Q1 2021 Amazon.com Inc Earnings Call
And.
Mhm.
Phil.
And.
Yes.
[music].
Thank you for standing by and good day, everyone and welcome to the amazon.comQ1, 2021 financial results teleconference. At this time all participants are in a listen only mode. After the presentation. We will conduct a question and answer session today's call is.
Being recorded for opening remarks, I will be turning the call over to director of Investor Relations. Mr. Dave filed please go ahead.
Hello, and welcome to our Q1 2021 financial results conference call.
Joining us today to answer your questions and Brian will Suski our CFO.
As you listen to today's conference call. We encourage you to have our press release and 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 2020.
Our comments and responses to your questions reflect management's views as of today April 29, 2021, 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, and our filings with the SEC, including our most recent annual report on form 10-K and subsequent filings.
During this call we may discuss certain non-GAAP financial measures and.
And our press release slides accompanying this webcast and our filings with the SEC 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.
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 SEC.
This guidance also reflects our estimates to date regarding the impact of the COVID-19 pandemic on our operations, including those discussed in our filings with the SEC and is highly dependent on numerous factors that we may not be able to predict or control, including the duration and scope of the pandemic, including any recurrence.
<unk> taken by governments businesses and individuals and response to the pandemic.
The impact of the pandemic on global and regional economies and economic activity work for staffing and productivity and our significant and continuing spending on employee safety measures.
Our ability to continue operations and affected areas.
And consumer demand and spending patterns as well as the effects on suppliers creditors and third party sellers all of which are uncertain.
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, our actual results could differ materially from our guidance.
And now I'll turn the call over to Brian.
Thank you for joining us today.
We get to Q&A I will touch upon a few highlights from the first quarter of the year.
Let me start by highlighting the momentum, we're seeing and AWS and.
And the first quarter AWS revenue growth accelerated across a broad range of customers.
Sure and COVID-19, we've seen many enterprises decide that they no longer want to manage their and technology infrastructure. They see the partnering with AWS and moving to the cloud gives them better cost better capability and better speed of innovation.
We expect this trend to continue as we move into the post pandemic recovery.
And there's significant momentum around the world, including broad and deep engagement across major industries.
For example, last quarter, we announced new commitments and migrations from some of the world's most pronounced sports leagues and.
National Hockey League and.
The PGA tour.
Formula one and.
And the German Bundesliga.
We continued to expand our AWS infrastructure footprint to support the strong growth we're seeing.
AWS offers 80 availability zones across 25 geographic regions around the world.
We've announced plans to launch 15, more availability zones and five more regions.
Turning to the consumer business, we continue to see strong customer demand globally and the first quarter.
Revenue growth and our international segment grew 50% on and FX neutral basis year over year, and Q1 as restrictive regional and National Lockdowns were in place throughout the quarter, particularly in the UK and Europe, and North America revenue growth of 39% largely reflects the continuation of demand trends that we've seen.
Since the early months depend and Mick.
Third party sellers for largely comprised of small and medium sized businesses.
Continue to see strong sales and serve more customers.
Our <unk> seller services revenue increased 60% on and FX neutral basis year over year, and the first quarter grew significantly faster than online stores revenue.
Third party units represented 55% of our total paid units in Q1.
Up from 52% and Q1 of last year.
Prime members also continued to shop with greater frequency and across more categories and before the pandemic.
These trends have also extended the prime digital benefits over.
Over the past 12 months Prime video streaming hours were up over 70% year over year and.
<unk> studio had its best awards season, yet and Prime members and look forward to a strong slate of upcoming original series and films featuring and impressive group of diverse talent and creators.
We're also continuing to expand our roster of live sports content and we are excited to partner with the NFL to be the exclusive home of NFL Thursday night football into the next decade.
Switch is also seeing great momentum hours watched on twitch nearly doubled year over year and the first quarter and we now average more than 35 million daily visitors.
And other popular benefit of Prime membership is prime day and.
And we are excited to announce that we will hold the two day savings event during the second quarter.
