the FCC.
Our guidance also assumes among other things that we don't conclude any additional business acquisition investments restructurings or legal settlements.
It's not possible to accurately predict demand for our goods and services and therefore actual results could differ materially from our guidance.
With that we'll move to chew and <unk> operator, please remind our listeners how to initiate a question.
At this time will now open the call up for questions. We ask each caller. Please limit yourself to one question. If you might ask a question. Please press star one under keypad, we ask that when you pose your question you pick up your handsets provide optimum sound quality once again to initiate a question. Please press Star then one on your Touchtone.
Telephone at this time, please hold all the poll for questions.
Thank you. Our first question is coming from the line of Heath Terry with Goldman Sachs. Please proceed.
Great. Thanks really appreciate this is just on the on the ADW Es business as you as you look sort of at the strength that you saw in the quarter, particularly.
Represented by the the amount of dollars added.
Quarter over quarter is there anything in particular that you would you would call out either in terms of specific types of workloads region specific customer types that you felt like.
Drove this the strength, particularly relative to the.
Directional direction of growth that we were seeing in the earlier parts of the year.
Hi, He's no I would not.
Hi, slated to any one set of customers are products I think it's been pretty broad based and Ah.
Kind of the culmination of a lot of work on adding products and features.
Adding to our sales and marketing teams and having a better penetration in enterprise customers in hitting a lot of varied and different industries.
So I think I think thats, what youre seeing we feel that are products that is.
Leads the market and though we add to it and quicker pace than our competition. So actually the gap on capacity and features is growing as we speak.
We also think that Theres, a real network effect, when you say wls with the millions of active customers and tens of thousands global partners.
And we'll continue expand were down 69 availability zones across 22 geographic region. So I think it's a combination of increased sales.
Support.
More and better products that had customers needs and also the geographic expansion is what you're seeing.
Thank you. Our next question comes the line of Colin Sebastian with Robert W. Baird. Please proceed.
Great. Thank you just hoping you guys can disaggregate a bit to strengthen seller services how much of that was third party marketplace Commission specifically in are you seeing more of an up tick in somebody other content.
And services. Thank you.
Oh and sellers.
It is not seller services I would say, there's just a very strong quarter. If that's your firming too.
31% growth in revenue.
It was strong and unit basis.
As you said theres, probably a additional strengthen FP, which has higher fee set than MSN does so but in general step away I think what you're seeing as Warner participation of third party sellers in our one day delivery program as we move through the year I was particularly strong in Q4.
And.
I think you'll see that margin goes into 2020.
Thank you. Our next question comes for lineup Justin Post with Bank of America. Please proceed.
Great. Thanks, just wondering if you could go high level, what drove upside to your guidance on revenue in the quarter on the retail side anything there that you'd really call out and then on the ADW S. investments.
Obviously, you just talked about investments starting in three Q, where are you in that in investments. Your margins are still below peak, where are you kind of in that investment cycle. Thank you.
Sure.
Said on revenue, we came in at $87.4 billion, which exceeded the high end of our range of 86, and a half billion dollars 400 million up roughly 200 million at that was due to foreign exchange, but.
What we saw was essentially very strong.
Holiday performance from the Middle of November on.
So today.
Big uptick in response to the one day.
Availability just in building through the year.
I think prime is.
Very strong you noted we I mentioned that we have more than 150 million paid prime members globally now.
We mentioned that would have more people join prime Q4 than any other quarter before so a lot of good momentum there built up on the aggregation of benefits that we continue to to add to the pride program.
Most recently the one day.
The expansion of one day shipping.
Cws.
Where are we in the cycle.
I.
Talk more in.
2018, when the margins in E.W. elsewhere.
Closer to 30% about the efficiency of infrastructure spend and.
Versus prior years, so we continue to.
Since that point, we've continued to add.
Infrastructure.
Capability and to support our global expansion as well, but what you're seeing probably more than margins is.
The expansion of our sales and marketing effort at some of those costs as well as price decreases and on a longer term contracts that we signed with.
Some of our customers you notice on our balance sheet that.
Our future commitments on the multiyear deals now stands at $30 billion at year end and Thats up 54% year over year. So.
There's a lot of good momentum on the enterprise side as well.
Thank you. Our next question comes from line of Jason Helfstein with Oppenheimer and company. Please proceed.
Thanks, just to just after about a ws again.
