Q4 2022 Amazon.com Inc Earnings Call
[music].
Thank you for standing by.
Good day, everyone and welcome to the amazon.comquarter for 2022 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 and for opening remarks I'll be turning the call over to the Vice President of Investor Relations, Dave Fildes. Thank you Sir Please go ahead.
Hello, and welcome to our Q4 2022 financial results Conference call.
Joining us today to answer your questions, Andy <unk>, our CEO and Brian <unk> our CFO .
As you listen to 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 2021.
Our comments and responses to your questions reflect management's views as of today February <unk> 2023, 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 uncertainty regarding the impacts of the COVID-19 pandemic.
Fluctuations in foreign exchange rates.
Changes in global economic and geopolitical conditions, and customer demand and spending including the impact of recessionary fears inflation interest rates regional labor market and global supply chain constraints 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.
Our guidance assumes among other things that we don't conclude any additional business acquisitions restructurings or legal settlements. It's.
It is 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 today's call as Dave mentioned earlier I'm joined today by Andy Jesse our CEO .
Before we move on to take your questions I will make some comments about our Q4 results, let's start with revenue for the fourth quarter worldwide. Net sales were $149 2 billion, representing an increase of 12% year over year, excluding approximately 360 basis points of unfavorable impact from changes in.
Foreign exchange rates and above the top end of our Q4 guidance range.
We have seen that during periods of economic uncertainty consumers are very careful about how they allocate their resources and where they choose to spend their money.
Throughout Amazon history, we have found that our focus on the customer helps to set us apart in times like these.
Holiday season customers came to Amazon for great deals fast delivery and our widest ever selection bolstered by nearly 2 million third party seller partners to sell on Amazon.
Enterprise customers continued their multi decade shift to the cloud while working closely with our AWS teams to thoughtfully identify opportunities to reduce costs and optimize their work.
Worldwide stores business with the ongoing economic uncertainty coupled with the continuation of inflationary pressures customers remain cautious about their spending behavior.
We saw them spend less on discretionary categories and shift to lower priced items and value brands in categories like electronics.
We also saw them continue to spend on everyday essentials, such as consumables beauty and soft lines.
Our teams worked hard to offer low prices and secure millions of deals for customers in Q4, including our first ever Prime early access sale in October and the more traditional Thanksgiving to cyber Monday holiday weekend.
Global sales events outperformed our expectations as customers responded to millions of deals across our growing selection.
Third party sellers remain a key contributor to that expanding selection.
In Q4 sellers comprised a record 59% of overall unit sales.
<unk> vendors and brands continue to look to Amazon's advertising capabilities to reach customers in the always competitive holiday season, even.
Even as the macro environment required them to scrutinize their own marketing budgets.
We saw good growth in advertising revenues in Q4 up 23% year over year, excluding the impact of foreign exchange.
Prime membership continues to be a great value for our customers and improving our prime benefits is a continuous part of our investment strategy.
Along with competitive pricing broad selection and faster delivery speeds, we've seen prime members respond to our expanding entertainment offerings.
During the quarter, we completed our first season of the Lord of the rings that brings the power. The most watched Amazon original series in every region of the world, reaching over 100 million viewers and driving more prime sign ups worldwide during its launch window than any previous prime video content.
We also finished our inaugural season as the exclusive home of Thursday night football, reaching the youngest median age audience of any NFL broadcast package since 2013, and increasing viewership by 11% from last year among hard to reach 18 to 34 year olds.
In aggregate, we invested approximately $7 billion in 2022 across Amazon originals live sports and licensed third party video content included with Prime.
Up from about $5 billion in 2021.
As a reminder, these digital video content costs are included in cost of sales on our income statement.
We regularly evaluate their turn on this spend and continue to be encouraged by what we see as video has proven to be a strong driver of prime member engagement and new Prime member acquisition.
Moving on to AWS net sales increased $21 4 billion in Q4 up 20% year over year, and now representing an annualized sales run rate of more than $85 billion.
Starting back in the middle of the third quarter of 2022, we saw our year over year growth rates slow as enterprises of all sizes evaluated ways to optimize their cloud spending in response to the tough macroeconomic conditions.
As expected these optimization efforts continued into the fourth quarter.
Some of the key benefits of being in the cloud compared to managing your own data center or the ability to handle large demand swings and optimized cost relatively quickly, especially during times of economic uncertainty.