Prime day is also a great opportunity for our selling partners to reach more customers and will make supporting small businesses a big focus again this year.
We'll have more to share on prime day, including event dates a bit later this quarter.
We've continued to prioritize the safety and wellbeing of our employees.
And the U S. Amazon has held onsite vaccination events, and 29 states, reaching more than 300000 frontline employees and contractors.
Switching events closely and Europe, and in particular, India, where we have put in place and employee initiatives medical help lines sales consulting hotel rooms for quarantining and financial support.
And as well as donating 100, ICU ventilator units to local hospitals.
We will continue to invest and the health and safety of our employees and delivery partners, particularly in our global fulfillment and logistics operations.
And finally to summarize our financial results.
Total revenue of $108 5 billion came in above the guidance range of $100 to $106 billion.
In addition to our strong segment results advertising revenue within the North America and international segments also accelerated during the quarter.
Leverage we are seeing on this higher revenue combined with strong operational performance led to higher operating income as well.
Operating income of $8 9 billion and Q1 was above our guidance range of $3 billion to $6 $5 billion.
We incurred a little less and the $2 billion and COVID-19 related operating costs that we had projected and the first quarter.
We continue to incur these costs across our global fulfillment network as we maintain social distancing measures, which impacted our productivity and as we make direct investments and employee safety.
Looking ahead, we expect to incur approximately $1 $5 billion and COVID-19 related operating costs for the second quarter.
Lastly, I'd like to congratulate and thank our employees for making Amazon number one in the U S. On linked in's 2021 top companies ranking and annual list identifying and most sought after places to work.
We appreciate the customer obsession and passion for innovation from teams across the company and make Amazon and great place to work.
With that let's move on to Q&A.
Thank you at this time, we will now open the call up for questions. We ask each caller to please limit yourself to one question. If you would like to ask a question. Please press star one on your keypad, we ask that when you pose your question you pick up your handsets to provide optimum sound quality once again to initiate a question. Please.
Press Star then one on your Touchtone telephone at this time, please hold while we poll for questions.
Thank you. Our first question is coming from Ross Sandler with Barclays. Please proceed with your question.
Great. Thanks, Brian.
Question on last mile delivery. So you guys are investing pretty aggressively to build out that Amazon control and last mile fulfillment receiver.
And is driving around everywhere in the Bay area. So congrats on that.
So I guess the question is how long until you feel like you've got some and the right place as far as all your major metros, where you want to set that up.
And at what stage of the year.
Unit cost of shipping start to improve from these initiatives and I guess high level has control over the last mile allowing you to.
Further penetrate and gain market share in certain categories, where speedy delivery and uses of the essence can you talk about that please thank you.
Ross Thanks for your questions.
Yes, let me start with.
And last mile and general so.
We are investing heavily.
Talking about it last year.
Fulfillment, including Amazon logistics investment and we increased our capacity by 50% and you can see from our Capex numbers the capex, including.
Including infrastructure of course increased to 80% the trailing 12 months over the prior trailing 12 months. So certainly a large area of investment not only for some incentive for also two elements of transportation, what we call the middle mile, We're putting sort centers Amazon Air line haul trailers.
Think of all the intermediate and movements between our warehouses and our finally final delivery.
The stations and then that last mile delivery stations.
DSP and exceeding our delivery service partners as well so.
Can you talk about cost, we actually think our cost right now is very competitive with our external options.
And we measure that very closely.
And that gets better with demand.
And amortization and route density et cetera, but.
And we see which is very helpful is the ability to control the whole flow of products from the warehouse to the end customer and it is.
Turn would normally was a batch process, where we would and off a large batch of orders to a third party.
Once a day, let's say to a continuous flow process, where we continually have.
Orders, leaving our warehouses five six times, a day going through middle mile and then two final delivery.
Sure and sale drivers for DSP partners. So that gives us a lot of ability not only to control the flow of the product, but also flow of information we are seeing.
A lot of.
Progress in that area, and I think youll see it too as a customer where you're starting to get.
More precise estimates of delivery Youll get notes and say hey.