Investors have become I guess recently concerned just about you again, the slowing a diverse revenue and margin and whether it's a function of increased competition.
So maybe just talk about how you are reacting you did talk about spending on sales and price cuts, but you just anymore. You can talk about the competitive environment. Thank you.
Sure I would.
Probably argued that with the growth comments as we see it here. We grew from a 30 billion dollar revenue run rate at the end of 2000 $18 billion to $40 billion revenues on made its way into 2019. So we continue to be happy with our topline growth the.
In dollar terms as opposed to percentages, we had a larger dollar increase in revenue both year over year end quarter over quarter. So we're very.
Happy with the progress of the.
Revenue and our adoption acceptance by customers.
As far as competitors come competitive set is concerned we again, we think that we have.
Start with a very big lead in this space because of our many years of investment not only in capacity, but also in.
Services and features that we provide the customer we learn from customers. We just had a great re:Invent Conference in December where all of arc.
It was a great.
Aggregation of partners and customers and developers and that those events, we not only get to present, our new products and there were over 100 and.
That were launched in December , but we also get.
Your customer issues and help.
That helps to sign or or educate our forward roadmaps. So it's a great shared learning I think customers react to it.
Customers will be at different stages of their adoption curve theres always different phases.
Moving to the cloud than.
Organizing on the cloud and then growing further so.
There's a lot of movement I said that repeatedly I think on that in this setting that any quarter quarter to quarter movements going to be.
A little bumpy, but.
Generally what you're seeing as the convergence of lot of investment a lot of operational efficiency and a lot of innovation on behalf of customers.
Thank you. Our next question comes from the line of Stephen Ju with Credit Suisse. Please proceed.
So thank you one of the switch it up a little bit.
So you guys called this out in your press release, but I.
I'm wondering if you could talk about your first strip the SMB and the micro Smbs online video what exactly is involved from a practical perspective.
Do you need to have a door to door sales folks and.
Luckily duty reduce friction between logistics payments and somebody other factors there and second what are the SMB So inc.
Just like molecule inventories at merchandise that you can get to exports to global buyer base.
Do you think this could be content that could be exclusive to Amazon vacuum.
Yes, Stephen a this is Dave thanks for the question.
As you said I mean, there's some mentioned this in the release, where we're definitely continue to improve the experience in India for customers and sellers excited by some of the response we've seen.
We are continuing to invest meaningfully and.
Digitizing those.
Yes, and these micro small medium size businesses, we did pledged to invest a billion dollars to help digitize traders and those those micro small businesses across India.
And we've got to gold, bringing more than 10 million online by 2025. So this billion dollar investment will.
To enable $10 billion.
Cumulative Indian exports by 2025, a lot of.
A lot of different facets to those types of investments.
We'll go into too much for specifics, but.
[music].
A lot of work being done there were also focused.
On a job job growth job creation over there since we launched over in.
India in 2013 was created.
Over 700000 direct and indirect jobs.
So if we also recently announced plans to create an additional 1 million jobs in India by 2025 so.
A lot of I think innovation ideas investment that team over there continues to agree to a great job loquacious, taking a lot of the.
Tenants fit.
We've had to Amazon around.
Innovation building and really run without over there and done a great job of coming up with some interesting into.
Service feature set I think our specific to chew that region and hopefully as we continue to do that will keep identifying areas over in India and Toolsets and features over in India that we can bring back to other regions health benefit other sellers.
The web sites more broadly.
Thank you. Our next question comes from line of Brian Nowak with Morgan Stanley . Please proceed.
Thanks for taking my question I have I have to just the first one.
Brian I think on one of the media interviews you talked about how you are becoming more efficient with one day and your continued with next day delivery continuing to do so and talked about a $1 billion of costs in the in the current quarter.
Maybe just sort of talked to us about sort of some of the largest qualitative fixed and variable costs sort of still associated with one day and the the processes and the opportunities for efficiency to really get that number down as we go throughout 2020, and then maybe any specific product categories are a good categories where.
You've seen a deceleration in demand from one day that you call out.
Sure let me.
Make sure the numbers are understood.
We had talked about last year that initial step up in cost of close to $800 million in the second quarter.
We.
That carried into Q3 was slightly higher in Q3, and then in Q4 last time around this call I mentioned that we estimate Q4 would be a billion dollars into half.