Our customers are looking for ways to save money and we spend a lot of our time trying to help them do so this customer focus is in our DNA and informs how we think about our customer relationships and how we will partner with them for the long term.
As we look ahead, we expect these optimization efforts will continue to be a headwind to AWS growth and at least the next couple of quarters.
So far in the first months of the year AWS year over year revenue growth is in the mid teens.
That said stepping back our new customer pipeline remains healthy and robust and there are many customers continuing to put plans in place to migrate to the cloud and commit to AWS over the long term.
Now, let's shift to worldwide operating income.
For the quarter, we reported $2 7 billion and operating income Sop.
Operating income was negatively impacted by three large items, which added approximately $2 7 billion of costs in the quarter.
As related to employee severance impairments of property and equipment and operating leases and changes in estimates related to self insurance liabilities.
Primarily impacted our North America segment if.
If we had not incurred these charges in Q4, our operating income would have been approximately $5 4 billion.
We are encouraged with the progress we continue to make in streamlining the costs in our Amazon stores business, we entered the quarter with labor more appropriately matched to demand across our operations network compared to Q4 of last year, allowing us to have the right labor in the right place at the right time and drive productivity gains.
We also saw continued efficiencies across our transportation network, where process and tech improvements resulted in higher Amazon logistics productivity and improved line haul fill rates.
While transportation over performed expectations in the quarter. We also saw productivity improvements across our fulfillment centers in line with our plan.
We also saw good leverage driven by strong holiday volumes overall.
Overall, it was a strong effort by the operations team and we look forward to making further headway as we head into 2023.
We remain focused on driving cost efficiencies throughout the network and reducing our cost to serve our customers, while ensuring we maintain an outstanding customer experience.
Circling back to the three large charges during the quarter, let me share some additional color starting with the job eliminations, we initiated during the fourth quarter as.
As we considered the ongoing uncertainties of the macroeconomic environment has led us to the difficult decision to eliminate just over 18000 roles, primarily impacting our stores and device businesses as well as our human resources teams.
As a result, we recorded estimated severance cost of $640 million. These charges were recorded primarily in technology and content fulfillment and general administration on our income statement.
Next we recorded impairments of property and equipment and operating leases primarily related to our Amazon fresh and Amazon go physical stores.
Continuously refining our store formats to find the ones that will resonate with customers will build our grocery brands and will allow us to scale meaningfully over time.
As such we periodically assess our portfolio of stores and decided to exit certain stores with low growth potential will also taken an impairment on capitalized cost and associated values of our leased buildings.
Impairment charge in Q4 was $720 million and is included in other operating expense on our income statement.
We continue to believe grocery is a significant opportunity and we're focused on serving customers through multiple channels, whether that's online delivery pickup or in store shopping.
Lastly, during the quarter, we increased our reserves for general product and automobile self insurance liabilities driven by changes in our estimates about the cost of asserted in on asserted claims resulting in additional expense of $1 3 billion.
This impact is primarily recorded in cost of sales on our income statement.
As our business has grown quickly over the last several years, particularly as we built out our fulfillment and transportation network and claim amounts have seen industry wide inflation. We've continued to evaluate and Justice reserve for both asserted claims as well as our estimate for unnecessary claims.
We reported overall net income of $278 million in the fourth quarter.
While we primarily focus our comments on operating income I would point out that this net income includes a pretax valuation loss of $2 3 billion.
Included in non operating income from our common stock investment in Libyan automotive.
As we've noted in recent quarters. This activity is not related to amazon's ongoing operations, but rather than quarter to quarter fluctuations in <unk> stock price.
As we head into the new year, we remain heads down focused on driving a better customer experience. We believe putting customers first is the only reliable way to create lasting value for our shareholders.
Hey, everybody. This is Andy just before we started the questions I just wanted to say, it's good to be with you all on the call today.
Thought I might jump on the calls from time to time moving forward.
And given that this last quarter was the.
And in my first full year in this role.
And given some of the unusual parts in the economy and our business I thought this might be a good one to join so thanks for having me.
And at this time, we will now open the call up for questions.
Ask each caller to please limit yourself to one question if.
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Now please hold while we poll for questions. Thank you.
And our first question comes from the line of Brian Nowak with Morgan Stanley . Please proceed with your question.