Your eight stops away from your delivery et cetera, and everyone's busy big part of delivery is actually being there sometimes when you need to be there for the delivery. Other types of course, you can just have it for.
And on your doorstep and get to it later, but that's we feel a lot of benefit from that.
We also see.
And that there is a.
Scott a lot of cutoff times that we can extend.
And then because we pretty much have perfect information between the order placement.
And the allocation to warehouses, where we're going to pick and <unk>.
Box at the product incentives on its way so.
Lots of advantages, we are continuing to invest and we will we will see a large investment in this area through 2000 22021 as well, we do think that.
And it May also spilled at 2022 and that should set us up and really good stead with our capacity and all.
The majority of our units are going through AMC out today.
And this is <unk>.
Dave Hey, Ross just to add to that.
Brian touched upon it but there are an important part of this last mile effort has been the program we've had the Brian COVID-19.
And if the delivery services partner program or the DSP. It's an important part of the last mile network and that just as a reminder, that employs more than 100000 draw.
Drivers and it's been growing for the past few years and it's really it's a program with an incentive for those folks to become small business owners and start their own package delivery business. So it's a great way for those folks to access to delivery technology and the package volumes we have.
And Kathryn and network and we've got a lot of for the core elements as part of that program grant programs to support our entre entrepreneurs and minority groups and really help them build out and helps us support a diverse business community as well.
Your next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.
Good afternoon on AWS I'm curious, if you could give us the backlog number and and there've been a lot of questions about the incredible backlog strength, you've seen in the last several quarters and it and finally seems that youre seeing a convergence between that backlog growth and now revenue growth accelerating if he could just.
Comment a little more on that convergence and how you expect that to trend. Thank you.
Yeah, Hey, Brent it's Dave.
I think it's the backlog growth just to give you the figures for March 31, and.
$52 9 billion the weighted average life is about where we've been for the past.
Several quarters, so about a little over three years in terms of the weighted average remaining life.
And thats about up about 55%.
Right now so really continues to be really strong and really pleased with that I think that's right.
Backlog figures, but also just the revenue growth and the momentum we're seeing and here is a lot of hard work and innovation on the teams and growing teams and reaching out and working with us and so.
You can expect to continue to see customers, making these long term commitments, we think it's.
Yes. It is.
Representation I think of a lot of companies that have worked with us spinning engage with us and with us and as they get better comfort line of sight and with what they wanted to and as we are able to add even more value and services Tom.
Great partnership and relationship that they want to build with us over those multiyear periods.
Your next question comes from the line of Youssef Squali with Truest Securities. Please proceed with your question.
Thank you very much.
And maybe just a two part question first Brian and you touched upon this a little bit in your prepared remarks about the acceleration and international growth can you maybe just.
Speaks for the drivers there and then particularly in markets, where COVID-19 is no longer a major issue have you seen any.
Particular declines or maybe just slow down and e-commerce and demand or decline and growth. It seems like they're going in different directions and Europe for instance, it seems like a lot of these markets are still very much under lockdown yet to your international business has grown pretty significantly I don't know if there is positive or negative correlation.
Yes, Thanks, Joseph Yes, I would say.
Seeing strength pretty much across the board it and international.
And it does vary by country, but if you just step back a minute.
And even on an FX neutral basis, we grew 50% and the quarter.
We grew 50% last quarter, although thats aided by the fact that Prime day was and in Q.
For this year, but if.
If you look at the growth rate.
Fire COVID-19 and post COVID-19.
And the international segment on and in fact, even on an FX neutral basis has been.
Tripling their prior growth rates and revenue anyway, so very strong.
And probably advancement of the model and a lot of countries by a year and more.
And we're really pleased with that.
We've been able to show our value to those customers not only with our shipments and our ability to deliver.
And get them, what they need to survive and homes and in place during the during the pandemic, but also the strength that we've seen and the digital offering.
And the.
The adoption of video music.
Our devices. So it's really and we're forward investing as you know and that and international with a lot of those prime benefits. So it's really it's good to see as the underlying consumer shipping business part of it grows that we're still seeing healthy engagement and growing engagement. So.
