Q3 2023 Amazon.com Inc Earnings Call

October 26, 2023

Unnamed Host: Good day everyone, and welcome to the Amazon.com third quarter 2023 financial results call. At this time, all participants are in. After the presentation, we will conduct a question and answer session. Today's call is being recorded. For opening remarks, I will be turning the call over to the Vice President, Dave Fildes. Thank you, sir. Please go ahead.

Dave Fildes: Hello, and welcome to our Q3 2023 financial results conference call. Joining us today to answer your questions is Andy Jassy, our CEO, and Brian Olsavsky, 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 2022. Our comments and responses to your questions reflect management's views as of today, October 26, 2023 only, and will include forward-looking statements. However, actual results may differ materially.

Dave Fildes: 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 may be materially affected by many factors, including 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 constraints, world events, the rate of growth of the Internet, online commerce, cloud services, and new and emerging technologies, and the various factors detailed in our filings with the SEC. Our guidance assumes, 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 Andy.

Thanks, Dave. Today, we're reporting $143.1 billion in revenue, up 11% year over year, $11.2 billion in operating income, up 343% year over year, or $8.7 billion, and $20.2 billion in trailing 12-month free cash flow adjusted for equipment finance leases, which is up $41.7 billion versus the comparable period last year. We continue to be encouraged by the progress we're making in lowering our cost to serve, improving our customer experiences, and investing for future growth. I'll start with our retail business. Our move earlier this year from a single National Fulfillment Network in the U.S. to eight distinct regions represented one of the most significant changes to our Fulfillment Network in our history. This change has gone more smoothly and made more impact than we optimistically expected, and you can see the benefits in many forms. Regional fulfillment clusters with higher local in-stock levels and optimized connections between fulfillment centers and delivery stations mean shorter distances and fewer touches to get items to customers. Shorter travel distances and fewer touches mean lower costs to serve, but perhaps most importantly, shorter distances and fewer touches mean that customers are getting their shipments faster.

We remain on pace to deliver the fastest delivery speed for prime customers in our 29-year history. And, as I talked about last quarter, we know how important speed of delivery is to customer satisfaction and buying behavior. A good example is the significant growth we're seeing in consumables and everyday essentials.

When customers are getting items as quickly and conveniently as they are now from Amazon, they're going to consider us more frequently for more of their shopping needs. As we've shared in the last few quarters, we've re-evaluated every part of our fulfillment network over the last year. The first substantial re-architecture centered on the regionalization change.

We obviously like the results, but we don't think we have fully realized all the benefits yet. And we continue to make steady improvements in fine-tuning the placement algorithms to enable even more in-region fulfillment and to further increase consolidation into fewer shipments. We've also identified several substantial changes to our inbound processes that we believe could have a significant impact on our cost to serve and speed of delivery. We have a long way before being out of ideas to improve cost and speed. The team is really humming on this.

I'm proud of the way they're inventing and executing together. Moving to AWS and our investments in generative AI, AWS revenue grew 12% year-over-year in Q3, with $919 million of incremental quarterly revenue, and now has an annualized revenue run rate of $92 billion. AWS's year-over-year growth rate continued to stabilize in Q3.

While we still saw elevated cost optimization relative to a year ago, it continued to attenuate as more companies transitioned to deploying net new workloads. Companies have moved more slowly in an uncertain economy in 2023 to complete deals, but we're seeing the pace and volume of closed deals pick up, and we're encouraged by the strong last couple of months of new deals signed. For perspective, we signed several new deals in September with an effective date in October that won't show up in any GAAP reported number for Q3, but the collection of which is higher than our total reported deal volume for all of Q3. Deal signings are always lumpy, and revenue happens over several years, but we like the recent deal momentum we're seeing. The top of mind for most companies continues to be generative AI. As I mentioned last quarter, we think about generative AI as having three macro layers, each of which is very large and each of which we're investing in. A few updates there. At the lowest layer is the compute to train large language models or LLMs and produce inferences or predictions.

The key to this compute is the chip inside it. As we've shared, we've been working on custom silicon for training and inference with our Tranium and Inferentia chips, respectively. Recently, we announced that leading LLM maker Anthropic chose AWS as its primary cloud provider and will use Tranium and Inferentia to build, train, and deploy its future LLMs. As part of this partnership, AWS and Anthropic will collaborate on the future development of Tranium and Inferentia technologies. We believe this collaboration will be helpful and continue to accelerate the price performance advantages that Tranium and Inferentia deliver for customers. On the middle layer, which we think of as large language models as a service, we recently introduced general availability for Amazon Bedrock, which offers customers access to leading LLMs from third-party providers like Anthropic, Stability AI, Cohere, and AI21, as well as from Amazon's own LLMs called They can run the rest of their applications with AWS, all through a managed service. In the last couple months, we announced the imminent addition of Meta's Lama II model to Bedrock, the first time it's being made available through a fully managed service.

Also, through our expanded collaboration with Anthropic, customers will gain access to future Anthropic models through Bedrock, with exclusive early access to unique features like model customization and the ability to fine-tune the model. And Bedrock has added several new compelling features, including the ability to create agents, which can be programmed to accomplish tasks like answering questions or automating workflows. In these early days of general AI, companies are still learning which models they want to use, which models they use for what purposes, and which model sizes they should use to get the latency and cost characteristics they desire. In our opinion, the only certainty is that there will continue to be a high rate of change. Bedrock helps customers with this fluidity, allowing them to rapidly experiment with and move between model types and sizes, and enabling them to pick the right tool for the right job.

The customer reaction to Bedrock has been very positive, and the general availability has buoyed that further. Bedrock is the easiest way to build and scale enterprise-ready generative AI applications and a real game changer for developers and companies trying to get value out of this new technology. In the top layer, which are the applications that run the LLMs, our generative AI coding companion, Amazon Code Whisperer, has gotten a lot of early traction and got a lot more powerful recently with the launch of its new customization capability. The number one enterprise request for coding companions has been wanting these companions to be familiar with customers' proprietary code bases. It's not just having code companions trained in open source code. Companies want the equivalent of a longtime senior engineer who knows their code base well.

That's what Code Whisperer just launched, another first of its kind out there in its current form, and customers are excited about it. A few last comments on AWS's generative AI work. As you can tell, we're focused on doing what we've always done for customers, taking technology that can transform customer experiences and businesses, but it can be complex and expensive, and democratizing it for customers of all sizes and technical abilities. It's also worth remembering that customers want to bring models to their data, not the other way around.

