Q1 2023 Amazon.com Inc Earnings Call

Thank you for standing by.

Good day, everyone and welcome to the amazon.comfirst quarter 2023 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 the Vice President of Investor Relations Dave Fildes.

Thank you Sir please go ahead.

Hello, and welcome to our Q1 2023 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 2020 to our comments and responses to your questions reflect management's views as of today April 20 <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 fluctuations in foreign exchange rates.

<unk> and global economic and geopolitical conditions and customer demand and spending including the impact of recessionary fears inflation interest rates regional labor market 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 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 am joined today by Andy Johnson, our CEO .

Before we move on to take your questions I will make some comments regarding our Q1 results.

Let's begin with revenue for the first quarter. Our worldwide net sales were $127 4 billion up 9% year over year or 11%, excluding approximately 210 basis points of unfavorable impact from changes in foreign exchange rates. This was above the top end of our guidance range.

Overall, we are pleased with the growth that we're seeing in worldwide storage businesses.

<unk> quarter over quarter revenue acceleration in the international segment, which is helped by easing macroeconomic pressures in Europe .

Across the geographies, we serve customers appreciate our focus on staying sharp on pricing, having strong selection and easier and easier convenience, including delivery speeds, which continued to improve throughout the first quarter.

That said the uncertain economic environment and ongoing inflationary pressures continue to be a factor and we believe its continuing to drive cautious spending across consumers.

This means our customers are looking to stretch their budgets further and are focused on value.

Some moderated spending on discretionary categories as well as shifts to lower priced items and healthy demand in everyday essentials, such as consumables and beauty.

Third party sellers, including businesses, who like to utilize fulfillment by Amazon for their storage and shipping services are a key contributor to the selection offered to customers.

We also continue to invest meaningfully in brand protection efforts, including industry, leading technology. So that sellers can trust, we will provide a great selling experience free from bad actors.

<unk> comprised 59% of overall youre going to sales in Q1 up from 55% one year ago.

We also saw strong engagement and our advertising services with revenue up 23% year over year, excluding the impact from changes in foreign exchange rates in.

In particular, our sponsored product and brand offerings remain a key driver of growth as we work with advertisers to help customers make more informed purchase decisions.

Our teams remain focused on delivering performance to our comprehensive and flexible measurement capabilities, along with insights that allow advertisers the ability to measure the return on their advertising spend and help them grow their business.

In AWS net sales were $21 $4 billion in the first quarter up 16% year over year, and representing an annualized sales run rate of more than $85 billion given the ongoing economic uncertainty customers of all sizes and all industries continue to look for cost savings across their businesses.

What you've seen us doing at Amazon.

As expected customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter and we are seeing these optimizations continue into the second quarter with April revenue growth rates about 500 basis points lower than what we saw in Q1.

As a reminder, we're not trying to optimize for any one quarter or year, we're working to build customer relationships and a business that will outlast all of US therefore, our AWS sales and support teams continue to spend much of their time, helping customers optimize their AWS spend so that they can better weather this uncertain economy.

This customer orientation is built into our DNA and how we think about our customer relationships and business over the long term.

Now, let's shift to worldwide operating income for the first quarter, we reported $4 8 billion and operating income above the top end of our guidance range.

This operating income was negatively impacted by an estimated employee severance charge of approximately $470 million in Q1, including $270 million related to AWS.

We finalized our annual planning process and considered the ongoing economic environment. We made the difficult decision to eliminate 9000 rules impacting our AWS business as well as twitch devices advertising and our human resources teams.

In Q1, our year over year growth in stores revenue and unit sales outpaced growth in both our fulfillment expense in our outbound shipping costs.

Inflationary pressures continue to ease quarter over quarter, primarily driven by reductions in line haul shipping rates as well as lower diesel fuel and electricity costs.

Also built on the progress we made throughout 2022 and improving productivity in our fulfillment network through continued process and tech improvements.

We exited Q4 with a good balance of labor throughout the network and leverage that throughout Q1 with customer demand patterns remaining more stable compared to Q1 of last year.

As labor availability has stabilized and inventory supply chain challenges of moderated we're able to implement some significant structural changes to transition our U S fulfillment network to a regionalized model. We believe these improvements put us in a good position to improve both delivery speed and our cost to serve customers over time.

We reported overall net income of $3 2 billion in the first quarter.