Thanks for taking my questions I have two Andy I wanted to ask you just the first one you've been in seat for a while as you sit there what are your key focal points product categories. Our investment priorities that you're most focused on to drive durable multiyear growth in North America retail segment as we recover.
Over.
And then the second one just sort of staying on the North America retail side.
Do you think about the potential margin potential of that business over the next few years as you sort of grow into the warehouse and what are the warehouse network and what are the efficiency factors to get you to those goals.
Brian This is Brian first I'll, let me just start with your second question on the outlook.
Sorry can you hear me on the expectation for retail margins.
Especially in North America.
We've said as we look back to our cost structure pre pandemic. We are just at the end of 2019 early part of 2020, we're just starting to.
Rollout one day shipping in North America and.
We had an expectation of what our cost structure would look like that has changed quite a bit in the last.
Three years now due to a doubling of our network expansion.
I think you've heard me tell the story on different calls, but essentially we are now trying to again regain our cost structure that we've had in the past.
Bounce the and get more efficient on the assets. We've added in the last two to three years now.
And also.
Look at.
All the investment areas that we are working on to drive growth.
Continuing to look at them where.
We need to make mid course, corrections, where we need to change things up and we expect that again a lot of the improvement will be in North America operations costs.
Make good headway in 2022.
We always want to make more and we're going to be working on this.
Through 2023 and beyond.
But we hope that we have to make and expect to make.
Improvements in 2023.
Yes.
I'll start just at a broad level priority wise.
The connective tissue for everything we do across the company, including in stores in North America as we realize that we exist to make customers' lives better and easier every day and relentlessly event to do so.
Being maniacally focused on the customer experiences.
Always going to be a top priority for us at the same time and this is true in <unk>.
North America, as well as across the entire business.
We're working really hard to streamline our cost and trying to do so at the same time that we don't give up on the long term strategic investments that we believe can meaningfully change broad customer experiences and change Amazon over the long term.
As I address directly the north American stores questions.
Our.
Probably the number one priority that I spent time with the team on is reducing our cost to serve and our operations network. It's Brian touched on it it's important to remember that.
Over the last few years we've.
We took it.
Fulfillment center footprint that we built over 25 years and double that in just a couple of years and then we at the same time built out of transportation network for last mile roughly the size of UBS and a couple of years and so when you do both of those things to meet the huge surge in demand youre going to just to get.
Those functional it took everything we had and so there's a lot to figure out how to optimize and how to make more efficient.
And and more productive and I think at the same time, if you think about doubling the number of fulfillment centers you have.
And then adding a very large transportation network and you realize that all of those facilities have to link together to get products to customers.
It's a pretty big expansion in the number of nodes in the network becomes a little bit different network and so to figure out how to be really efficient across all of those links and have them be highly utilized and to get the flows in those facilities work in the right way. It takes time so we're.
We're working very hard on it I'm pleased with the progress we made in Q4 and you can see that in some of the results.
But that work will extend into 'twenty three.
That's first I think the second thing priority wise.
We would talk about is just speed, we believe that continuing to get products to customers faster.
It makes customers happier and they also converted a higher rate when they can see promises of deliveries that are faster.
I think selection will always be a very high area of focus for US we work with.
Hundreds of thousands in.
In the U S and millions overall in the world of selling partners in this past quarter, 59% of the units sold were from our third party selling partners and we work very hard to provide unmatched selection and that matters a lot to customers I think pricing being sharp is always important.
Particularly in this type of uncertain economy, where customers are very conscious about how much they're spending having the millions of deals that we put together with our selling partners in the fourth quarter was an important part of the demand that you saw and we will continue to work really hard on being sharp on pricing.
And then just.
Customer experience improvements that we're working all the time whether it.
It's adding by with Prime that allows prime users to use their prime benefits on other websites than just Amazon or adding our ex pass in the health care space, where our prime customers for $5 a month to get all their medicines. They are using an unlimited fashion.
Or whether it's just even in our apparel business, where when Youre looking clothing, you might buy being able to.
To see virtually your shoes with that outfit to see how it works and it changes your customer experience who are buying experience. We will continue to work very hard on those customer experiences and we have a lot more plant.
Thank you and the next question comes from the line of Doug Anmuth with J P. Morgan. Please proceed with your question.
Thanks for taking my questions also.