And much of that data resides in AWS as the clear market segment leader in cloud infrastructure. We're innovating and delivering at a rapid rate, and our approach is resonating with customers. The number of companies building generative AI apps in AWS is substantial and growing very quickly, including Adidas, Booking.com, Bridgewater, Clarion, GoDaddy, LexisNexis, Merck, Royal Philips, and United Airlines, to name a few.

We are also seeing success with generative AI startups like Perplexity.ai, who chose to go all in with AWS, including running future models and training them in Inferentia. And the AWS team has a lot of new capabilities to share with its customers at its upcoming AWS reInvent conference. Beyond AWS, all of our significant businesses are working on generative AI applications to transform their customer experiences. There are too many for me to name on this call, but a few examples include: in our stores business, we're using generative AI to help people better discover products they want and more easily access the information needed to make decisions.

We use generative AI models to forecast the inventory we need in our various locations and to derive optimal last-mile transportation routes for drivers to employ. We're also making it much easier for our third-party sellers to create new product pages by entering much less information and letting the models do the rest. In advertising, we just launched a generative AI image generation tool where all brands need to do is upload a product photo and description to quickly create unique lifestyle images that will help customers discover products they love. And in Alexa, we built a much more expansive LLM and previewed an early version of this. Apart from being a more intelligent version of herself, Alexa's new conversational AI capabilities include the ability to make multiple requests at once, as well as more natural and conversational requests without having to use specific phrases.

We continue to be convinced that the vision of being the world's best personal assistant is a compelling and viable one, and that Alexa has a good chance to be one of the long-term winners in this arena. Every one of our businesses is building generative AI applications to change what's possible for customers. And we have a lot more to come.

We're also encouraged by the progress we're making on our newer initiatives, just to name a few. We're pleased with what we're seeing in Prime Video. Prime Video continues to be an integral part of the Prime value proposition, where it's often one of the top two drivers of customers signing up for Prime. We also have increasing conviction that Prime Video can be a large and profitable business in its own right as we continue to invest in compelling exclusive content for Prime members but also offer the best selection of premium streaming video content anywhere. With our marketplace offering, including channels where customers can subscribe to channels like Max, Paramount+, BET+, and MGM+, as well as our broad transaction video on demand selection. As we continue to invest in compelling content, beginning in early 2024, prime video shows and movies will include limited advertisements. We aim to have meaningfully fewer ads than linear TV and other streaming TV providers. If customers prefer an ad-free option, we plan to offer that for an additional $2.99 per month for US members.

There's still a lot of work to be done in innovation, but we're excited about our future in Prime Video. We're seeing progress on a number of our investments that expand our ability to serve more consumers and sellers in their e-commerce mission. Our emerging international stores continue to improve their customer experiences and profitability and are on a strong trajectory. Both consumers and sellers are excited about Buy with Prime, which enables third-party sellers with direct-to-consumer websites to offer Amazon Prime members the same fast payments and delivery options they receive on Amazon.com. We recently announced the capability for sellers to integrate Buy with Prime with their Shopify account, making it easier for Shopify merchants to manage their businesses with inventory pricing and promotions automatically synced in one place.

And we're seeing a very positive early response from sellers to supply chain by Amazon, a fully automated set of supply chain services where Amazon can pick up inventory from manufacturing facilities around the world, ship it across borders, handle customs clearance and ground transportation, store inventory in bulk, manage replenishment across Amazon and other sales channels, and deliver directly to customers, all without sellers having to worry about managing their supply chain. Our health care team is continuing to make health care easier for people to access. The Amazon Pharmacy customer experience has significantly evolved this year, and customers are responding to that both in their purchasing behavior and qualitative feedback. We built RxPASS for customers to get an unlimited supply of eligible medications for $5 per month, meaningfully reduce the cost for customers to get insulin and diabetes products, and partner with Blue Shield of California to offer a first-of-its-kind model to provide more affordable pharmacy care to its 4.8 million members, providing fast and free delivery of prescription medications and 24-7 access to pharmacists.

We remain convinced that we can be part of the solution of making health care a better customer experience. And our Low Earth Orbit Satellite Initiative, Project Kuiper, which aims to bring fast, affordable broadband to underserved communities around the world, took a meaningful step forward in the last few weeks with the successful launch of two prototype satellites. We will use this multi-month mission to test our satellites and network from space and collect data ahead of the planned start of satellite production later this year. I'd like to close by thanking our teams around the world who are gearing up for two of our most significant events across the company. First, our annual AWS reInvent Conference that begins on November 27th. The team is excited to share a lot of new capabilities with customers and provide an array of opportunities for builders to learn and connect with one another.

And on the store side, we've already kicked off what will be our 29th holiday shopping season. Prime Big Deal Days, held earlier this month, was our most successful October holiday kickoff event ever, with Prime members saving more than a billion dollars across hundreds of millions of items sold. Just as we do all year long, we aim to make our customers' lives easier and better every day, and there's no time when it's more important to us that we deliver on this mission than during the busy holiday shopping season. With that, I'll turn it over to Brian. Thanks, Sandy.

Brian Olsavsky: Overall, we saw strong performance in the third quarter. Worldwide revenue was $143.1 billion, representing an increase of 11% year-over-year, excluding the impact of foreign exchange, and approximately $100 million above the top end of our guidance range. This was our highest quarterly worldwide operating income ever, which was $11.2 billion for the quarter, an increase of $8.7 billion year-over-year and $2.7 billion above the high end of our guidance range. North America revenue was $87.9 billion, an increase of 11% year-over-year, and international revenue was $32.1 billion, an increase of 11% year-over-year, excluding foreign exchange.

Brian Olsavsky: During the quarter, we held our biggest Prime Day event ever, with Prime members purchasing more than 375 million items worldwide and saving more than $2.5 billion on millions of deals across the Amazon store. Outside of Prime Day, we continue to see strong demand across everyday essentials, including categories like beauty and health and personal care. From a customer behavior standpoint, we still see customers remaining cautious about price, trading down where they can, and seeking out deals, coupled with lower spending on discretionary items. Building on the momentum from last quarter, we set another record for delivery speed for the year-to-date period through the third quarter. We have delivered at the fastest speeds ever in the United States.