Dollar penalty was slightly under that despite the higher volumes and revenue growth and is in our guidance and looking ahead to Q1, we estimate approximately $1 billion of additional costs year over year and again in Q2 will start to lap this and that doesn't mean that delta goes to zero it means that.
There'll be a step up as we grow and expand on a volume basis, and then we'll see where rates are on actually delivering and fulfilling one day. So I will keep you.
Posted on our results and.
Guide in the future as to.
Where we see those costs going.
If you look at the efficiency or the cost first the cost they generally falling into few buckets.
Obviously transportation, where you're building out new transportation modes, you're adding new deliveries partners are adding new routes.
Hey times they start with.
Subscale volumes and you you build them out you get more efficient you get more volume more package density and that that creates efficiency.
When we started this again Q2 of last year. We also had an abrupt change to our.
Fulfillment network in that when tune for two day delivery on the most park and we move to one day and a lot of cases.
It's advantageous from a cost and transportation standpoint to have that inventory closer to the customer so weve.
Last year were in the middle of that transition, we still are as we shift inventory to be more locals, who will enable local deliveries to hit the shorter cutoff times so that.
That will continue to become more efficient we do see a.
Good.
We bought the scale, our fulfillment center network further.
We grew the square footage for Fulfillments and transportation by 15% each of the last two years and we look look ahead and see a step up in that this year as we as we start to build more capacity for the one day.
Guided Q1, but that that's certainly something that will step up.
But we can't efficiencies as we as we learn and grow and handle more one day volume.
Third area is.
Forgone ship revenue, just simply because we're having free shipment and.
Charging for it that unfortunately doesn't leveraged but did you start to lap after a while so.
So I would say that.
Just as we've had other.
Shocks or our warehouse system over the years from going to from media too.
Almost every product you can imagine to having a cycle of increased third party presence in the FDA program now to one day, we have we have a history here, where we can.
Yes.
Look for opportunities to be more efficient and lower the any cost penalties as we look forward.
Thank you. Our next question comes from line of Dan Salmon with BMO capital markets. Please proceed.
Thanks for taking my question guys Brian .
The follow up on one day shipping you noted that you begin to lap the beginning of the initiative here in the second quarter net.
Thats really cost can flow up with volumes, but just to be clear would you.
Is the idea here as we anniversary at that sort of incremental expansion of one day shipping either regionally or certain skews is functionally finished I just want to make sure I understand that can properly and then just we can see the other number reported just any color within there on the advertising business and in particular, we'd love to hear an update.
Just a bit on some of your brand initiatives. There I know that probably wasn't the focus in the holiday season, but it seems to be an important growing part. Thank you.
Sure let me start on the one day so yes.
You do see expansion of the.
One day program as we move through the year, we've been expanding since we started this effort in Q2 of last year expansion means additional cities additional routes additional.
Codes, but.
But more.
I think.
What you'll see more in 2020 is also an internet more effort internationally more cost internationally, we have greatly improved our.
Selection of one day, and particularly in Europe , and Japan, we started with higher one day.
Manage of our shipments in those geographies, but.
We do you have to take steps and are taking steps to increase that and we expect that to be.
Yes, it's starting to be it a little more balance cost globally as we move into 2020.
Yes, Dan in terms of your question around brands.
Focused on.
Certainly brands as an advertising customer set.
A lot of focus on providing.
The products and tools that are going to help customers and really inspire them.
So.
Thanks, Eric we're really excited about stores, so brand can customize it curated.
Multi page store at last into better tell customers, who they are sure. Their story. So we can help deepen the brand engagement in the customer loyalty through.
Option.
Some other things like post which helps customers.
Discover products and brands is through a curated feed it features the brands lifestyle content and it's a on a mobile detail page.
And yes, there is international expansion and some other areas I think broadly with advertising. So much of this is about.
Having developing great relationships speeds of advertisers because I think they appreciate the fidelity, we can provide around shopping outcomes for.
We're uniquely positioned to do this given given our retail business.
Well, the advertising or been sorry, rather I should say other other revenue that line item grew about 41% year over year.
Advertising is the biggest piece of that.
The fact that line item is.
Growing at about the same rate advertising revenue is as a subset of the growing at about the same rate year over year in the fourth quarter is.
And it Didnt third quarter.
Thank you. Our next question comes from the line of Eric Sheridan with TBS. Please proceed.
