Q3 2021 Amazon.com Inc Earnings Call
Thank you for standing by.
Good day, everyone and welcome to the amazon.comQ3, 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'll be turning the call over to director of Investor Relations, Dave Fildes.
Please go ahead.
Hello, and welcome to our Q3 2021 financial results conference call joining.
Joining us today to answer your questions is Brian <unk> our CFO.
Today's conference call. We encourage you to have our press release in front of you, 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 October 28, 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.
In 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 inherently unpredictable and maybe materially affected by many factors, including fluctuations in foreign exchange rates.
<unk> and global economic conditions, and customer demand and spending labor market and global supply chain constraints world events.
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 impacts of the COVID-19 pandemic on our operations, including those discussed in our filings with the SEC.
Our guidance also assumes among other things that we don't conclude any additional business acquisitions 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 will turn the call over to Brian.
Thank you for joining US today, let me first start by reiterating and expanding on a few comments that Andy made in our earnings release, we are now reporting our results for the seventh quarter since the pandemic began and we were especially proud of our employees for both their response to the unprecedented customer demand, we have experienced as well as for their implementation of many safe.
The procedures to create a safe work environment. During this period, we have continued to earn the trust of our customers, especially our prime members, who have increased their annual purchases and their use of prime benefits over the last 20 months.
We've also seen strong growth in our advertising products as vendors and sellers have embraced their ability to build their brands and to reach customers just as they are considering their purchases.
And AWS has seen a reacceleration of revenue growth as customers have expanded their commitment to the cloud and selected AWS as their cloud partner.
As a result, Amazon's Q3 revenue of $110 $8 billion represented a two year compounded annual growth rate of 25% versus a pre pandemic growth rate in the low 20% range.
We are grateful to our customers who put their trust in us.
However, there certainly been challenges to overcome since February of last year, we've nearly doubled our operations capacity in the past two years to keep up with customer demand.
Incurred billions of dollars in additional costs to keep our employees safe and to support testing and other COVID-19 related costs and we've grown our global head count by 628000 employees in the past 18 months and are recruiting for more including more than 150000 in the U S to support Q4 seasonal demand.
Demand for Labour has recently coincide with the shortage of available workers, particularly in the United States.
Began in Q2, but it really started to impact our operations and cost structure in Q3.
He has led to wage increases and sign on incentives as companies compete for workers as well as inconsistent staffing levels in our operations.
In addition, disruption to the global supply chains and inflation costs materials, such as steel and services such as trucking have also raised our cost of operations. We estimate the cost of labor labor related productivity losses and cost inflation two added approximately $2 billion in operating cost in Q3.
Particularly in August and September our COO.
For guidance range anticipates that these costs will approach $4 billion in Q4, as we see a full quarter's impact of these effects and a higher seasonal unit volume specifically.
Specifically in Q3, we saw nearly $1 billion of inflationary pressures, primarily tied to wage increases in incentives and our operations are average starting wage is now over $18 per hour with an additional $3 per hour depending on shifts in many locations and sign on bonuses that can be up to $3000.
In addition, we saw inflationary pressures in raw materials and services as I mentioned, particularly in steel and third party trucking.
We also saw over $1 billion of costs tied to lost productivity and disruption in our operations in Q3 labor became our primary capacity constrained not storage space our fulfillment capacity.
As a result inventory placement was frequently redirected to fulfillment centers had the labor to receive the products.
It resulted in less optimal placement, which leads to longer and more expensive transportation routes and short our operations are normally well staffed and optimized to be in stock and to deliver to customers in one to two days.
Labor shortages and supply chain disruptions upset this balance and resulted in additional costs to ensure that we continue to maintain our service levels to customers.
As you look to Q4, we have incorporated this nearly $4 billion of added costs into our operating income guidance range. In addition, we have a nearly $1 billion year over year increase in Q4 for spend to support our digital media content efforts, including video music and games, We recently launched new World a multiplayer online PC game.
And we're delighted with the response and engagement New World has become the highest played new game this year on steam move.
Moving to video content Prime video is a compelling lineup of live sports, including the UEFA Champions League and League one soccer in France, as well as NFL Thursday night football in the United States.