Brian Olsavsky: These improvements in delivery speeds have been a key driver of growth and are resulting in increased purchase frequency by our prime numbers. Third-party sellers grew at 18% year-over-year, excluding foreign exchange, primarily driven by selection expansion and growing adoption of our optional services for sellers, including fulfillment by Amazon and paid account management, and more. During the quarter, we hosted Amazon Accelerate, our annual seller conference, where we launched a number of new innovations and product developments for our sellers, including supply chain by Amazon. We also continue to see durable growth in advertising, which grew 25% year over year, excluding foreign exchange, primarily driven by sponsored products as we lean into machine learning to improve the relevancy of the ads we show our customers and enhance our measurement capabilities on behalf of advertisers.

Brian Olsavsky: We've seen strong improvement in our profitability. North America operating income was $4.3 billion, an increase of $4.7 billion year over year, resulting in an operating margin of 4.9%, up 100 basis points quarter over quarter. Since North America operating margins bottomed out in Q1 of 2022, we have now seen six consecutive quarters of improvement, resulting in a cumulative improvement of over 700 basis points over these past six quarters. The third quarter marked the second full quarter of regionalization within the U.S., and we're pleased with the early results.

Brian Olsavsky: Regionalization has allowed us to simplify the network by reducing the number of line haul lanes, increasing volume within existing line haul lanes, and adding more direct fulfillment center to delivery station connections. We have also been focused on optimizing inventory placement in a new regionalized network, which when coupled with the simplification mentioned earlier is helping contribute to an overall reduction in cost to serve. Additionally, in the quarter, we saw benefits from lower inflation, primarily within line haul, ocean, and rail shipping rates, which were partially offset by higher fuel prices. While we are encouraged by the improvements in operating profit, we still see a lot of opportunity in front of us. In International, we were closer to break-even during the quarter with an operating loss of $95 million.

Brian Olsavsky: This was an improvement of $2.4 billion year-over-year. This improvement was primarily driven by lowering our cost to serve through higher productivity, decreased inflationary pressures, and improvements in leverage across our established and emerging international countries, as we continue to focus on customer inputs and improve efficiencies within our operations. Moving to AWS, revenues were $23.1 billion, an increase of 12% year-over-year. On a quarter-over-quarter basis, we added more than $900 million of revenue in AWS, as customers are continuing to shift their focus towards driving innovation and bringing new workloads to the cloud. Similar to what we shared last quarter, while optimizations still remain a headwind, we've seen the rate of new cost optimization slow down in AWS, and we are encouraged by the strength of our customer pipeline. Customers are excited about our approach to generative AI, with several new announcements made during the quarter, including a strategic collaboration with Anthropic. Opening Amazon Bedrock up to general availability, adding Meta's Lama II model to Bedrock in the near future, and new customization capabilities of Code Whisperer.

Brian Olsavsky: AWS remains a clear cloud infrastructure leader with a significant leadership position in the number of customers, the size of our partner ecosystem, our breadth of functionality, and the strongest operational performance in the industry. When we look at the fundamentals of the business, we believe we are in a good position to drive future growth as the rates of cost optimization slow down. AWS operating income of $7 billion, an increase of $1.6 billion year over year. Our operating margin for the quarter was 30.3%.

Brian Olsavsky: This is an improvement of approximately 600 basis points quarter over quarter, primarily driven by increased leverage on our headcount costs. Shifting to free cash flow on a trailing 12-month basis, pre-cash flow adjusted for finance leases was $20.2 billion, an improvement of $41.7 billion year-over-year.

Brian Olsavsky: The largest driver of the improvement in free cash flow is our increased operating income, which we are seeing across all three of our segments. Key drivers of this improvement include reductions in our cost to serve, continued advertising growth, and improved leverage on our fixed costs. We're also seeing improvements in working capital, notably in our inventory efficiency as we improve our inventory placement. Now, let's turn to our capital investments. We define our capital investments as a combination of CapEx plus equipment finance leases. These investments were $50 billion for the trailing 12-month period ended September 30th, down from $60 billion in a comparable prior year period.

Brian Olsavsky: For the full year 2023, we expect capital investments to be approximately $50 billion, compared to $59 billion in 2022. We expect fulfillment and transportation CapEx to be down year over year, partially offset by increased infrastructure CapEx to spur growth of our AWS business, including additional investments related to generative AI and large language model efforts. As we head into the fourth quarter, we are ready to make this a great holiday season for our customers. Looking at our operations network, our inventory is in the best position it's ever been heading into the holiday season, enabling us to serve customers with fast delivery speeds from their local regions. We continue to believe putting customers first is the only reliable way to create lasting value for our shareholders.

Brian Olsavsky: With that said, let's move on to questions. Thank you. At this time, we will now open the call up. We ask each caller to please limit themselves to one. If you would like to ask a question, please press star 1 on your telephone. We ask that when you pose your question... Check your handsets to provide optimum sound quality.

Thanks again. To initiate a question, press star, then 1 on your touch-tone telephone. And the first question comes from the line of Justin Post with Bank of America. Please proceed. Justin, your line is live. Thanks for that. I'll ask about AWS. I guess the first question is, as you look forward to the fourth quarter, you mentioned you've signed some new deals. Are you seeing less cost optimization as you look forward, or do you think it'll be similar to Q3? And second, you couldn't help but notice the big margin improvement in AWS all the way back to where you were seven quarters ago. Could you talk about the drivers and sustainability of those margins? Thank you. Yeah, Justin, sure, this is Andy.

You know, I think, uh... When you look at AWS, we grew 12%. And I think that you saw, or your. Quarters. It's hard to compare and do the math across.

As far as we can tell, that's a lot of people. We're still seeing elevated customer, so if you look at more than a year ago, but it's.

Can you just get me the numbers please for my health care needs right now? I can't hear them right now because they're not on the screen, so I can't hear them. But, And, you know, if you look at the optimization, too, what's interesting... night not all Please see the complete disclaimer at https://sites.amzn.to, Are customers taking advantage? So, for example... Look at the growth. Our custom chip that we built for Generalized.. number of people and the percentage of And, you know, one of the things I love about Graviton is that it provides AMZL, Cross You see a lot of growth in Graviton. You also see a lot of growth from The hourly on-demand rate... for one to three-year, call.