We primarily focus our comments on operating income I would point out that this net income includes a pretax valuation loss of $467 million included in nonoperating expense from our common stock investment in Ruby in automotive as we've noted in recent quarters. This activity is not related to Amazon's ongoing operations, but rather.

There are two quarter to quarter fluctuations in radiant stock price trend.

Turning to cash flows we remain focused on building long term sustainable growth and free cash flow, including our efforts towards the strong cash flow accretive working capital cycle, our operating cash flow for the trailing 12 months ended March 31 increased to $54 3 billion up 38% versus a comparable peers.

<unk> year over year piece.

Besides the cash benefit of improved profitability year over year. We've also seen supply chains easing up and made progress to improve our inventory purchasing and payment cycles, which in turn has a positive impact on working capital now.

Now, let's turn to our capital investments, we define our capital investments is the combination of Capex plus equipment finance leases.

For the full year 2023, we expect capital investments to be lower than our $59 billion investment level in 2022, primarily driven by an expected year over year decrease in fulfillment network investments.

<unk> going to invest in infrastructure to support AWS customer needs, including investments to support large language models and generous of AI.

Before we open the call up for your questions I'll hand, it over to Andy to share some high level perspectives on the first quarter.

Thanks, Brian I'll share a few thoughts before opening up for questions.

From my perspective, I think there's a fair bit to like about how our teams are delivering for customers and the results are starting to see it.

In our storage business, we've been very focused on reducing our cost to serve in our fulfillment network.

As we've shared in the past given the unexpected surge in demand during the pandemic, we doubled the size of our fulfillment center footprint largely built the transportation network the size of UBS and a couple of years.

This ended up substantially changing the number of nodes and connections in our fulfillment network and as a result, we spent the last several months not only with redesigning dozens of processes to drive better productivity.

Also re architected, our placement approach and larger fulfillment center footprint to move from a national fulfillment network in the U S to a regional one.

We've created a interconnected regions in geographic areas with each of these regions, having broad relevant selection to operate in a largely self sufficient way, while still being able to ship nationally when necessary.

We just recently completed this rollout are quite bullish on the early results not surprisingly shorter travel distances means lower cost to serve and customers getting their orders faster.

While on the topic of delivery speed.

Really excited about our progress and providing customers more one day and same day deliveries and are on track to have our fastest prime delivery speeds ever in 2023.

On the advertising side.

We're continuing to buck wider advertising trends and deliver robust growth I think there are a few reasons for first even in difficult economies, most people still shop and with the largest E. Commerce shopping venue, we have a lot of customers the companies seek to reach that coupled with a very substantial investment in machine learning to make sure our customers see relevant ads win there.

We're looking for various items have Matt that these advertisements are performed unusually well for brands, which makes them want to advertise on Amazon.

Also worth noting that we're still very early in our efforts to find a way to thoughtfully place ads in our broader video sports audio and grocery properties, we have a lot of upside still on advertising.

And AWS, what we're seeing is enterprises continuing to be cautious in their spending in this uncertain time customers are looking for ways to save money. However, they can right now they tell us that most of it is cost optimizing versus cost cutting which is an interesting distinction because they say their cost optimizing to reallocate those resources.

As our new customer experiences one of the great attributes of the cloud is that you can fix scale seamlessly up or down as demand dictates, which is not the case with on premise infrastructure.

Customers want help finding ways to spend less during this challenging time and given that it's best for customers long term, we've been actively helping customers make these adjustments.

We've spent a fair bit of time analyzing what we're seeing and I've spent a good chunk of time myself cooking as well and we like the fundamentals of what we're seeing in AWS.

The new customer pipeline looks strong set of ongoing migration of workloads to AWS is strong.

Roddick innovation delivery is rapid and compelling and people sometimes forget the 90 plus percent of global it spend is still on premises. If you believe that equation is going to flip, which we do.

Going to move to the cloud and having the cloud infrastructure offering with the broadest functionality by a fair bit the best security and operational performance.

Largest partner ecosystem bodes well for us moving forward, but we're not close to being done inventing in AWS. A recent announcement on large language models and generative AI chips and managed services associated with them is another recent example in my opinion few folks appreciate how much new cloud business will happen.

Over the next several years from the pending devolution machine learning Thats coming.