I don't have a downside case, yet in fact surprised a bit by the growth I don't think we would normally would've forecasted 50% growth and in Q1.
And certainly stressing our operations, but I would my hats off to the operations team. They handled the volumes in Q1 very efficiently.
Costs were.
Very much under control and we start to see strong leverages, our of our fixed assets and especially our Fillman fulfillment center and transportation assets.
And this is Dave and just you know these arent big contributors by any means to the growth numbers, Brian was talking about but I think along with those efforts and countries prevent and for for some period of time.
We're continuing to open up new regions. If you look back Poland recently opened up.
And March sweetened opened up and.
The fourth quarter of last year and even in some regions that we have been and for a few years.
Places like Turkey, we launched prime in the back half of last year. So there's a lot of.
Good effort and.
Thought going into by the teams to continue kind of taking what we're learning and each of these geographies and feeding it back into our local presence and takes advantages of everything we've learned with prime and the broader consumer facing experience.
Your next question comes from the line of Ed and rumour with Keybanc capital markets. Please proceed with your question.
Hey, good afternoon, and thanks for taking the question you guys clearly took some market share with delivery and grocery during the pandemic.
And kind of what the consumer behavior has been post.
It is equivalent to be sneaky, and just zooming out.
Talking about grocery broadly hub for fresh stores performed thank you.
Sure.
<unk> has been.
Great.
Revelation during the post pandemic period here.
I think people really value the ability to get home delivery and we've seen those numbers go up considerably.
Pre and post pandemic.
But we've also worked very hard to increase our capacity during that time period.
United States, where.
Delivering out of all of our whole foods stores and.
Engaged.
So it would be allowed to pick up for greater expansion of pickup at whole foods stores, Amazon fresh became free prime benefit as you know and the late part of 2019 and customers really adopted it and.
And we continue to see strong growth so.
I think on the fresh stores, it's a little too early to stores and themselves.
And we're confident that the just walk out technology that will.
And B.
A benefit to customers.
And we're very excited about what's in the works.
But that's Phil.
And it really early and day one.
Yes.
We've got and.
And as Dave We've got about 12 fresh stores right now that are open and with confirmed and we've got some additional ones coming in.
Southern California, and Illinois, New Jersey, and and here with Us and the Seattle area. So.
And so as Brian said really pleased with.
Start with technology and the feedback from the customers so far.
Your next question comes from the line of John Blackledge with Cowen. Please proceed with your question.
Great. Thanks, two questions. The <unk> revenue guide range was strong despite the initial and then our comps could you just discuss demand levels youre seeing on the ecommerce side and just other kind of key drivers of strong expected revenue growth and the second quarter and then on the advertising business. If you can.
And just talk about some of the key drivers of the acceleration and I think it feels like it's maybe the third quarter and a row of acceleration so what's kind of driving that and how should we think about the trajectory for the business as we round through the year. Thank you.
Sure John Thanks, Let me, let me start with your second question and I advertising so.
Certainly.
Traffic has been a large driver of what we're seeing and the advertising space, but it discounts kind of improvement and we're also seeing and relevancy and new products that the team has been rolling out debt.
Customers also enjoy.
So, yes, I think the advertising aimed to try and great job of turning clicks into productive sales.
And the advertising that results is valuable to us as well.
And we were using new deep learning models to share more relevant sponsored products.
We continue to improve their relevancy for the ads being shown on the product detail pages and we've seen rapid adoption of the video creative format for sponsored brands among other things, so youre seeing a little bit more than just traffic.
And again very pleased with the performance of that team and us.
The.
Receptiveness of our customers our vendors are.
And authors and sellers to two.
Two advertising products.
And we think it's also very valuable for consumers as well and helping them.
Find things more easily and just.
Discover new brands and.
And Q2 guidance.
Yes, I would say and we are projecting again continued strength across all of our segments.
We I will remind you that.
Prime day has been scheduled for later in Q2, and we'll have more and that as the quarter unfolds. So that's a that's a consideration as well.
Okay.