So those are just good examples of some of the cost optimization, Less certain, where it's really good for customers, short and long, but we're starting to see, as I said, we're seeing that optimization attenuate. I remain very positive about AWS because we have the most functionality by a large margin. We have stronger security and operational...

I think we're the most customer-focused, even if you look during optimization time. Customers have really noticed how AWS works for the long term, and I think that matters. I think, you know, we have a $92 billion revenue run rate, where 90% of the global market still resides. See, like we do. That equation is going to flip. A lot more there for us, and then you look at the very substantial, gigantic Generative AI Opportunity, which I believe will generate tens of billions of dollars in revenue for AWS over the next several years. And I think we have, www.amzn.org www.amzl.com, starting to build workloads. AMZL AMZL, I can see it also just, you know, the growth rate for us. General A.I. is very fast. You know, again, I have seen a lot of different numbers publicly. It's a little hard to measure them apples to apples. Our best estimation, the amount of growth we're seeing and the absolute amount of generative AI, pairs very favorably with...

So. You know, I think that you can see that in... The deals that we're doing, too, I spoke about. You know, there's a significant number of appeals that we've closed over the last couple months. A lot of those conversations, you know... A big piece of it is what I mentioned earlier, the functionality, the ecosystem, the operational performance, the security, how you take care of customers, but also whether or not they like your vision and the set of products that you're building. Technology Space and Generated AI. You know, I think there's a lot of growth in front of AWS, and I'm very excited about it. And Justin, on your question about AWS margins, so yes, the margin improved 600 basis points quarter over quarter. Shabbat Shalom, Billion Quarter-over-Quarter for AWS is driven primarily by our headcount reduction and also continued slowness in hiring, rehiring, and open positions. There were also a lot of cost control and non-people categories, like infrastructure costs and also discretionary costs. Natural gas prices and other energy costs that came down have been in Q3 as well.

Brian Olsavsky: As we've said historically, the operating margin for AWS is going to fluctuate quarter-to-quarter. Our next question is from Doug Anmuth. Thanks very much.

Can you just talk more about how the Regional Fulfillment Network is exceeding your expectations? And then also, how does that support your confidence in moving North America beyond mid-single-digit margin levels? And then perhaps on generative AI, obviously, a lot of innovation here. You talked about a number of different customers running early workloads. How should we think about the timing, just to drive some tangible monetization there? Thank you. Well, I'll start with the, you know, on regionalization. I think it was such a significant change for us on the network. It's hard to really...

I appreciate what a big change across, that, you know, first to make such a change has all sorts of risks, you know, great job, very thorough. Yeah, I think that we were able to, with our placement algorithms, or regional, local, in-stock, www.amzn.org, You know, and then I... until you actually put all the connections together, you know, we changed a lot of these middle connections. Delivery. Delivery Station for Direct, This course is easier to do when you have more local in stock.

But I think that we were able, the connections that we made and the optimization that we made there allowed us to get shorter transportation. You know, and then always one of the issues you've got to worry about when you make a change that big is whether or not you end up... Floating Ship, www.amzn.com That was also some... You really had to work through it. In the design and in the early stages, we've gotten a lot better at it. So we're just across the board. For more information, please visit www.fema.gov, which delivers much faster delivery to customers. They actually start to consider you for a lot more things than they otherwise would.

I think it's part of what, if you look at our very significant growth rates right now in every day of the century, a lot of it is. You're going to order it. You're not going to consider it, for days, getting day closer to the next stage.

The second question was on... It was on Gen AI and the timing of monetization. What I would tell you is that we have been surprised, www.amzl.org. Companies are still in the relatively early stages. I mean, now, you have to get perspective.

My perspective is that the cloud. Think about 90% plus. Globalite, I'm going to flip. In 10 years, I think the cloud is early. With that lens on, I still think we're very early in generative AI. And what's interesting, too, around generative AI because we have all sorts of prototypes and it's really accelerated very rapidly on the training side with. Trainium and Inferentia, and then on the application building and running side with Bedrock.

Still trying to sort out for themselves what they're going to run.., at large scale production, all these areas because of what happened. You try a model, you test a model, you'd like.., www.amzl.org. And what a lot of companies figure out quickly is that using the really large models and the large sizes ends up often being more expensive. This shuffles through the really large models

So customers are experimenting with lots of different types of models and then different model sizes to get cost and latency characteristics. Jeff, that's one of the things that I think is so useful about Bedrock, is that customers are trying so many variants right now, but to have a service that not only lets you leverage lots of third-party and as well as Amazon's large language models but also lots of different sizes makes the transition of moving those workloads easier. AMZL AMZL. Our next question is from Brian Nowak with Morgan. Please proceed. Thanks for taking my questions. I have two, one on AWS and one in the retail business.

On AWS AI, Andy, I recognize you have a pretty multi-pronged AI approach, but just could you talk us through sort of one or two of the early generative AI products where you're seeing the most early demand and interest? And as you talk to customers, are there still hurdles or pain points that you're not quite serving in your product suite? That you look to solve and innovate on over the next couple of years in AI? And then the second one: you've made a lot of steps on the regionalization of warehouses and making them more efficient. Where are you on robotics in the warehouses? And how should we think about the potential impact for that to drive profitability even higher? On the AI side, I think that if you're looking for some of the products that we're offering that have a lot of early resonance and traction, you know, I would start with bedrock.

They're very exciting, and they get applications, generative AI applications. And again, it's... Machine learning and AI have been something that I've been excited about for 25 years. In my opinion, about a half-dozen years ago, when it was much easier.

Economics and Scalability, www.mytrendyphone.co.uk much easier for Everyday Developers to Start to Interact with AI. But it just took another meaningful step forward with generative AI, www.amzn.com. You end up with a cost structure and..., want And so I, you know, Please see the complete disclaimer at https://sites.amzla.gov.au, very deep AI for practitioners. But most. So bedrock, so much.

NASA Jet Propulsion Laboratory, California Institute of Technology, People are very excited about bedrock in a very broad way. AMZL, Not just the set of models in there, but if you look at leaders like Anthrop, www.amzl.com www.amzl.org, There's just a lot of buzz and a lot of usage and a lot of traction. Bedrock, I would also say our chip.

Most people know there's a real shortage right now of chips. It's really hard. So it's just another reason why training and inferentia are so attractive.