This past year has seen us do a fair bit of cost streamlining as I mentioned in my recent shareholder letter, we took a deep look across the company and ask ourselves whether we had conviction about each initiatives go long term potential to drive enough revenue operating income free cash flow and return on invested capital.

In some cases.

So that is the shuttering certain businesses like our physical bookstores four-star stores, Amazon fabric, Amazon care and certain devices, where we didn't see a path to meaningful returns.

In other cases, we look at some programs that werent producing the returns we would hope and example is free shipping for online grocery orders over $35 and change them.

We also made the very difficult decision to eliminate about 27000 corporate roles.

Like most leadership teams.

We'll continue to evaluate what we're seeing in our business and procedure adaptively, but while we've taken several actions to streamline our cost we've been able to do so while still pursuing the key strategic long term investments that we believe can meaningfully make customers' lives better and potentially change what Amazon is.

These are investments both in our larger businesses mentioned earlier as well as in areas like international expansion in our stores business or to retail market segments in which we are still nascent like grocery and business to business.

When consumers to use prime off of Amazon and our buy with Prime program.

Entertainment devices health care in a low Earth orbit satellite for the hundreds of millions of households companies and government entities.

Limited to no connectivity.

It's hard to predict that all of these will be successful only one or two working with change our business over the long term.

We have a lot of work in front of us, but I'd like the direction, we're headed and strongly believe our best days are in front of us and with that I'll open it up for questions.

Thank you at this time, we will now open the call 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 a keypad we ask.

That when you pose your question you pick up your handset to provide the optimal sound quality once again to initiate a question. Please press Star then one on your Touchtone telephone at this time.

Thank you and please hold while we poll for questions.

Our first question comes from the line of Doug Anmuth with J P. Morgan. Please proceed with your question.

Thanks, so much for taking the questions.

And you talked about.

The continued optimization just curious can you talk about the degree to which optimization has been done in AWS versus what you think could still lie ahead and when do you start to lap some of those efforts and then also on the Capex side. I think you said overall capex would be down in 'twenty three.

Can you just help us understand that a little bit better between retail and AWS and then what's required on.

On Capex from a generative AI and large language model perspective. Thanks.

Okay.

Hi, This is Brian I'll take the first or the second part of that question first on Capex.

We spent $59 million 1 billion excuse me last year end.

We on our core.

Fulfillment and transportation.

Areas, we actually are spending less year over year end.

It does.

Estimates are going down.

GAAP.

The increases in AWS and infrastructure and we are adding more dollars to the.

For large language models and generative AI, so we're creating some space in our in our fulfillment and transportation number that thing.

Repurposed over to AWS.

We still think the combined capex will be lower year over year.

Just on your on your first question Doug.

It's hard to say exactly where we are in the process I think that.

We continue to see when we talk with customers is that there.

They're appropriately cautious about what theyre seeing in the economy, and they're trying to find ways to save money as most companies are including our own.

And we have a long track record, which we continue to pursue which I think makes sense for customers and for our business long term that.

We're not trying to optimize for a quarter or for a year, we're going to do whatever it takes to help customers be successful over a long period of time, because we're trying to build relationships and a business that I was asked all of us and so we're spending a lot of time with customers trying to help them think of smart ways, not short term ways, but smart ways to optimize their costs and <unk>.

To be able to scale up and down and again one of the big advantages of the cloud.

That if you grow quickly you can seamlessly scale up but when you. When you don't have the demand you can give it back and stop paying for it and that is not true with what you see on premises and so we're trying to work hard to help customers with that I think it's important to remember that customers are pretty explicitly telling us that this is not a cost cutting.

<unk> effort, where we intend on spending less money on technology around the cloud.

This is our re prioritizing what matters most to our business at this time and trying to reallocate resource. So we can build new customer experiences a change what's possible.

And so I think if you think about <unk>.

These projects by the way take time to build when you when you're reallocating your re prioritizing you're redefining what youre going to build you got to actually go build it before you can implement it we're working pretty pretty carefully and closely with customers on those initiatives I think it's important to remember that there is still so much growth ahead of the cloud.

90, plus percent of the global it spend is on premises and so do you believe that equation is going to flip it.

It's mostly move into the cloud and I also think that there are there are a lot of folks that don't realize the amount of non consumption right now thats going to happen and be spent in the cloud with the advent of guards language models and generally I think so many customer experiences are going to be reinvented and invented that.