Also for Andy.
Two just first how would you evaluate your efforts in grocery thus far I know you're.
The big huge market, you're attacking it different ways what are the key steps here that you're focused on to drive greater market share and then secondly, how should we think about the strategic importance of some of these emerging bets type of areas like healthcare and hyper and autonomous vehicles among others. Thanks.
On the first one on grocery I'd just start by saying that we think grocery is a really important strategic area for us. It's a very large market segment and there is a lot of frequency and how our consumers shop for grocery and we also believe that over time grocery is going to be omni channel.
They're going to be a lot of people that order the grocery items online and have it delivered to them.
They're going to be a lot of people, who continue to buy in physical stores, but youre going to also see a hybrid of those where people pick out what they want online and pick it up in stores or people are in stores and there's something that's not an inventory in the stores. So they go to their app or to a kiosk in order to be delivered from online and so I think having omnichannel is going to really matter.
And I think that we have a pretty significant sized grocery business I think people, sometimes don't realize that.
And then we built the building for a long time, it's continuing to accelerate and I kind of see it broken into a few pieces.
You think about the online grocery offering we have a very large business there.
Looks different from the typical.
Mega physical grocery store, but if you think about the aisles in the grocery store from packaged food paper products to canned goods to pet supplies to health and personal care items to consumables, we have a very large business. There that continues to grow at a rapid clip and that we think we will continue to grow.
But but it doesn't have a big market segment share in perishables, and if you really want to have significant.
Market segment share in perishables, you typically need physical stores.
And we have kind of two different offerings there.
What I think is the very best organic physical store experience.
And selection, we have whole foods, which is a very significant sized business. That's continuing to grow I really like the progress that that business has made on profitability in the last year and I like what I see in front of it and I think that's a very it's a premium product, but it's a significant business that is a good business for us in the grocery.
Space I think if you want to have a mass physical store offering you need a different offering and that's what we've been working on with Amazon fresh and.
And we have a few dozen stores so far.
Doing a fair bit of experimentation today in those stores to try to find a format that we think resonate with customers as differentiated in some meaningful fashion and we're we like the economics and we've been we've decided over the last year or so that we're not going to expand the physical fresh stores until we have.
That equation.
With differentiation and economic value that we like but we're optimistic that we're going to find that in 2023, we're working hard at it we see some encouraging signs and when we do find that equation, we will expand it more expansively, but I think that we have a very significant opportunity.
In the grocery segment I think we're building a pretty broad grocery network across online and physical and.
Youre going to see us continue to work on it.
Thank you and our next question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed with your question.
Thanks, So much maybe I'll ask one big picture of Andy and then just a housekeeping matter to Brian if I can Andy keeping on the theme of sort of big picture and strategy in Europe perspective, I'd love to get your view on the International E Commerce businesses, obviously youre in a range of geographies with a wide variance.
Of maturity and different investment cycles can you give us your perspective on how you see Amazon's global e-commerce footprint today, and how investors should be thinking about the mix of growth in <unk>.
Margin evolution and that was international businesses in the years ahead, and maybe Bryan if I can just ask a quick follow up.
In the Q1 operating income guidance that you gave I think there's some confusion among investors as to where you might be capturing some of the restructuring charges from the.
Announcements at the company's made on employee count between Q4 and Q1 can you just clarify what was captured in Q4 versus what might be included in the way you framed the Q1 operating income guidance. Thanks, so much.
Sure sure. Let me start this is Brian let me start with that second part so.
As I said earlier, we took a $640 million charge tied to the position elimination that we announced in.
Q4, a lot of that fell into Q1 into.
Mid to late January so the way to think about it is for the terminations in.
In January .
The salaries for the first three weeks are covered in operating results for the for Q1, but the.
Period after that where there is.
Yes.
Weeks of months of severance coverage job placement allowed those costs are what the $640 million charge was in Q4 so.
So I hope that helps.
And on the question about international ecommerce.
We're very enthusiastic about that.
The business. We're building there I think just perspective, if you look at the.
Compounded annual growth rate from 2019 to 21.
In the U K it was over 30% in Germany. It was 26% in Japan. It was 21% and the fact that we haven't given back that growth. These are all net of FX, but if you.
If you look at the <unk>.