You know, they have better price performance characteristics, options out there, but also, the fact that you can get access... We've, you know, we've done a pretty good job providing. I'm going to stop there. Thank you. Well, very large LLM providers make big bets, catastrophically deciding to train Traini. Hot Startup Perplexi.ai, Those are two examples. I'd say Code Whisperer.

What's a game-changer if you can allow your engineers not to have to do..., www.amzn.org, Building Certain Functions, really. I think I probably knew your code base better. So it's a real development, it's a productivity game-changer for developers and then actually launching. You'll see a lot of these in the next few weeks. I hope you'll join us on Friday; we'll be back with the last of the workshops, which will be in the fall. And I hope you'll come back to our webinar tomorrow. Thank you all so much.

Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. He actually owns his proprietary code base that is. Those are all, to me, early tracks.

There's so much more to provide, Brian. I think people... you know, bedrock is incredible. It's so much www.amzl.org AMZL, www.amzl.org Developer Environments, There's a lot more. It's going to be a long time before, www.amzn.org, I think about robotics. It's a very significant investment for us. It has been for several years, and it's made a huge difference for us. A big difference for us both.

We have a very substantial investment in additional robotics. I would say many of which are AMZL. For more information, visit www.fema.gov. Our next question is on the line with Eric Sheridan. Thanks so much for taking the questions.

Maybe one follow-up on AWS and one on the ads business. Andy, we'd love your perspective. You know, the cloud optimization theme started in the second half of 2012 when there were a lot of macro concerns, and then the AI theme really only sort of came to the forefront in the last eight or nine months.

What's your perspective on how turning the calendar into 2024 and there being a new IT budget cycle could possibly lead us to put the optimization theme in the background and some of the AI theme to come more to the forefront when there might be more distinct budgeting around AI as a theme? That'd be number one. And then in your ads business, you're approaching $50 billion in run rate, and it's compounding in the mid-20s. What are you most excited about on the initiative front to continue to build scale both on Amazon properties and possibly off Amazon as a broader digital advertising player? Thanks so much on the AWS side. You know, my perspective.

Obviously, I'll have... My perspective is that you're going to, I think, I think a lot of them are relatively low, not to say that we won't. There was, you know, there's more low-hanging fruit when you have a very large foot. We hope there's a lot going on for you to decide to optimize. So I think 2020, we're already seeing it now, www.amzl.org. Thank you. See the attenuation, and we're already seeing more and more. Thank you for your time.

Thank you. I think what you will see in 24 and, AMZL, I don't think it's a one-year deal, several. Check.

Natchez Cooke, Generative AI Workloads, but also... transformation. I'm going to largely, being in the cloud, that got stalled. 3, aware of an uncertain economy. And so I think that what you'll see increasing, both go back to those transformations they were planning on, and work. A lot of systems integrative partners as well as ourselves, as well as... start. Production and large-scale of the generative AI applications that they're all Thank you for watching. See you next time.

I think on the ad front... Well, there's a lot I'm excited about on the outside as well. You know, I think that it's interesting what's happening in our ad business. www.amzn.org most advertised has struggled growth-wise. You know, while we... Be more cautious on the ad side and the top of funnel products, like Video. We're still seeing a lot of strain

Lower Funnel Ad Product. You know, I think in these types of economies... We have fared pretty well in part because we have a number of owned and operated properties that do, very large volume advertising. Get AMZL AMZL. Yeah, they take Thursday Night Football.

We're in our second season, and you know, off to a great start. The ratings are 25% higher. But also, we're doing much better on the advertising, here, and that's a property that's really valuable. It's the one with advertisers, Week Watch. So I think part of it is because we have owned and operated properties that have a lot of volume.

And then I think the other piece is that most of our resources on the advertising side, machine learning experts, and algorithms to make sure that, And because of that, those ads perform better for advertisers. You can choose the ones that have a large volume and perform better. I think both of those are real advantages in our advertising. You know, in terms of additional things we're excited about, I think that we have barely scraped the surface. Thank you for your time. Have a great day!

Advertising into video, into audio. I think that we have also started. Journalizing some of our products and sponsoring products on third-party websites. You can see that with what we've done with Pinterest. So I think there's, again, we're still pretty early in that area, but it's growing well, and we're very focused. And our final question comes from Mark Mahaney with Evercore ISI. Okay, on those AWS deals, Andy, that you talked about in the September quarter, was there something different about those deals, different industries, different verticals, different geographic markets, or is it, you know, just kind of a resumption of kind of the deal flow that you've had in years past? So that's the first question.

Secondly, Brian, international. Is international finally at a point where it can be sustainably profitable going forward, maybe except for the, you know, the seasonally challenged March quarter? Have you rung out enough efficiencies and gotten enough scale, and the oldest markets there are big enough and scalable enough and profitable enough that they offset the newer countries? Have you finally reached that point?

Brian Olsavsky: Thanks. First, on international, thanks for your question. Yeah, the quarter was... just short of break even, and Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com/prior trends, I would answer that question this way, you know, there's multiple going on on the internet, and our established in France.

Brian Olsavsky: Those countries are profitable and have been profitable. We will continue to work on price selection and convenience, and all that reach out. Adding Sellers, Eddington.

Brian Olsavsky: Select. Scaling Advertise, Cost Structure of our Ops Network. So many of the Ops Productivity, probably with the exception of..., working on all those productivity. AMZL, We're seeing that internationally, and customers are responding, on the emerging side. Over the last six years, we've launched 10 new... History has shown us that those all take time.

Brian Olsavsky: Grow into Profitability, The U.S. took 10, AMZL, and they're all on their own journey to growth and scale and profit, selection, and a number of other variables. So that's Those are all going well as well. We're going to continue to invest internationally. Prime, and Expanding Prime Benefits, build out, www.amzn.com; I can't say it's permanently re-reached the Breakeven Threshold for Profits. The bottom lines are clear though, work on. AMZL AMZL, AWS D.O. Broad. Geography, first, really.

You know, it's also, I'm not even. So, you know, all these deals don't hit in a month; they happen, time. Thank you for watching. We'll see you next time. Has it been? I wish I could tell you, AMZL. I think, in general, historically..., for, We've. Time to close. It's all reflective of what, World. Migrating New Workers, or so I think. We're starting to see, along with some of the optimization... You've just seen a collection of those, the last...