We have a great lineup of original series look forward to including the wheel of time, Lord of the rings, and Citadel and new seasons from Jack Ryan The marvelous Mrs nasal and the boys. We're excited to add this content to our prime benefits and increase the value of our prime membership.
<unk> guidance also includes an estimated $1 billion year over year negative impact from lower fixed cost leverage in our fulfillment network.
Recall that we saw very high unit volumes in Q4 of last year and then our fulfillment centers were running at close to a 100% capacity as we worked at physical capacity to match demand as we are now back to having more normal Q4 fulfillment capacity and have even brought forward 2022 capacity into 2021, our operating leverage drops compared with.
Last Q4.
Our revenue guidance for the fourth quarter reflects the current trends, we are seeing including the lapping of our Prime day event in October of last year, we were dealing with labor risks and supply chain interruptions like many other companies, which increases our range of potential outcomes. In Q4 consumers have started to return to pre pandemic spending patterns increasing their mobility.
And spending more on travel in services in Q2, and Q3, but we are appreciative that the incremental demand that came our way during the pandemic has remained in that we are continuing to grow on top of that.
We also had to make this a great holiday season for customers.
Last quarter, we discussed the physical capacity, we're adding to meet customer demand.
Made strong progress in Q3 to build and open new facilities and as a result for the first time since the pandemic began we are no longer capacity constrained for physical space in the network.
September loan, we brought online more than 100, new buildings in the United States.
<unk> fulfillment centers sort centers in the last mile delivery stations for.
For the year, we expect our 2021 footprint additions to exceed last year's build out which was also significant.
Put this in perspective, we are on track to double our fulfillment network over the two year period since the pandemic early days.
A lot of this increased capacity supports our FBA sellers.
Third party sellers and the products. They offer remain an important strength of our offerings for customers representing 56% of total paid units sold in Q3.
Up from 54% in Q3 of last year, and we're working with these partners most of whom are small and medium sized businesses to build an even stronger offering.
We recently hosted Amazon accelerate our U S conference for selling partners, where we introduced new tools and capabilities.
<unk> local selling which enables sellers to start or expand their multichannel offerings by providing both in store pickup and SaaS delivery to nearby customers and global selling tools to make it easier for U S third party sellers to offer their products worldwide.
Finish with a few highlights regarding two fast growing areas with strong profitability profiles.
First we saw a continuation of strong usage and revenue growth in AWS with revenues accelerating to 39% year over year in Q3, driven by a broad base of services and customers.
There are a number of areas. We're excited about it but let's focus for a moment on our efforts in machine learning customers of all sizes and across all industries are using AWS as their preferred cloud provider for machine learning services.
We've been investing in this area for several years, often an extensive set of machine learning services, including ones that can be applied to common business problems like Amazon connect for contact center intelligence or Amazon Kendra for intelligent enterprise search and we recently launched solutions specific to industries, including industrial machine learning services.
<unk> as well as Amazon Health Lake to help health care and life Sciences customers seamlessly transform their data across disparate sources to understand and extract meaningful medical information and.
And Amazon stage maker continues to help customers scale their use of machine learning to core workloads, making one of the fastest growing services in AWS history with tens of thousands of active external customers using it every month.
We also continue to see strong interest and rapid adoption of our custom silicon and AWS design gravitas to processors delivering customers up to 40% better price performance than current X 86 processors moving to graviton two means little to no code changes so the customers can quickly and easily migrate their work.
Close to access the best price performance in Amazon E C. Two <unk>.
Last but certainly not least Amazon advertising continues to grow quickly representing the significant majority of other revenue, which grew 49% year over year in Q3.
We're seeing strong adoption across Amazon vendors sellers authors as well as brands that don't sell in our store, particularly as we've built out our streaming TV offerings.
Advertising only works if we make it useful for customers and when we create great customer experiences, we deliver better outcomes for brands.
<unk> also recently hosted Unbox 2021, our annual conference for advertisers and brands, where we shared some of our newest solutions to help companies connect with their customers measure the impact of their advertising and grow their businesses.
As we shift into Q4, we are heads down focused on delivering a great experience for our customers. This holiday season, we're committed to make the necessary investments in both people and capacity to bring more items in stock and to deliver them quickly the customers.