The last couple of quarters, where we're continuing to grow and we havent given back some of that growth a meaningful amount of market segment share shifted to our our global established E Commerce territories and we're excited about that now we're at this stage, we're big enough in our developed international territories that way.
When there is something significant happening in the macro we're gonna be impacted as well and if you just look in Europe as an example.
The inflation is higher than most places in the impact on Europeans for.
For the war in Ukraine.
More significant and also the energy prices and hikes. There are more significant so you can see that in some of our growth numbers.
And then you look at our emerging countries and these are they're all a little bit different at all in a little bit different stages as you recognize in the question.
But if you look at countries like India, and Brazil and.
The Middle East and Africa, Turkey, Mexico, and Australia, and a number of those types of countries.
We're up.
We like what we're seeing they take a certain amount of time, there's a certain amount of fixed investment you have to make when you enter a new geography, and then you have to drive a certain amount of revenue to be able to cover that fixed investment, but they are all on the right trajectory and following trajectories that.
Roughly look like what we saw in North America and our established.
International geographies.
We think it's the right investment and believe we're going to have a large profitable internationally ecommerce business.
Thank you and the next question comes from the line of Justin Post with Bank of America. Please proceed with your question.
Great. Thanks, maybe one for Andy.
And then one for Brian AWS, if you look at that.
Revenue growth mid teens, it implies it could be flattish even down this quarter. So maybe talk about what's driving that is it workload changes or there are some clients that are shifting.
On the market share you could comment on and then second.
When do you think this could recover like whats the timeframe and would you expect margins to come back.
When revenues Reaccelerate I'll leave it at that.
Thanks, Jeff for your question. This is Brian let me start with the.
What we're seeing at the customer level, so as I've mentioned.
Continue.
Cross all industry is there are some.
Points of weakness things like financial services like mortgage companies that do as mortgage volumes down some of their compute challenges.
Compute volumes are down crypto is.
Lower trading in crypto and.
Things tied to advertising as Theres lower advertising spend theres less analytics computer on advertising spend as well, but yes there.
Select the things, but by and large what we're saying is.
Just yeah.
And interest in AR.
Priority by our customers to get their spend down as they enter an economic downturn. We're doing the same thing at Amazon questioning our infrastructure expenses as well as everything else and we.
There's things you can do you can you can.
Differ.
You can switch to lower cost products, you can run calculations less frequently theres just you know you can.
Do different types of storage on your on your data so there's ways to.
Alter your cost and your bill in a short period of time I think that's what we're seeing and as I said, we're working with our customers.
To help them do that and.
And we're seeing ourselves at Amazon So.
Let Andy add some color on kind of the general trends in AWS, but that's.
What we're seeing at the customer level right now.
So I would just add I mean, I think Bryan covered a bunch of it I think.
Most enterprises right now are acting cautiously you see it with virtually every enterprise and we're being very thoughtful about streamlining our costs as well.
When you are being cautious you look for ways that you can find you can spend less money and where.
Where companies can cost optimize or in some cases, they may be used to.
Doing analysis over 90 days of information and they say well can I get away with it for two weeks doing two weeks, where it's you know it's not necessarily the best thing long term, but a lot of companies will do that.
When they are in uncertain economic situations and the reality is that the way that we are the way that we've built all of our businesses, but AWS and in this particular instance is that we're going to help our customers find a way to spend less money. We are not focused on trying to optimize in any one quarter or any one year, we're trying to build a set of <unk>.
<unk> ships and business that Outlasts all of us and so it's good for our customers to find a way to be more cost effective in an uncertain economy. Our team is going to spend a lot of cycles doing that and it's one of the advantages that we've talked about since we launched AWS in 2006 of the cloud which is that.
When it turns out you have a lot more demand than you anticipated you can seamlessly scale up but if it turns out that you don't need as much demand as you had you can give it back to us and start paying for it and that elasticity is.
Is very unusual it's something you can't do on premises, which is one of the many reasons why the cloud is an AWS are very effective for our customers.
I think.
I've spent a fair bit of time with with the AWS team on this and we will closely what we see.
We have a very robust healthy customer pipeline new customers migrations that are that are set to happen a lot of companies during times of discontinuity like this we'll step back and think about what they want to change strategically to be in a position to re reinvent their businesses and changed their customer experience.
<unk> is more quickly is uncertain economies emerge and that often means moving to the cloud we see a number of those pieces as well.