Unnamed Host: Thank you for joining us today for the call. And for your questions, the 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. Ladies and gentlemen... KELOLAND dot com.

Speaker 1: Today everyone, and welcome to the Amazon do com third quarter 2023 financial results teleconference. At this time, all participants are in a listenally mode. After the presentation, we will conduct a question-and-answer session. Today's call is being recorded.

Speaker 2: Hello and welcome to our Q3 2020 three financial results conference call joining us today to answer your questions is Andy jassse our c e o and brriino SI r c o as you listen to today'sts conference call we encourage you to have our press release in front of you which includes our fincial 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 two.

Speaker 2: Our comments and responses to your questions reflect management's views as of today, October 20 sixth, two thousand and 20 three only, and will include forward looking statements. Actual results may differ materially.

Speaker 2: Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the se c, 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 accomping this webcast and our filings with the se c, each of which is posted on our I r website, we will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures.

Speaker 2: Our guidance incorporates the order trends that we've seen today and what we believe today to be appropriate assumption.

Speaker 2: Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical condition and customer demand and spending, including the impact of recessionary fairs inflation, interest rates, regional labor market constraints, world events, the rate of growth of the Internet, online commerce, cloud services and new and emerging technologies, and the various factors detailed in our filings with the c.

Speaker 2: Our guidance assumes, among other things, that we don't conclude any additional business acquisitions, restructings or legal settlement.

Speaker 2: 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.

Speaker 3: Thanks Dave. Today we're reporting $143.1 billion in revenue, up 11% year over year. 11 point two billion dollars in operating income, up three or forty 3% year over year, or $8.7 billion, and $20.2 billion in trailing 12 month free cash flow adjusted for equipment finance leases, which is up $41.7 billion versus the comparable period last year.

Speaker 3: We continue to be encouraged by the progress we're making and lower our cost to serve improving our customer experiences and investing for future growth. I'll start.

Speaker 3: Are moved earlier this year from a single national fulfillment network in the? u's to eight distinct regions represent one of the most significant changes to our fulfillment network in our history. This change has gone more smoothly and made more impact than we optimistically expected and you can see the benefits in many four.

Speaker 3: Regional fulfillment clusters with higher local in stock levels and optimize connections between fulfillment centers and delivery stations. Means shorter distances and fewer touches to get items to customer.

Speaker 3: Shorter travel distances and fewer touches mean lower costs to serve. But perhaps most importantly, shorter distances and fewer touches mean that customers are getting their shipments fast.

Speaker 3: We remain on pace to deliver the fastest delivery speeds for Prime customers. In our 29 year history and as I talked about last quarter, we know how important speed of delivery is to customer satisfaction of buying behavior. A good example is the significant growth we're seeing consumables in everyday essentiial.

Speaker 3: When customers are getting items as quickly and conveniently as they are now from Amazon, they're going to consider us more frequently for more of their shopping.

Speaker 3: As we've shared the last few quarters. We've reevaluated every part of our fulfillment network over the last year. The first substantial rearchitecture centered on the regionalization change. We obviously like the results but don't think we fully realized all the benefits yet and we continue to make steady improvements in fine tuning the place algorithms to enable even more in region fulfillment and to further increase consolidation into fewer shipment.

Speaker 3: We've also identified several substantial changes to our inbound processes that we believe could have a significant impact on our cost to serve and speed of delivery. We've a long way before being out of ideas to improve cost and speed. The team is really humming on this. I'm proud of the way they're inventing and executing together.

Speaker 3: Moving to AWS and our investments in generender AI, AWS revenue grew 12% year-over-year in Q3, with $919 million of incremental quarter-over-quarter revenue and now, as the annualized revenue run rate, of $92 billion.

Speaker 3: S's year-over-year growth rate continued to stabilize in Q3. While we still saw elevated cost optimization relative to a year ago, it's continued to attenuate as more companies transition to deploying net new workload.

Speaker 3: Companies a move more slowly in an uncertain economy in 2023 to complete deals, but we're seeing the pace and volume of closed deals pick up and were encouraged by the strong last couple of months of new deal signed for perspective. We signed several new deals in September with an effective date in October that won't show up in any gap reported number for Q3 but the collection of which is higher than our total reported deal volume for all of Q3.

Speaker 3: Deal signings are always lumping and the revenue happens over several years, but we like the recent deal momentum we're seeing.

Speaker 3: Top of mind for most companies continues to be generative a i. as I mentioned last quarter. We think about generative AI having three macro layers, each of which is very large and each of which we're investing a few updates there. At the lowest layer is the compute to train large language models, or l? m, and produce inferences or predictions. The key to this compute is the chip inside it. As we've shared, we've been working on custom silicon for training and inference, with our trainium and inferenti chips respectively.

Speaker 3: Recently we announced that leading l maker anthropic, chose a's as its primary cloud provider and will use trainingum and inferenti to build train deployys future l Ms. as part of this partnership, AWS and anthropic will collaborate on the future development of trainium and Inferentia technology. We believe this collaboration will be helpful and continue to accelerate the price performance advantages of trainium and inferenti. Deliver for customer.

Speaker 3: In the middle layer, which we think of as gorge language models. As a service, we recently introduced general availability for Amazon bed.

Speaker 3: Which offers customers access to leading l m from third party providers like anthropic stability, a I coheren, AI 21, as well as from Amazon's own l l m called titan, where customers can take those models, custome them using their own data, but without leaking that data back into the generalized l l m, and have access, the same security access, control and features that they run the rest, their applications- with natws, all through a managed service.

Speaker 3: In the last couple monthsweveannounced the minent addition of metas lama two model to bedrock. The first time it's being made available through a fully managed service. Also through our expanded collaboration with anthropic, customers will gain access to future anthropic model through a bedrock with exclusive early access to unique features from model customization and the ability to fine tune the model.

Speaker 3: And bedrock is added several new compelling features, including the ability to create agents which can be programmed to accomplish tasks like answering questions or automating workfors. In these early days, a gener AI companies are still learning which models they want to use, which models they use for what purposes and which model sizes they should use to get the latency and cost characteristics they desire.

Speaker 3: In our opinion, the only certainty is that there will continue to be a high rate of change.

Speaker 3: bedrock helps customers with this fluidity, allowing them to rapidly experiment with, move between model types and sizes, and enabling them to pick the right tool for the right job. The customer reaction at bedrock has been very positive and a general availability is buolied that further. bedrock is the easiest way to build and scale enterprise, ready general AI applications and a real game changer for developers and companies trying to get value out of this new technology.