Haven't existed before.

That's all going to be spent in my opinion on the cloud.

And our next question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed with your question. Thanks.

Thanks, so much for taking the questions I'm, Andy you've talked a lot in the letter shareholder letter and on the last earnings call about driving greater levels of efficiencies in the company and also possibly returning to some of the margin structures, we saw pre pandemic and absorbing overcapacity that built up during the pandemic can you give us an up.

Date on where do you think you are in those broad efforts to match margins versus pre pandemic levels and strike the right balance between profitability and driving your growth initiatives over the next couple of years. Thanks, So much.

Eric It's Brian let me start on the.

The financial part of that question so.

I think we would describe ourselves as like along on the journey and making solid progress on recovering our cost structure and getting it back to pre pandemic levels.

And you just talked about the efforts and after operations and the regionalization.

Of our operations.

Obviously, taking.

Hard look at all of our businesses that we're in over the last six to nine months and have made.

Adjustments there.

But theres still a lot ahead of us, especially on the operational side.

That.

If you look at our operating margin in North America for example, North American segment. It was one 2% this quarter.

Pre pandemic that number was.

No.

46% range broadly so it's a bit of.

A marker on how much upside, but there's a lot of moving parts in that number obviously there is the.

Advertising, there's investments going on for future growth and there's the core profitability and.

Our cost structure that our operations are.

Achieving so making progress working hard at it.

But it is a.

Longer road than bouncing back in one or two quarters.

Just add to that.

We have looked pretty hard at every single one of our businesses.

And I think that while it's probably most visible given the size of it what's the improvement in the operating margin and the efficiency.

Our stores business I think every business is working really hard on finding ways to be more efficient.

And as Brian said, I think we're making really really good progress.

Fulfillment costs in our operations network in our stores business, but one of the things that's been interesting and frankly pretty encouraging to all of US is that as we over the last six to nine months.

Has the network fundamentally changed I remember when you go through as much growth as we went through you add you double your fulfillment center footprint you also built.

Last mile Transportation network, the size of UBS and a couple of years. So there's a lot that you have to work on to get that as productive as you want and we've spent a lot of time working on that the last six to nine months, but.

Some of the ways that you operated before which worked through several elbows of the curve and scale when they become inefficient because network finally fundamentally changes.

<unk> become inefficient in a significant way and so it's part of what led to the regionalization effort that I talked about but it also caused us to really reevaluate virtually everything we do in operations over the last six to nine months and we have found a lot more opportunities than we even thought were there before so I'm pretty optimistic.

Mystic that we have a chance not just to recover to where we were pre pandemic in terms of operating margin, but I think there is additional upside with some of the opportunities we've identified.

And the next question comes from the line of Brian Nowak with Morgan Stanley . Please proceed with your question.

Great. Thanks for taking my questions.

To Andy the first one you you talked a lot about the long term AI and large language model potential out of AWS.

I think theres a lot of discussion about AWS is competitive positioning when it comes to these tools could you just sort of walk us through two or three of the key points of differentiation that you think AWS offers an AI tools versus some of the competitors.

And then the second one around Echo and Alexa.

<unk> networks may not be as leading edge of technology now with the rapid emergence of some of these new large language models.

Do you think about the key investment priorities for Echo and Alexa going forward and what's your view on ROIC see around that division.

Yeah, I'll I'll try and answer those together because they're somewhat related I think when you think about machine learning it's useful to remember that we have had.

Pretty substantial investment in machine learning for 25 plus years at Amazon.

Deeply ingrained and virtually everything we do.

It fuels our.

Personalized e-commerce recommendations that drives the pick paths in our fulfillment centers, we have it in our go stores, we have it in our primary our drones. It's obviously, an Alexa and then AWS. We have 25, plus machine learning services, where we have the broadest machine learning functionality and customer base by a fair bit and so.

It is deeply ingrained in our heritage.

I think if you look at what's happened over the last nine months or so is that these large language models and generative AI capabilities they've been around for a while but frankly the models, we're not that compelling before about six to nine months ago and they have gotten so much bigger and so much better much more quickly.

That it really presents.

A remarkable opportunity to transform virtually every customer experience that exists in many that don't exist that werent really that easily made possible before and so it's very early days in that space, but probably not surprisingly we've been investing in building and our own large language models for several years and we have.