We're the only ones that really break out our cloud numbers.
A more specific way so it's always a little bit hard to answer your question about what we see but we you know to our best estimation. When we look at the absolute dollar growth year over year, we still have significantly more absolute dollar growth than anybody else. We see in this space and I think some of that's a function.
One of the fact that we just have a lot more capability by large amount with stronger security and operational performance in our larger partner ecosystem. So.
I think it is also useful to remember.
That 90% to 95% of the global it spend remains on premises.
And if you believe that that equation is going to shift and flip I don't think on premises will ever go away, but I really do believe in the next 10 to 15 years that most of it will be in the cloud. If we continue to have the best customer experience, which we have to work really hard at an event, which we're working to do it means we have a lot of growth in front of us.
The AWS business.
And our next question comes from the line of Ron Josey with Citi. Please proceed.
Great. Thanks for taking the question, maybe a bigger bigger high level question here just around prime member engagement and just seeing if they are for third party seller services growth accelerating in the quarter and I believe it was mentioned that customers are spending more in everyday essentials, which may be relatively new use case talk to us a bit more maybe Andy and Brian just around how engagements evolving here.
Members in and really how this has grown wallet share over time and where that's going thank you.
Yeah. Thanks, Ron for your question.
You know I would say that.
The prime membership is.
Remains strong and so has the.
[noise] dollars purchased per prime number it varies a bit by geography, but.
In general if you step back we had some very.
Large video.
Properties that we had launched last year, there's that football and Lord of the rings brings a power both of them one of them had.
Record sign ups for prime membership and we know that again.
Vestments like that will help with not only new lack of new member or two prime member acquisition, but also retention and we see a drank direct link between that type of engagement and higher purchases of everyday.
Products on our Amazon website so.
So the health of Prime is.
Is very strong as Andy mentioned earlier, we are continuing to work to get our speed of delivery up to get more one day shipments and we think that will also.
Be well received by prime members, but.
A combination of price selection and convenience I think we've made inroads on all of them.
Especially with the third party selection that's been added over the last few years. So.
I think the testament to that is that is the.
On sales that we had in the fourth quarter in a very competitive and deal driven environment.
People came prime members and others came down was on to do their shopping so we're encouraged by it.
Just to add.
Really one piece here, which is just.
If you step back and think about a lot of subscription programs. You know there are a number of them that are.
$2014 $15, a months really for entertainment content, which as you know more than what prime is today do you think about the value of prime which is less than what I, just mentioned, where you get the entertainment.
Content on the Prime video side and you get the shipping benefit fast shipping benefit you can't find elsewhere and you get the music benefit you get the prime gaming benefit and you get the photos benefit and you get the.
The buy with prime capability to use your prime subscription on websites that beyond just Amazon and some of the grocery benefits that we provide an Rx path like we just launched you know to get a number of medications people take regularly for $5. A month unlimited don't that is remarkable value because you just don't find out.
And we will continue to add things to prime and continue to experiment with lots of different.
Features and benefits but.
It's still early days and as we continue to make the service better and better and fully featured we see people continuing to spend more at Amazon across our various businesses. So we're optimistic about it.
And our final question comes from Mark Mahaney with Evercore ISI. Please proceed with your question.
Thanks.
Two questions, Brian just any color on why mid teens is kind of a whole double growth rate for for AWS over the next couple of quarters, given what looks like pretty clearly continuing deterioration in enterprise demand and then Andy I Wonder at a high level you could just talk about how your priorities may have changed or the company's priorities may have changed.
<unk> over the last year or so as you've been the CEO and it looks like there's been a bit of a bit of a peel back on devices appeal back on physical stores, except for groceries and it may be a little bit more of a lean in on on health and I am not quite sure what you're doing with entertainment.
Content spend like that maybe it's saying, maybe it's a little bit more but just at a high level. How would you say your priorities have changed or different than the prior ceo's. Thank you.
Hi, Mark.
So on the AWS growth rate.
I'm not sure I can forecast for you with any level of certainty.
What is going to happen beyond this quarter.
You kind of.
This is a bit uncharted territories economically.
And as we mentioned there are some unique things going on with the customer base I think.
Many in this industry are all seeing the same thing so I don't have a crystal ball on that one but we are going to continue to work for her to be there for our customers and.
As I said in the earlier comments.