Speaker 3: And the top layer, which are the applications that runong the l m. her generer AI cooding companion, Amazon code whisper, has gotten a lot of early traction and got a lot more powerful recently with the launch of its new customization capabilities.

Speaker 3: The number one enterprise request for coding companions have been wanting these companions to be familiar with customers. Proprietary code base.

Speaker 3: Is not just having code companions trained and open source code. Companies want the equivalent of a long time senior Engineer who knows their code basewell.

Speaker 3: That's what code whisper just launched another first of its kind out there in its current formum and customers are excited about.

Speaker 3: Few last comments on AWS is generor a I work. As you can tell, we're focused on doing what we've always done for customers: taking technology that can transform customer experiences and businesses- but they can be complex and expensive- and democratizing it for customers of all sizes and technical abilility.

Speaker 3: It's also worth remembering: the customers want to bring the models to their data, not the other way around, and much of that data resides in nat's as the clear market segment leader in cloud infrastructure.

Speaker 3: We're innovating and delivering at a rapid rate and our approaches resoning with.

Speaker 3: The number of companies building generor AI apps and's is substantial and growing very quickly, including adida's booking Dot com. bridgewater clarent godady lexus nexus merk royal, phillips in United airlines, name a few.

Speaker 3: We are also seeing success with gender AI startups like perplexity Dot AI, who chose to go all in with AWS, including running future models, and trainium and inferential.

Speaker 3: And the a's team is a lot of new capabilities to share with its customers. It coming a's reinvent.

Speaker 3: Beyond AWS. All of our significant businesses are working on gender AI applications to transform their customer experiences. There are too many for me to name on this call, but a few examples include in our stores business we're using gender AI help people better discover products they want and more easily access the information needed to make decision.

Speaker 3: We use generer AI models to forecast inventory we need in our various locations and to derive optimal last mile transportation routes for drivers to employ. We're also making it much easier for our third party sellers to create new product pages by entering much less information in letiting. The models do the rest.

Speaker 3: In Advertising, we just launched a generatative AI image generation tool where all brands need to do is upload a product photo and description to quickly create unique lifestyle images that will help customers discover products they love. And in Alexa we built a much more expansive l? m and preview the early version of.

Speaker 3: Apart from being a more intelligent version of herself, collects new conversational AI. Capabilities include the ability to make multiple requests at once, as well as more natural and conversational requests without having to use specific phrases.

Speaker 3: We continue to be convicted that the vision of being the world's best personal assistant is a compelling and viable 1, and that Alexa has a good chance to be one of the long-term winners in this arena.

Speaker 3: Every one of our businesses building general a I applications to change what's possible for customers and we have a lot more to.

Speaker 3: We're also encouraged by the progress we're making in our newer initiatives, just a name a few.

Speaker 3: We're pleased with what we're seeing in primevideo. Prime Video continues to be an integral part of the Prime value proposition, where it's often one of the top two drivers of customers signing up for Prime.

Speaker 3: We also have increasing conviction that Prime Video can be a large and profitable business and its own right, as we continue to invest in compelling exclusive content for Prime members but also offer the best selection of premium streaming video content anywhere with our marketplace offering, including channels where customers can subscribe to channels like max, paramount plus, b e, t plus m G, m plus, as well as our broad transaction video on demand se.

Speaker 3: As we continue to invest in compelling content getting in early 2024, Prime v shows and movies will include limited advertisements. We aim to have meaningfully fewer ads than linear t v and other streaming t v providers. If customers prefer ads free option, we plan to offer that for an additional two 99 per month for's member.

Speaker 3: There is still a lot of work to be done in innovation ahead, but we're excited about our future and Prime Video.

Speaker 3: We're seeing progress on a number of our investments that expand our ability to serve more consumers and sellers and their e-commerce mission.

Speaker 3: Our emerging international stores continue to improve their customer experiences and profitability and are a strong trajectory.

Speaker 3: Both consumers and sellers are excited about buy with pride, which enables third party sellers with direct-to consumer websites to offer Amazon Prime members the same fast payments and delivery options they receive on Amazon or compp. We recently announced the capability for sellers to integrate buy with Prime with their shopify account, making it easier for shop five merchants to manage their businesses with inventory pricing of promotions automatically. sysinkc in one place.

Speaker 3: And we're seeing very positive early response from sellers to supply chain by Amazon: a fully automated set of supply chaining services where Amazon can pick up inventory from manufacturing facilities around the world, ship it across borders, handle customs clearance and ground transportation, store inventory and bulk managment replenishment across Amazon and other sales channels and deliver directly to customers, all without sellers having to worry about managing their supply chain.

Speaker 3: Our health care team is continuing to make health care easier for people's access. The Amazon Pharmacy customer experience has significantly evolved this year and customers are responding that both in their purchasing behavior and qualitative feedback.

Speaker 3: We built our x stas for customers to get Unlimited supply of eligible medications for $5 per month, meaningfully reduce the costs for customers to get insulin and diabetes products and, partner with blue shield of California, offer a first of its kind model to provide more affordable pharmacy care to which four point eight million members, providing fast and free delivery of Prescription medications and 24: seven access to pharmacy.

Speaker 3: We remain convinced that we can be part of the solution of making health care a better customer experience.

Speaker 3: And our low Earth orbit satellite initiative project kyper, which aames to bring fast, affordable broadband to underersserve communities around the world, took a meaningful step forward in the last few weeks with the successful launch of two prototype satellites. We will use this multi-month mission to test our satellites and network from space and collect data ahead of the plan start of satellite production later this year.

Speaker 3: I'd like to close by thanking our teams around the world. We're gearing up for two of our most significant events across the company. First, our annual AWS re: invent conference that begins on November 20. seventh and team is excited to share a lot of new capabilities with customers, provide an array of opportunities for builders to learn and connect with one or another.

Speaker 3: And the store side. We've alreadykicked off what will be our twenty-ninth holiday shopping season.

Speaker 3: Prime big deal days held earlier this month was our most successfullaw October holiday kickoff- the event ever, with Prime members saving more than a billion dollars across hundreds of millions of items sold. Just as we do all year long, we aim to make our customers lives easier and better every day, and there's no time where it's more important to us that we deliver on this mission, and during the busy holiday shopping season. With that, I'll turn it over to byan.