Thanks for taking the question maybe two part question I know you WSA can you called out.
The depreciation change with respect to either for us going forward just wanted to better understand some of the decision store made on useful life that drove that decision and how to think about that from a modeling perspective going forward and then the second part would be what does that mean in terms of the way you're thinking about forward capex cycles for the.
Ws business, if you're assuming useful life is moving out maybe than prior assumptions. Thanks, so much.
Sure Thanks for bringing that up so we.
As a practice.
Monitor and review the useful life of our depreciable assets on a regular basis to make sure that our financial statements reflect our best estimate of how long the assets are going to be used in operations.
In Q4.
And we've been looking at it at a.
First the FCC fulfillment centers and also FWS annually.
As we as we.
Look in Q4 2019.
We believe it's there's enough trend valid to show that the useful life is.
Exceeding four years.
For servers, and we had been depreciate them over three years. So we are going to start depreciating them on a four year basis.
Doesnt unwind any depreciation that's already been booked it just takes the asset.
Current stat status and.
Extends the depreciation period, and then new assets will be put into play will extend out for four years, instead of three and and we'll continue to revisit this.
I do want to point out this not.
Just an accounting related changes rather a reflection of the work that we've done to make our server capacity last longer we've been operating at scale for 13 years in this business and we continue to refine our software to run more efficiently on the hardware. It then lower stress and extends the useful life. Both for the service that we use in the idea of yes.
Business and also the surface that we used to support our own.
Yeah.
Amazon businesses so.
And despite that we do we give HIV as customers and actually because of this eight of as customers continue get access to the latest technologies more quickly than ever before so we are.
Essentially reflecting the fact that we have gotten better at extending the useful life here and now building that into our financials moving forward, yes, you're right. It should also impact our need and our timing of capital I would say that it's also been part of the.
The reason that we've been able to.
Keep capital relatively under in check the last two years and the.
Infrastructure area.
But it's at $800 excuse me 800 million dollar lower depreciation expense.
The quarter and it will be.
Consistent it'll change quarter to quarter, we'll we'll update you but.
As you can see in our financial statements.
It's about 2.3 billion dollar impact Q2 2020.
Yes, understood just kind of modeling point to you on that that $800 million is in Q1, we do you think this idea that accounting.
Impact effectively we expected.
That amount will will decrease as we we go through the year and.
It's.
Hi Tech infrastructure assets so.
It's.
I should say the service our tech infrastructure assets. So when you think about segments.
The majority of these relate to Vws segment.
Thank you.
Question comes from the line of Ron Josey with JMP Securities. Please proceed.
Great. Thanks for taking the question, Brian I, just want to ask a little more about the holiday season, given the beat on the top line and so if there's any way to quantify maybe the impact from the shortened holiday shopping season, I mean, it doesn't seem like much just given the better results in an online sales and retail third party seller services, but so anyway to think about the six less days and then also you mentioned last.
At quarter end impact from the Japanese consumption tax any sort of impacted that go according to plan or any thoughts there would be helpful. Thank you.
Yes first of all on the.
There are two items, we discussed last quarter over the Japan consumption tax raising from.
8% to 10% effective October Onest. The net result was a pull forward of some purchases by Japanese customers into Q3, and also some negative plasticity effects post October onest.
The other.
Item was to volley timing that the India holiday, which is has a very large swing factor on international revenues is.
It move more into the third quarter this year versus 2019 versus 2018. So it was a help to Q3 and a penalty the Q4.
Those two items impacted the Q4 growth rate negatively by about 300 basis points that was our estimate and.
We believe that was the actual outcome.
On the international on the International segment excuse me, yes.
The sorry, the first question was.
Oh, the holiday season, Yeah, we don't see that as a factor actually and I.
[music].
Mentioned that last call as it wasn't.
Incorporated into our guidance in a negative fashion.
The way, we look at it and the way we believe it works at least in our business is that.
Customers well.
Have a holiday budget and they will spend it between generally the middle of November its creeping up to the early part of November through the holiday season, and yeah, We do see obviously spikes and Black Friday, and cyber Monday, and we also see relative tick up in trends as we get closer to the to the holiday in the shift.
For the shipping thresholds cut off so there's a polarization of tends to be at polarization to early shipping at or excuse me early purchase enlight purchases as far as.
Six days.
Sort of time period between Thanksgiving and.