Your next question comes from the line of Doug Anmuth with J P. Morgan. Please proceed with your question.
Great. Thanks for taking the questions just wanted to follow up there on Prime day, Brian.
Can you help us and all of it in terms of quantifying.
Quantifying or just how youre thinking about the contribution.
And <unk> guidance and then also just on the rationale for timing.
Given historically and <unk> and the move to <unk> last year, and then now and <unk> and.
And then.
And you can also just talk about the <unk>.
Thursday night football deal and the strategy, there how that drives and engagement and strengthens the ecosystem and also what it means for AD dollars for you. Thanks.
First on Prime day.
We're not quantifying the size of it I think theres some pretty good estimates out there that.
And you probably can leverage but.
Other than to say, it's contemplated and this in this guidance.
On the timing.
Last year, we had intended to hold prime day earlier.
We.
For a factors the Olympics, which are still out there this year.
In fact, it and some.
And many areas July is a big vacation months, so it might be better to have for.
For customers sellers and vendors to experiment with the different time period.
The experiment and the other way obviously in 2020 by moving it into October but.
We believe that it might be a better timing later in Q2, so thats what were.
Testing this year.
On Thursday night football.
I would say.
And the strike and size of the advertising opportunity right now but.
We're excited to have the exclusive content for Thursday night football of course weak broadcast Thursday night football for a number of.
Here's now share that responsibility as a lot of other partners.
We think we can do some really new and innovative things like that.
It does games with the NFL and we're looking for too.
Kicking that off in earnest.
Your next question comes from the line of Justin Post with Bank of America. Please proceed with your question.
Great. Thank you two questions first on the AWS and acceleration was that at all related to transaction volume is coming back for maybe more cyclical sectors and could see even more of that and then secondly, I think in your release, you talked about $175 million Prime members watching video.
Seven of eight users.
So just wondering what the what you see is the effect on your retail business from that any update you can provide on content spending and how you think about prime video as a driver for overall Amazon. Thank you.
I'm concerned about that dog or you are being chased by it or is that your dog.
Maybe dropped off.
So let.
Let me start on the AWS acceleration.
Hi.
No we wouldn't point to any particular customer group we're seeing.
Great.
[noise] usage and.
Expansion across a number of industries and a number of types of customers from startups, all the way to enterprises to put it a little bit and perspective for you.
And Q1 of 2019, we were $31 billion run rate by.
Last year, we had increased that to $41 billion.
Revenue run rate, which is a 32% increase.
This year, we're up to a 54 $1 billion annualized run rate, which is well also.
32%.
Year over year growth.
And $13 billion of revenue and the last 12 months as opposed to 10, the prior 10 billion and the prior 12 months before that so.
The percentages can be a little deceiving I would.
Encourage you to look at the absolute dollar growth, although both were very strong this quarter.
So we are seeing again strength across the board.
We.
And that's.
He and firm confidence that we offer a lot of advantages to AWS customers for.
Functionality to a vibrant and robust partner ecosystem.
And then.
Really we.
So I have less downtime and better security, which I think is super important to all of our for.
And all of our customers, especially security nowadays so that's on AWS on.
Dave on and you pick up the.
John just in terms of strategy I think there's probably nothing newer.
And your surprising, but just to reiterate it.
Look at Prime video and.
Component of the broader prime membership and and making sure it's driving adoption and retention is as it is.
If a significant acquisition channel and prime countries and.
And.
And we look at it and see that members, who watch video have higher free trial conversion rates higher renewal rates and higher overall engagement.
And there's great examples of places like Brazil, where you watch for.
Video only subscription for example that preceded the broader prime membership with shipping components and that was you know as an example, a great way to kick.
Expose people to Amazon and.
As we launched a broader prime and Brazil. It was a great mechanism to get folks into that program. So.
There's a lot of debt tried different experiences there, but as the as jeffs quote would indicate a lot more people are continuing to enjoy it and and I think the studios team has done a great job.
And really striving to be the best home for talent.
A lot of diverse artisan filmmakers and.