A very large investment across the company and the way I would break it out Brian is I would say that theres three macro areas in this space.

If you think about maybe the bottom layer here.

Is that all of.

The large language models are going to run on compute and the key to that compute is going to be the chipsets in that compute and to date I think a lot of the chips, there, particularly gpus, which are optimized for this type of workload theyre expensive and they are scarce, it's hard to find enough capacity and so in AWS.

We've been working for several years on building customized machine learning chips, and we built a chip that specialized for training machine learning training, which we call training them.

Hey, chip its specialized for in France, or the predictions that come from the model called <unk> friendship and the reality by the way is that most people are spending most of their time and money on the training, but as these models graduate to production where theyre in the apps all of the spend is going to be an infrared sleep both matter a lot.

And if you look at we just released our second versions of both training them and inferential.

And the combination of price and performance that you can get from those chips is pretty differentiated and very significant. So we think that a lot of that machine learning training and inference will run on AWS.

Then if you think about so you have to train the miles you draw any inference that you got but you have to build the models and if you look at the really.

Significant leading large language models.

They take many years to build and many billions of dollars to build.

And there will be a small number of companies that want to invest that time and money will be one of them at Amazon, but most companies don't and so what most companies really want and what they tell AWS is that they'd like to use one of those foundational models and then have the ability to customize it for their own proprietary data.

And in their own needs and customer experience and they want to do it in a way where they don't leak there they're unique IP to the broader generalized model and that's what bedrock is which we just announced a week ago or so it's a manage foundational model service where people can run foundation.

From Amazon, which we're exposing ourselves, which we called Titan or are they can run it from from leading large language model providers like 'twenty, one and anthropic and stability.

And they can run those models take the baseline customize them for their own purposes, and then be able to run it with the same security and privacy and all the features they use for the rest of their applications on AWS.

Compelling for customers.

And then that third there are really the applications that are going to be built on top of those large language models. So chat chat GPT is a good example of an application that's being built.

We will build some of those applications ourselves. So for instance, we think one of the most compelling applications that are going to be built in general are they I have to do with making developer's much more effective with coding assistance and so we built something called <unk> for which we just announced the general availability for.

Where developers can plug in and natural language something like Bill I want to build a video hosting website and could whisper will bring up the code you need and the developer needs to employ and put that in production, which is really compelling. If you think about how much more productive developers going to be and what theyre going to spend their time on.

Instead of rewriting code that.

As median takes time I think it's a big deal now to your second question.

And it's related to this top layer I was just talking about.

We're going to build.

Every single one of our businesses inside of Amazon.

Building on top of large language models to reinvent our customer experiences and Youll see it in every single one of our businesses stores advertising devices Entertainment.

And devices, which was your specific question is a good example that I think when people often ask us about Alexa.

What we often share is that if we were just building a smart speaker it would be a much smaller investment, but we have a vision, which we have conviction about that we wanted to build the world's best personal assistant and to do that.

It's it's difficult it's across a lot of domains and it's a very broad surface area. However, if you think about the advent of large language models and generative AI. It makes the underlying models that much more effective such that I think it really accelerates the possibility of doing that.

World's best personal assistant and I think we start from a pretty good spot with Alexa because we have a couple of hundred million endpoints being used across the entertainment and shopping and smart home and information.

And in a lot of involvement from third party ecosystem partners and we've had a large language model underneath it but we're building one that's much larger and much more generalized capable I think thats kind of really rapidly accelerate our vision of becoming the world's best personal assistant I think theres, a significant business model underneath it.

And the next question comes from the line of Colin Sebastian with Baird. Please proceed with your question.

Great Good afternoon, and thanks for taking my questions.

Yes first off on the international segments, I mean, not only the acceleration of our top line, but also on the margin side. If you could maybe add a little more color on some of the initiatives.

That's there.

And then secondly.

On the physical stores, including the grocery strategy, maybe any it would be worth kind of going through any updated thoughts you have there around around the strategy of about devising stores across categories and if there are any changes to the footprint plans.

For those businesses. Thank you.

Thanks, Colin I'll start with the international question.

So yeah, we saw a deceleration of growth on an FX neutral basis.

9% versus 5% in Q4.

I think the.

The economy, there is starting to stabilize and especially in established countries of Europe , we're seeing consumer confidence has increased and inflation is picking down so.

Some of those are similar to North America, but.

That is what we.