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'd like to ask a question. Please press star one on your keypad, we asked that when you pose your question you pick up your handset to provide optimum sound quality once again to initiate a question. Please press star.
And then one on your Touchtone telephone at this time, please hold while we poll for questions.
Thank you. Our first question is coming from Justin Post with Bank of America. Please proceed with your question.
Great maybe I'll ask about fulfillment capacity you said your capacities up.
To ask since be before the pandemic and I've got units up around 55% on a two year basis. So just wondering is is the capacity needed per unit going up as you speed up delivery times and try to get to to one day and then and then second are you in really good shape for next year and could you.
Could you be ahead of plan for next year and kind of cut down to the investment there. Thank you.
Yes, Hi, Justin.
On your first question about whether we have.
The comparison of doubling the fulfillment capacity to the unit growth.
Keep in mind also that.
Our fulfillment capacity also includes our transportation and delivery capacity and then the last two years. We've also greatly ratchet up our ability to deliver ourselves through mcl and our.
Percent of units that we deliver through mpls over 50% of argue that's globally. So that's a big.
As a driver as well I'd also say that.
While we've been chasing.
Demand.
For the last two years.
We've been doing it.
As I said, we're running out about 100%.
All of last year.
We are just now getting caught up on space for inventory and inventory is being brought in.
To support the holiday and if you look year over year.
Well units growth is as you say closer to 8% in <unk>.
Q3 the cubic.
Inventory cube is up closer to 40% both in North America and internationally. So there is like the second shoe that's dropping of getting the fulfillment centers back in stock, especially for sellers and especially as we head into the holiday. So that's.
I think that capacity.
The amount of space, we have for inventory is also going up probably at a higher rate than our <unk>.
On a ship right now.
Your question about whether it pulls forward from next year.
We're not forecasting into next year, we do see that we will and we.
We expect growth and as I mentioned on the last call. We think that the growth will be suppressed for the four quarters that end middle of Q2 next year, but we expect just as a comp versus 2020, just because of the 40% growth. We saw last year, but we expect the long term trends to be strong in this business where inverse.
Things such as I mentioned, the two year CAGR as I do that just so you can kind of judge pre pandemic versus.
Today.
We see strong growth even off the base of last year, which are strong so well.
We will see next year on Capex.
Certainly.
For the for the short for the foreseeable future our capacity constraint is actually labor, which isn't doing and not welcome. That's what we've tried to articulate here today and we are hoping that that rectifies itself.
Through Q4 and into early 'twenty two.
Our next question comes from Mark Mahaney with Evercore ISI. Please proceed with your question.
Great two questions first any color around those international losses in the quarter that was large even by Amazon standards that $900 million and then secondly.
Talk about the.
You've been spending so you're double this fulfillment capacity I think to really kind of catch up to demand, but now it seems like youre getting ahead of it and as you rollout.
Close to one day promise that you worked up two or three years ago pre pandemic and as you start rolling out Super Super same day delivery or what you call sub one day delivery talk about the incremental demand do you think that that could unlock and to the extent to which youre investing against not only to catch up to demand, but trying to liberate future demand if you will.
My point. Thank you, yes, I definitely do and I'm glad you brought that up because I didn't include it in my last answer, but yes, we have unfinished business on the one day promise side, we were ramping that up nicely in 2019 in the first quarter of 2020 before the pandemic, we're still not back to levels that we saw pre pandemic, we're getting closer.
We feel.
Again that kind of labor constraints have not helped us close the gap there, but we don't want to be as good as just as good as we were before the pandemic, we expect that to it.
Kris.
In 2022.
And we're going to plan Accordingly, and I think you start to see the.
The difference in the growth rate was before and after that one day I won't forecast that too much but we do we did see pick up and we saw.
Really that we got into the consideration set for more purchases when something is available in one day or less now.
You really don't have to go to a store even if you need it very quickly. So it just it just opens up more.
For us to serve.
Our customer, especially a prime customers.
On your comment about.
International Yes, Youre right it was a.
A larger loss than in prior quarters in fact, we had flipped to positive.
Positive operating income.
Through the pandemic a lot of that was.