The Christmas holiday, we we don't see.
An impact on that perhaps as a bigger issue for stores and foot traffic, but we don't know the said in our business.
Thank you. Our next question comes on line of Doug and that's with JP Morgan. Please proceed.
Thanks for taking the question I just wanted to shift gears to grocery.
I mean, you added amazonfresh into prime.
Moving the previous 14, 99 month component there putting into prime and you talked about that the 2000 us cities and towns with two hour delivery can you just talk about what the early impact there is bundling kind of fresh into a prime at this point and then just how you're thinking about your grocery strategy as your.
Mission now thanks.
Sure.
Thanks for your question so.
Early results are are good.
Our grocery delivery orders from the combination of Amazonfresh and whole foods market more than doubled in the fourth quarter year over year. So we believe customers are starting to notice and take advantage of this where you wanted to take.
We will see where people's tastes and preferences, we'll take them.
We are whether they go to the store at whole foods market store, where they use prime now or Amazon delivery for our.
They're groceries.
Right now were really just testing and.
Back into the customer demand and customers' preferences and we'll do so.
For the foreseeable future.
Thank you our final question will come from the line of Mark Mahaney with RBC capital markets. Please proceed.
Okay. Thanks for including me then I'll throw up to three quick ones just talk a little bit more about gross margins in the quarter you had.
The year over year trend was negative last quarter, but it turned reversed and was up this quarter.
So if there any unusual factors you'd want to call out there second the.
I don't want to read the over a lot into your guidance, but every year for the last five years, you've always guided to operating margin operating profit down sequentially.
You may be delivered better than that but you always guided down this year, the or high into your range is actually above what you obviously did in the fourth quarter or you just trying to remind people tell people educate people on how the mix shift in the business towards Cws in advertising is just changing the profit profile of the business. So anymore color. There and then last one since Sunday is coming up I know you.
Talked about the Cws customers and you mentioned, the Seattle Seahawks, but what about the 40 niners.
Thanks.
Good luck 40 Niners.
I'll get that out there first good luck, Kansas Chase fans.
We're indifferent.
Let me start with your second one on grow our.
Sorry, the start with gross margin yeah, So I think everything.
Surprising caught there that we continue to see some good growth in the third party business you saw that accelerate some.
We're continuing to see that trend of.
More EFI, a seller signing and taking a larger percentage of the.
The total threepi mix of units that are sold through so that continues to do well as Brian mentioned earlier, we think you know some of that has to do with the program keeps getting better with faster shipping and whatnot Weve invested.
Many billions of dollars in that program to make it even better for for sellers.
You guys had a strong quarter course, so that helps on the gross margin side as well and then.
On on Transportation I think you saw the.
The outbound shipping costs to grow around 43% year over year.
So certainly up.
But a good deal versus the trend line, we saw in 2018, but of course, that's that's reflective of up one day and.
Overall relative to our expectations as Brian said with the 1.5 billion, we guided to accumulate a bit under that so some of that was certainly part of some some better than expected trends efficiencies and on the comment on seasonality of guidance and Q1.
Yes that I think the historic trend of picking a bit in operating income in Q4, and then stepping down in Q1 has been broken up a little bit as we've had the balance today wls and some other things, but if you actually looked back to Q1 of last year. It was the highest operating income quarter on record and that's one of the.
It's a difficult comp this year, because we had the.
If you remember the slowdown in expenditures in 2018.
In things like fixed adding of.
Head count.
Warehouse space infrastructure costs.
Not to zero, but like down off of prior investment levels in 2000, Sixteen's 2017, a lot of that.
Continued that cost baseline continued into Q1 of 2019 and it actually was a super efficient quarter from a cost and and.
Profit standpoint, Q2 of last year, we started to again make larger investments, particularly in one day and.
So that's now something that is lapping in Q1 of this year, because we didnt really have one day in Q1 up last year, but.
So I think Theres, a you know it's hard to draw this up parallels between quarters anymore I will they'll mentioned in the guidance that we do have the $800 million of below depreciation from Mark.
Extension of our server useful lives.
Which is.
Part of the range that we gave you a $3 billion to $4.2 billion.
Thanks for joining us today on the call for your questions. A replay will be available on our Investor Relations web site at least through the ended the quarter. We appreciate your interest in Amazon and we look forward to talking with you again next quarter.