I think folks are noticing that both critically but of course just in terms of viewership.
A lot of good momentum there just in terms of spend.
We continue to.
Back to grow that on an absolute basis and invest in and that.
And beyond our original content, Brian talked about live sports and a lot of the great opportunities that feed into that too so.
A lot of continued excitement excitement there.
Our final question comes from Brian Nowak with Morgan Stanley. Please proceed with your question.
Thanks for taking my questions I have two Brian I wanted to ask you one high level. One you guys have done such a great job building out your network and for providing consumers with access to so many categories of goods.
Give us a couple of examples of areas, where you see room for improvement or what areas are you. Most focused on when you look across all the categories delivery experience the countries to invest in and innovate to really improve the consumer offering. That's one and then secondly can you just talk to us about sort of what you've learned about the echo journey you know areas.
And we've had success and and still existing opportunities for echo to have a larger installed base and it's more of an impact on the ecosystem. Thanks.
Sure Thanks, Brian for your questions.
And Theres always a lot of areas and we're working to improve upon I think generally the speed of innovation is.
And very quick at Amazon, but we always wanted to be quicker and we always want it to be globally, consistent and we want to take the best practices from one country and make sure we're doing and at the same way everywhere I think currently on our list right now is that we.
We are and the process of re.
And we.
Getting our one day shipment percentages.
Back up to where they were pre pandemic, where they are in Europe.
And you're starting to see and Europe, not only strong one day, but also.
More broad same day selection.
Tend to go hand in hand and.
And the U S. We've made improvements we're conscious and.
Consistently getting better.
And I would say the and delivery is is really a function of everything before it and how well we can.
Handle and process and timely manner, all the orders in North America, it's been challenged by the volumes and that's also been challenged by the rapid expansion of space.
But we're making progress nonetheless, and we are.
Hope to get that even higher in 2021.
You know.
We're very excited about the adoption of our prime benefits pretty much across the board, but especially with the digital benefits.
We are.
Looking forward to some new content, even though we're very happy with the performance the studios business and the.
Kent and awards that are they were nominated for and and we're able to garner this year.
Some big things on the horizon, including Lord of the rings, and we're very excited about it.
Getting that type of content to our prime members quicker.
Yeah, Brian and then just on your question on kind of Echo and if I could take it up a level and it really broadly Alexa and devices.
Our goal with that it has been continues to be to make customers' lives easier and really more convenient and we want to continue to bring more.
Hardware choices and that case, but also make Alexa smarter with new features as we talked about before advances in AI and machine learning and really deliver tools that help developers and the.
And the makers of those devices Phil.
And for and with Alexa because and that you know and that community is it's not just our echo devices, but also.
Variety of third party device manufacturers and seen a lot of momentum was a smart home capabilities and working with them and so and I think with US is with so many other areas, it's about making sure we're maintaining a really high bar and.
And a lot of that with that type of technology as you know.
Speech recognition capabilities and the intelligence behind it and getting smarter and so.
Some of that comes a responsibility that customers have higher and higher expectations for the capabilities for something like Alexa and Thats, great and I think if we just look back over the last 12 months and what's been going on.
And the role that <unk>.
Customer usage is played with Alexa.
And the behavior there you've seen you know as people have been isolated or unable to be as mobile you see customers are using <unk> to help them stay connected with loved ones, we're seeing customers using <unk> to help stay healthy and.
So you know, whether that's interacting with health related tips for fitness apps or.
Increased usage with the fire TV and and Theyre looking to Alexa for information and.
And so using our devices and the services and the Alexa enabled services.
And for things like educational apps, and then of course, you know part of that part of that too.
And just making sure they stay entertained Ah.
When they're when they're trapped are cooped up and don't have either access. So I think you can just see in that example, a lot of.
Really good utility and and it's just I think encourages our teams to strategies and harder to serve customers. When you see those types of examples and and how they resonate with customers.
Yeah.
Thanks for joining us today.
On the call and for your questions a replay will be available on our Investor Relations website for at least three months. We appreciate your interest and Amazon and we look forward to talking with you again next quarter.
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