Again, getting two years of volume growth on top of a one year or current year cost structure.
There's also a bit of a slowdown just in content and other things. Although we're building that we would have built it at a higher clip.
But the long term trends remain the same in international it's a group that has.
It's very.
Different life's work.
We're in different stages in different countries, the established countries of Europe and Japan.
Further along obviously and they perform closer to the North America <unk>.
<unk>, we have new.
The countries we've added a lot in the last few years the investments in Brazil, the Middle East Australia.
Annex area.
Adjacent countries with Poland, and Sweden within Europe.
So those are all important investments.
But they start as an investment and then we build over time and we Frontloaded a lot of prime benefits in those countries, especially things like video we find video as it really strong.
Excuse me attractor of customers then it's a gateway to prime a lot of those countries. So.
Models, a bit flipped us versus what we saw in North America, just because we had we added video later in the game, but we like what we see and we see the.
Actual the hours watched in the percent of Prime members, who watch video is actually higher than a lot of the countries.
The new countries that we're getting into so.
We are.
As we said it.
We're going to make money long term in international right now, it's a bit of a umbrella that catches a lot of different countries and different stages, we're happy with both the established countries.
They are also seeing however, the pressures that we're seeing in United States on.
Labor cost and disruption from supply chains.
So cant forecast this but.
Any further.
At the segment level, but.
I just wanted to give you a little color.
Our next question comes from the line of Doug Anmuth with Jpmorgan. Please proceed with your question.
Thanks for taking the question, Brian just curious how they fared and falling holiday shopping earlier, thus far this quarter and to what degree can that help ease some of the impact and perhaps what did you learn there last year from having prime day.
And then just also talk a little bit about the drivers AWS acceleration.
How do you think about the margin profile.
More contribution from enterprise deals. Thanks.
Sure.
Yes.
Start with the holiday shopping so yes, you're right last year, we as we look back we use prime day to poll.
A lot of holiday shopping forward.
And people knew that.
Delivery capacity across all <unk>.
Tells you it's going to be tight so.
It was more distributed through the quarter.
Obviously that works better for us.
Then can have it all hit in a few concentrated weeks around cyber Monday, and Black Friday, and the week before and two weeks after so.
Operationally, it's easier to perform when the volume is spread out.
You are seeing a lot of promotional activity from us in October.
Again trying to do what we did last year is just pulse pulse on demand again.
People to buy.
And by early.
Thats to their advantage all that work.
Preparing too.
Serve people throughout the whole quarter.
We feel we've done a good job of lining up.
Inventory of made commitments that is larger than normal.
We've looked at getting more container capacity.
Successful and that we have access.
New ports in parts of entry into the United States. So we're doing everything we can.
Granted it's at a cost penalty in many cases, but we are we feel good about.
Being able to serve customers. This Q4.
Love It in October, but we will take it in November and December as well on AWS the acceleration.
Again.
I would say that.
What we're seeing is again a lot of cuts.
Customers accelerated their journey to cloud based on the pandemic.
Some of their spending was suppressed in 'twenty 'twenty as they.
It is different some companies were booming.
Disney Zoom, Netflix and others that were more travel related where.
Suppressed in their demand.
I think there's a general lever level Rick.
Covered across a lot of our customer base, we're expanding our customer base into a lot of different areas.
New different customers, we had many new products I highlighted a.
A few of our machine learning products. So we feel really good about the acceleration in growth.
We know there was some suppression last year, but it was.
The growth last year was still in the 28% to 32% or excuse me, 28% to 33% range through on an FX neutral basis through most of the year.
On the margin side.
The margins are going to be.
There's always going to fluctuate every time, there's a lot of moving parts, there's a lot of.
Extensions of contracts and long term commitments, which are great for our business and great for customers.
So theres negotiated long term deals. There's also a lot of investment in new capacity and new regions to service high usage.
Certainly, adding continuing to add to our sales force and marketing teams.
And then the counterbalance on that is how well we run our data centers, what efficiencies, we get with cost reductions we get so.
It's always going to be.
Varying we like where we are.
And you.
So that forecast forward, but again they are apt to change, but we're working hard to keep them high and then Pat well passing through.
Benefits and efficiencies to customers and lower pricing.