Probably has some upside.

We weren't counting on it in international in the first quarter and that was.

Good strength.

On the margin.

The margin has.

The negative margin has come down.

Top line is helping there, but it's also a function of some of the reductions that we're making across.

Some of our investments most of those are in North America, but that Youll see kind of the improvement in operational efficiency and.

On the edge of some of the.

Global programs are going to be reducing cost in international I will remind you, though again that international is.

The aggregation of established countries, which are.

Already profitable and who look a bit like North America, perhaps at an earlier stage of development.

They are working their way to parity on.

Profitability.

Forward loaded prime benefits and a lot of these countries that are ahead of the curve that we saw in North America. So happy there.

We have a.

Large emerging business over the last five years, we've added more than 10 new countries.

<unk>.

What we're saying is if you looked at back to North America.

Long ago, It took nine years for us to reach breakeven.

Breakeven profitability in United States is similar.

Curve in a lot of countries overseas.

In fact, the additional challenges that we usually have to deal with things like.

Lack of payment methods lack of the established infrastructure for.

Especially for transportation and.

The.

Infrastructure for.

The internet and everything else. So the adoption can be slower, but we feel good about the businesses we're building.

Carry a lot of the same traits that we have in North America price selection and convenience are at the core of that are very happy with the.

Adoption and traffic and.

New customer acquisition that we're seeing from prime video and a lot of our emerging countries as well so good.

Good quarter I'll continue to work again on cost structure and growing those businesses country by country.

On the grocery part what I would say is we continue to progress there we haven't really been interesting grocery business, where we we've been in it for a while and we are actually quite a large grocery business. It's just an unusual selection grocery business very much like how the mass merchandisers.

Got into grocery.

530 years ago, where the.

The selection.

Our items that are not temperature control, so, it's canned goods and packaged food and paper products and pet supplies and personal care and health and beauty all sorts of consumables and interestingly in this current environment, where consumers are being.

I'm cautious about what they spend and finding ways to trade down in different product variations consumables has stayed very very strong and so we continue to be very.

With that that part of our grocery business to serve a much broader number of the grocery shopping journeys, which we seek to try to help customers with we have to have a bigger physical presence since most of this shopping visits are still physical stores.

Got two efforts there, we've got whole foods, which.

Really pioneered the organic.

Grocery space and that continues to grow nicely and we've made a number of changes in the last year to the business that have changed the profitability trajectory there and.

Feel very good about that and.

At the same time.

It is still a portion of the overall market segment and if you really want to serve as much of grocery is we'd like to you have to have a mass physical offering and that's what we've been working on for a few years.

With where.

The brand we've called Amazon fresh.

Wish we were further along at this point, we've tried lots of ideas.

Haven't yet found conviction around format that we want to go expand much more broadly we have a set of experiments and ideas and concepts that we're working on across our it doesn't the stores there and we're pretty optimistic that we have something that may very well work and we're hopeful over this next year we find.

That though we continue to believe it's a big business for US today, it's continuing to get bigger, but we believe we have the opportunity for it to be much larger for Amazon and where we can help customers more broadly and I think having that physical presence. We will also have the ability both to to to be able to serve.

Grocery products they come for as long as stores, some other pieces and help customers across some other product lines as well.

And the next question comes from the line of Justin Post with Bank of America. Please proceed with your question.

Great. Thanks for taking my question I guess AWS can.

Can you call out any unusual items in April or <unk> for the comp I know you had a very good <unk> last year.

And just thinking about linearity in the quarter.

And then second Andy really appreciated that the shareholder letter.

It looks like you picked medical and hyper is big investment areas.

Do you think those I mean, why why why those areas and does the company ever think about breaking out all the big investments. So we had more clarity on the retail margin structure. Thank you.

Yeah, Hi, Justin Thank you.

On AWS I think Andy did a good job of laying out the dynamics, we're seeing in the.

Among customers right, now and where they're cutting workloads and.

<unk> strength that we see in in.

Customers hitting there.

Contractual limits and extending them and planning for the future. So we feel really strongly about the outlook for the business.

And understand the short term work that we're doing to help customers save money. So.

I'd say Q2 versus Q1, there's not a.

<unk> yeah.

Year over year comp differential, it's just again understanding which customers are.

Cutting in.

Some areas and growing in others and helping them get on hopefully to the new initiatives that they are planning as well.