I do have.
New deals, we have do new workloads coming to the cloud.
The value is there and.
Whether they're short term.
Perhaps short term belt tightening in the infrastructure expense by a lot of companies I think the long term trends are still there and I think.
The quickest way to save money is to get to the cloud quite frankly, so there's a lot of.
Long term positive in a tough economic times, so that in 2020.
When volumes for customers shifted very quickly it led to a resurgence after that and probably <unk>.
<unk> of People's journeys to the cloud and we'll just have to see if that happens again with what we're seeing today.
Yeah, I would say you know I think for any leadership team.
Each area is different and it's often.
Meaningfully impacted by what's happening around you.
That if you look at the last couple of years with things like the pandemic and the labor shortage in 2021, and the war in Ukraine and inflation.
Uncertain economy.
Good leadership teams look around and try to figure out what that means and how they should adjust their businesses and so if you look at.
And the early part of 2022, I think we realized that as we tried to make sure we met the surge in demand for consumers and sellers and having to make decisions in 2020 for what fulfillment network.
Since we're going to make in 2022.
We just had more capacity than we needed.
Sars in the early part of 2022.
The delay some of our builds in mothball some of our facilities to try and be more economic than.
I think we when we go to some of our physical business investments physical store investments I think there was just some areas where we didn't have conviction that they were gonna be big needle movers for Amazon and so that's why we we closed down our four star bookstores and.
As we got into.
The early part of the summer, where we start our operating planning process.
We you.
And there was a lot of things happening in the macro economy, we started that process with.
The high level tenant of we want to find a way to meaningfully streamline our costs.
In all of our business. So it's not just their existing large businesses, but also in some of the investments we're making we want to actually do a pretty good thorough book about what we're investing in and how much we think we need to.
But doing so without having to give up our ability to invest in the key long term strategic investments that we think could change broad customer experience doesn't change Amazon over time.
And you saw that process led to us.
You know choosing to pause on incremental head count as we tried to assess what was happening in the economy.
We eliminated some programs fabric dot com, and Amazon care, and Amazon glow and Amazon unexplored.
We decided to go slower.
On the physical store expansion in the grocery space until we had a format that we really believed in rolling out and then you know when we went a little bit slower on some devices and.
Until we made the very hard decision that Brian talked about earlier, which was the.
The hardest decision I think we've all been a part of which was to reduce or.
Our eliminate 18000 rules and so those were all done.
With an eye towards trying to streamline our cost, but still be able to invest in the things that we think really matter over the long term now we have a way of looking at investments that is different maybe from some other companies I'm not saying, it's right or wrong. It's just the way we look at it which is when we think about big areas to invest in we ask ourselves a few questions we ask.
If we were successful could really be big and move the needle at Amazon, which is a high bar to places like Amazon.
Do we think it's being well served today.
Do we have a differentiated approach.
And do we have some competence in those areas and if we don't can we acquire them quickly and if we like the answers to those questions.
We will invest sometimes that leads to very logical.
Extension for people when I got to Amazon 25 years ago, we were a books only retailer and when we expanded into music and video in electronics that seem pretty natural people amazingly people were very surprised we were expanding into tools that seemed far field for people, but it turned out not to be.
Yeah, when we launch something like buy with Prime I think people see that is more predictable.
That process has also led us to less predictable investments.
And I remember you know had a front row seat.
In the AWS experience, having worked with the team and glad the team from the very start and I remember both externally and internally there were a number of people who wonder why we were doing that was so different from retail only but think about how different a company Amazon would be today, if we hadn't invested in AWS.
So you know that informs some of the other meaningful investments, we're making beyond our our stores in retail and advertising AWS businesses.
I think that while we've gone slower devices things, we still when we look at the the answers to those four questions. We are very enthusiastic about our investments in streaming.
Streaming entertainment devices.
Uh huh.
I'll go with orbit satellite kiper.
Health care.
A few other things in there.
Think that do I think every one of our new investments will be successful history would say that that would be a long shot. However, it only takes one or two of them, becoming the fourth pillar for Amazon for us to be a very different company over time. So I think it's very worthwhile, we're going to continue to invest we're gonna be very thoughts.
Well about how we streamline our costs I think you see a lot of that but we're also continue to invest for the long term.
Thank you for joining us today on the call 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.
Alright.
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