Our next question comes from Brian Nowak with Morgan Stanley. Please proceed with your question.
Great. Thanks for taking my questions I have two Brian.
The first one I wanted to kind of ask a big picture question about the retail business I know, there's a lot of extra cost sort of moving through the system now, but maybe can you just talk to us big picture about any changes or factors that have changed the company's view about the long term profitability. The long term return on invested capital.
All of the retail business now as opposed to at the end of 2019.
The second one is on the physical stores you have quite a few different formats and experiments going on in the physical stores talk to us about areas, where you've seen sort of the the most positive results from physical stores, where you're pleased as opposed to areas, where you still see room for improvement in the physical store strategy.
Sure Let me, let me start with you.
Comment on the on the well called the core retail business.
We're very bullish on the retail business in fact is impossible and not.
Productive to even try and separate advertising from third.
Third party from retail it's off to US part of a flywheel, where we service customers, we do it in an efficient way and we.
Earn their trust and earn their future future business and we fight that Battle every day and we look to expand the prime program to build that flywheel, we looked at new products and services like grocery and video and music and the list is long so.
When you look at retail it's certainly.
Expensive right now, especially with the cost side is laid out in Q3 and Q4 for us to service that business.
However.
Yeah.
We have other monetization vehicles, including advertising that if we do well.
Become a benefit to customers and to advertisers at the same time, that's what we work on so that is a important part of our profitability structure, it's tied directly to happy customers and customers who are engaged in buying thanks.
So we don't separate those two we do for some reasons, we want to make sure that we're understanding where our cost and where our profit is happened to be but we do realize it's all part of the same customer offering.
And we'd like we'd like to return on investment flywheel, we do we.
I get to see investments in warehouses trucking programs.
New offerings that we do new country expansion.
The segment those as much as we can into discrete decisions and then we track them and make sure that not only are we are delighting customers or delighting shareholders in the long term. So we feel good about that certainly the cost of fulfillment in the last few months and what we forecast into the next.
Quarter.
Not what we're happy about but we see ourselves as the shock absorber absorbing a lot of the costs. So that the customer is not impacted and sellers are not impacted.
And.
There's just quite limited options in the short run to impact your cost structure.
Company's wood.
So late shipment or incur fees or something.
I think that is.
Customer centric.
Nor productive and we will get through this period and then we are committed to.
Getting our cost structure.
Down.
Brian on that second question around the physical store strategy. We of course, we have a number of different brands and store types whole foods being the largest that's got over 500 locations what we've got.
Amazon four star Amazon books, the fresh grocery stores Amazon go in.
Amazon pop ups in each one of course pay the name and the types of products. We offer has its own differences, but I think when you step back.
We've said that we want options for for customers to be able to shop online and in store and I think youre seeing that probably most predominantly with the grocery offerings and our whole foods footprint that we've got out there and give customers choice and offer them. The combination of doing that online and in store option whenever works fast and the goal around this is really right.
The bar for what customers can expect with this.
Omnichannel experience so we like the hybrid.
Model and we're working on.
We continue to evolve on a lot of.
Interesting in store experiences that will resonate with customers, we know that customers have a choice to be able to do that so.
Yes, some of the things that we continue to be excited about and do a lot of work on our.
Things like the just walk out technology.
<unk> been in our Amazon go stores and is now.
Moved into some of our Amazon fresh stores, just really eliminates again, one of those things that people may not realize is such a.
Hassle or turn to shopping are waiting in line and eliminating something I've really been positively.
Received by customers as they use that technology. Another one just as you enter these.
This technology, we have now and a little over 70 of our physical retail stores that Amazon, one, which is a contactless way for folks to enter stores using their palm to identify.
So that's in.
Retail stores, and our whole food stores, and so keep looking for us to roll that out and I'd say, what these technologies to theres opportunities beyond the Ams.
Amazon physical store footprints that I mentioned, you're starting to see just walk out going in.
Sports.
And kind of a large arena type environments and Amazon one.
Is it some good locations in both those technologies I'm excited to employ them in climate pledge arena here.
In Seattle, So look for us to keep iterating on those and finding other new innovative ways for customers to enjoy unique shopping experience.