Yeah.

Terms of the.

Calling out.

Health care and Kuiper in my annual letter I think what I was trying to do it in the letter was.

I mean, how we think about investing in how do we think about our big new investments that we make.

<unk> talked about in the letter that we when we look at a few things we look at if if it's successful could it be big.

<unk> move the needle for Amazon with the right ROIC sees.

Is that experience being well served today elsewhere.

Do we have some kind of differentiation.

And do we have some confidence that the company in that area. If not can we acquire quickly and we'd like the answers to those questions. We will invest some of those investments lead to what seem like relatively straightforward investments I talked a little bit about category expansion and international expansion in our stores business.

And some of the nascent retail market segments that are large for us that we think we can have big businesses in business to business.

Our Amazon business.

Entity, and grocery and things like buy with prime which allow our consumers to use their prime benefit and other third party websites beyond Amazon and also got merchants convert at a higher rate because prime members are able to to pay quickly and then get that fast reliable shipping they get from prime.

But then there are other investments I was pointing out that it some.

Sometimes don't lead to to categories that people might initially guess in AWS was a good example of that where that seemed really different for us when we started to pursue that in 2003.

We're a pretty different company because we did so even though there are a lot of people externally and internally that thought it was a little bit crazy and so I just chose to have them. There I could've chosen a lot more of the letter was long enough as it was so.

Just chose to but I chose to that.

We have conviction about on the health care side. When you think about that set of questions that we ask ourselves when we consider whether we should make big investments.

Health care is a multi trillion dollar business, that's very segmented and its really broken in the U S, particularly I think in other parts of the world too, but particularly in the U S.

And.

And we had what we thought were some differentiated ways that we can be successful at it and I think win win.

Our customers have been asking us for years to provide a pharmacy and if you think about that it's not.

Pretty natural extension from what we do in retail and we launched Amazon pharmacy in 2020.

I think it's off to a good start and it's continuing to grow.

A lot to do there, but you know a lot of our customers who like that experience said gosh I wish you guys would help us in the broader health care experience and.

If you think about trying to meaningfully change that experience primary care is right at the center of it.

If you look at the experience Thats been the case for the last several decades, we're going to have a hard time convincing our grandkids that it used to be the case to get a primary care appointment you had to.

Call ahead of time, a month ahead of schedule, an appointment and drive 20 minutes the Doctor on park.

Get into this facility and wait 20 minutes and reception then you can do exam room, you wait 10 minutes for the Doctor to come in the Doctor talks to you for five minutes in the prescribed medicine, where you drive 20 minutes to go get the medicine that experience.

Just doesn't make sense and won't be the case and so.

We've looked at.

We had some experience when we started experimenting with Amazon and care and we couldn't believe how much people like streamlined experience and we ultimately decided we didn't have the right business model there, but we can't across one medical where the digital App is very compelling and you can talk to a medical practitioner by chat or by <unk>.

Oh conference or if you have to come into a physical facility facility. They have clinics around the country and you can get that appointment same day or next day and all of those cities they have relationships with.

Health specialists.

Are you are plugged into their <unk>.

Really to get reservations, where you can get reservations in a day or two there and then when you need medicine, you can have it automatically shipped to you by Amazon pharmacy or other third party pharmacies, it's a very very different experience and.

And we think we have an opportunity to be successful in helping change that experience and if we're successful with primary care and with health and with pharmacy. There are a lot of other things we can help customers with as well. So we think that's a big opportunity and then just briefly sandpiper that.

It's a very large number it's hundreds of millions of households, and businesses and government entities that.

That today have limited to no connectivity to the Internet and if you just think about what you can't do if you don't have connectivity, we all take it for granted but having that connectivity means you can take online education course isn't getting education or you can start to run a business, where you can enjoy entertainment or you can shop for anything you can imagine.

And for businesses and governments to be able to have that coverage to be able to operate.

Much more seamlessly and various environments in which you have to have a presence. It's a total game changer and so we think it has the chance to be a very large business. We haven't we've released some information about it in some of our designs and its pretty <unk>.

Exciting to us how many customers and all of those different segments are excited about it and so I just chose those too.

His exemplary of some of the invention that come out of that investment process that you might not guess, but that we think can be very significant for the company.

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 in Amazon and look forward to talking with you again next quarter.

Okay.

[music].

Yeah.