Our next question comes from Eric Sheridan with Goldman Sachs. Please proceed with your question. Thanks.
Thanks, so much for taking the question maybe if I can go back to two on the Q4.
Cost structure, just in terms of framing it almost against a year ago period could you talk a little bit about the $4 billion of COVID-19 costs from a year ago. The elements of EBIT contribution from things like AWS and third party and advertising and maybe help investors better understand the bridge between some of the elements of headwinds to profitability in <unk>.
Q4 versus Q4, a year ago I appreciate all the comments upfront didn't know if we could go a little bit deeper and then all of the costs you're incurring late Q3 into Q4, how should investors think about a permanent nature to that cost structure versus the transient nature of the cost structure, either as an output of the macro environment or the unit environment in Q4.
Thanks, so much.
Yeah.
Sure. Thanks, Eric for your questions, Let me start with the second one so how should we think about the cost.
Permanents.
Certainly on the labor front, there will we estimate about half of the cost is.
Permanent base wage the other half is in incentives that we currently offer to attract workers.
We're going to have to see I think it's going to get the job.
We're going to have to adjust and.
Work to.
Lower our costs going forward, especially on things that we procure that may have gone up in price in the last.
The last few months.
Mostly what I'm talking about is kind of third party things like trucking and steel for.
Film fulfillment center construction.
We will we will be working on our cost structure for a while if you're trying to do the bridge for Q.
Q4 year over year, a couple of things I would say, yes, the COVID-19 costs are.
Lower.
$5 billion in half versus last year.
So three yes, yes.
If your Q4 excuse me.
The $4 billion is going to be.
Pure variance year over year, that's what we've identified 2 billion roughly of of labor inflation of $2 billion of operational disruption, mostly through higher transportation costs.
There are a couple of other items year over year. If you remember last year, we were running at nearly 100%.
Capacity.
That's not the.
Ideal for us, but it has the benefit of being.
Highly leveraged.
And you can have other costs, but it's highly leveraged mathematically on a cost per unit shipped as we get more into a normal buffer. So that we can handle swings in volume, especially as we get closer to holiday cutoffs.
We generally run with more.
Slack in the system and we are.
We're in the good fortunate for returning to maybe a more.
Normal profile in space Q4 is just again on labor. So there's that there's the increased cost in.
Digital content.
Combination of the video game video games music audible.
So, yes, some rather large items year over year I haven't given you a complete bridge, but.
That's what we're seeing.
Sure.
Yeah, I think that's right 4 billion.
Items, you mentioned doing iron content.
Marketing costs.
There were.
Suppressed last year for much of the year and you're starting to see those kind of growth throughout 2021.
Our next question comes from the line of Dan Salmon with BMO capital markets. Please proceed with your question.
Yeah.
Hey, guys good.
Good afternoon everybody.
Two questions.
First you mentioned growing customers use of prime more original programming coming in the services you offer continuing to expand.
Do you see this demand this new content and new services, having expanded to a point, where our price increase for the prime subscription begins to make sense.
And then second you mentioned the Unbox event earlier this week.
<unk>, new AD products announced there, which among them do you expect to be most impactful to the overall advertising business. Thanks guys.
Sure. Thanks, Dan I may.
Start with the first question on Prime so yes.
We're very excited about.
The current programming that's coming out in the back end of this year and also the prospects for 2022, we think it's.
A real step up in.
Options and quality and volume for our customers globally in the video side I'm very very excited about it and you're right. It does have a lot of value I have nothing.
To discuss our announced around prime price increases.
But yes, we always look at that we look at the value where.
It's generally a country by country just discussion.
We looked at the value of we felt with us at the time since our last price increase because a lot of strategic factors involved obviously.
But my job is to build the value of prime.
Absolutely work on an <unk> part of that.
Yeah.
Yeah, Dan it's on the second piece for advertising.
We still see there is a lot of opportunity and the biggest.
Kind of bucket, if you will of the current advertising revenue run rate and Thats in a sponsored activity that we're able to offer them to customers continuing to find ways to just measure.
Measure that information and be able to surface incredibly.
And quickly and improve on that for for advertisers out there. So a lot of work and it's still being being done on the team there and being able to add value for customers.
I point to is there's.
A lot of excitement in the video advertising area I know, we've talked about that in the past it's growing quickly.
Okay.
I guess piece of it.
That run rate that you see in there, but growing well and I think just the.
Technology, we're able to develop some of the relationships.
We've been able to foster with things like live sports the opportunities with.
The fire TV device in the video community and where we can reach folks through through those areas.
Really exciting Imdb TV are AD supported channel as.
Is it continues to do really well people really enjoy that we recently expanded that beyond the U S for the first time to the U K. So.
A lot of really really good and interesting ideas and a lot of opportunities to grow in different different ways with that deal.
Yeah.
Our next question comes from Ross Sandler with Barclays. Please proceed with your question.
Hey, guys just two for me. So you guys are all kind of beaten the road through e-commerce on speed of delivery across a wider set of skus, but theres a bunch of these new companies cropping up better wiring a speedy same day delivery for a lot of products from either their own warehouse are from various.
Other retailers do you view that as a threat and you have a thing they offering in 15 cities.
Does your same day leverage kind of your existing fulfillment their footprint or do you have to kind of rethink the approach to get speed down too.
Got 30 minute window or or wherever it's going to go.
And then the second question is.
New World was a huge hit so just any thoughts high level on the overall strategy within gaming.
Yeah.
Yeah I'll take the second question first related to game. So yeah, I think as we mentioned at the top really really excited to get new world out there to more customers hands.
Some really good momentum.
Kind of engagements coming out of the gate with.
With customers, there and Thats one of the.
The offerings like the steam platform.
And Twitch as well, but if you step back I think look we've said for a while now that gaming is obviously one of the fastest growing industries in the entertainment space and.
Sure.
Fines and see a number of different ways to be able to offer folks a variety of services. So we develop and publish games for customers through Amazon games, which.
That new world.
We're also leveraging the flywheel the Amazon flywheel offering some exclusive and free content as part of Prime gaming so as part of prime benefits.
AWS and utilizing AWS services stream games with.
Our lunar Amazon lunar offering and then as I mentioned before building this.
Large engaged passionate gaming community online with Twitch so.
Again kind of to my point about a lot of really interesting ideas when we were talking about.
Video in the advertising space.
It's a lot of different areas. It can interrelate serve different communities within within the gaming area and.
So we're going to keep working on that keep keep building and most of your customers on the.
The games, we've launched and keep pushing forward with an exciting slate.
Future.
And on your first question on <unk>.
What I'll call ultrafast delivery and other options in the market.
We like our model.
It's a rapidly evolving space and obviously, if a customer obsessed but we also are competitor where we'd like the.
A business that we have we have over 170000 products that our customers prime customers can get within two hours it from Amazon fresh whole foods market and other stores that participate with us and over 5000 cities and towns. So.
We're well on our way.
Two.
Providing ultrafast delivery for things that require ultra faster.
Things like groceries and others.
We see that expanding.
But there'll be room for multiple winners in this space and.
You know as you say there is.
You have to have a cost structure and as a logistics network that will pay for the.
Delivery over time, so we.
We see it as part of an offering that we offer to customers that.
Range is from two days to one day too.
Two hours or one hour in some cases so we.
We like to meet customers, where they are and what there when they need things and.
We're working on it consistently.
Our final question comes from Brent Thill with Jefferies. Please proceed with your question.
On the advertising business I am curious given some of the concerns in the supply chain have you seen.
A pullback on the outside so far is that something that you're factoring in for the fourth quarter.
No we're actually.
Again, we're seeing strong growth.
You know obviously the prime day is always a really great.
Advertising event as well.
And then you saw a little bit of that in Q2, when we had prime day in Q2. This year, we're lapping Q Prime day from Q4 of last year. So.
There might be a comparable issues, but as far as the strength of the offering and the differential between the growth of the advertising business versus the unit growth. We think we are really resonating with advertisers.
We're getting our new products, new ways to advertise new ways to highlight the brands.
It's resonating with sellers as well for the same reasons.
We felt it's additive to the customer experience. It helps customers find curated selection and also see brands that they may not have otherwise seen.
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 in Amazon and we look forward to talking with you again next quarter.
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