Speaker 4: Overall we saw strong performance in the third quarter. Worldwide revenue was $143.1 million, representing an increase of 11% year over year, excluding the impact of foreign exchange, and approximately $1 million above the top end of our guidance range.

Speaker 4: This saw our highest quarterly worldwide operating income ever, which was $11.2 billion for the quarter, an increase of $8.7 billion year over year and $2.7 billion above the high end of our guidance range.

Speaker 4: North America revenue was $87.9 billion, an increase of 11% year over year. In international revenue was $32.1 billion, an increase of 11% year over year, excluding foreign exchange.

Speaker 4: During the quarter, we held our biggest Prime Day than ever, with Prime members purchasing more than 375 million items worldwide and saving more than $2.5 billion on millions of deals across the Amazon store.

Speaker 4: Outside of Prime Day. id continue to see strong demand across everyday essentials, including categories like beauty and health and personal care.

Speaker 4: From a customer behavior standpoint, we still see customers remaining cautious about price trading down where they can and seeking out deals coupled with lower spending on discretionary items.

Speaker 4: Building on the momentum from last quarter, we set another record for delivery speed for the year to d periods. In the third quarter we have delivered at the fastest speeds ever in the United States.

Speaker 4: These improvements in delivery speeds have been a key driver of growth and are resulting in increased purchase frequency by our Prime numbers.

Speaker 4: Third party sellers grew at 18% year over year, excluding foreign exchange, primarily driven by selection, expansion and growing adoption of our optional services for sellers, including fulfillment by Amazon and paid account management and more.

Speaker 4: During the quarter, we hosted Amazon accellerate, our annual seller conference, where we launched a number of new innovations and product developments for our sellers, including supply chain by Amazon.

Speaker 4: We also continue to see durable growth in Advertising, which grew 25% year over year, excluding foreign exchange.

Speaker 4: Primarily driven by sponsored products as we lean into machine learning to improve the relevancy of the ads we show our customers and enhance our measurement capabilities on behalf of advertisers we've seen strong improvement in our.

Speaker 4: North America operating income was $4.3 billion, an increase of $4.7 billion over year, resulting in an operating margin of 5%, up 100 basis points quarter over quarter.

Speaker 4: Since North America operating margins bottomed out in Q1 of 2022, we have now seen six consecutive quarters of improvement, resulting in a cumulative improvement of over 700 basis points over these past six quarters.

Speaker 4: The third quarter marked a second full quarter of regionalization within the? u us and we're pleased with our early result.

Speaker 4: regionalization has allowed us to simplify the network by reducing the number of line hole lanes, increasing volume within existing line hole lanes and adding more direct fulfillment center to delivery station connections.

Speaker 4: We have also been focused on optimizing inventory placement in a new regionalized network.

Speaker 4: Which when coupled with the simplification mentioned earlier, is helping contribute to an overall reduction in cost to serve.

Speaker 4: additionally, in the quarter, we saw benefits from lower inflation primarily within line hul, ocean and rail shipping rates, which were partially offset by higher fuel prices.

Speaker 4: We are encouraged by the improvements in operating profit. We still see a lot of the opportunity in front of us.

Speaker 4: In international, we were closer to breakeven during the quarter, with an operating loss of $95 million. This was an improvement of $2.4 billion year over year. This improvement was primarily driven by lowering our cost to serve through higher productivity, decreased inflationary pressures and improvements in leverage across our established and emerging international countries. As we continue to focus on customer inputs and improve efficiencies within our operations.

Speaker 4: Moving to.s, revenues were $23.1 billion, an increase of 12% year over year.

Speaker 4: On a quarter. Over a quarter basis, we added more than $9 million of revenue in AWS, as customers are continuing to shift their focus towards driving innovation and bring new workloads to the cloud. Similar to will be shared last quarter. While optimizations still remain a headwind, we've seen the rate of new cost optimizations slowdown in AWS and we are encouraged by the strength of our customer pipeline.

Speaker 4: Customers are excited about our approach to generate AI, with several new announcements made during the quarter, including a strategic collaboration with anthropic opening, Amazon bedrock up to general availability, adding me' lama u model to bedrock in the near future and new customization capabilities of code whisper.

Speaker 4: S remains a clear cloud infrastructure leader, with a significant leadership position in the number of customers, the size of our partner ecosystem, our breadth of functionality and the strongest operational performance in the industry.

Speaker 4: When we look at the fundamentals of the business, we believe we are in good position to drive future growth, as the rates of cost optimization slowdown.

Speaker 4: hes operating income was $7 billion, an increase of $1.6 billion year-over-year.

Speaker 4: Our operating margin for the quarter was 30%. This is an improvement of approximately 600 basis points quarter of quarter, primarily driven by increased leverage on our headcount costs.

Speaker 4: Shifting to free cash flow on a trailing 12 month basis.

Speaker 4: Free cash flow adjusted for finance leases was $20.2 billion, an improvement of $41.7 billion year over-year. The largest driver of the improvement in free cash flow is our increased operating income, which we are seeing across all three of our segments.

Speaker 4: Key drivers of this improvement include reductions in our cost to serve continued Advertising growth and improved leverage on our fixed costs.

Speaker 4: We re also seeing improvements in working capital, notably with our inventory efficiency, as we improve our inventory placement.

Speaker 4: Now let's turn to our capital investments. We define our capital investments as a combination of CapEx plus equipment finance leases.

Speaker 4: These investments were $5 billion for the trailing 12 month period ended September thirtieth, down from $5 billion in the comparable prior year period. For the full year 2023, we expect capital investments to be approximately $5 billion, compared to $59 billion. In 2022, we expect fulfillment and transportation CapEx to be down year over year, partially offset by increased infrastructure CapEx.

Speaker 4: forort growth of our e's business, including additional investments related to generator, AI and large language model efforts.

Speaker 1: As we head in the fourth quarter, we are ready to make this a great holiday season for our customers. Looking at our operations network, our inventory is the best position that's ever been heading into the holiday season, enabling us to serve customers with fast delivery speeds from their local regions. We continue to believe putting customers first is the only reliable way to create lasting value for our shareholders. With that, Let's move on to questions. Thank you at this time. We will now open the call up for.

Speaker 1: transcript

Speaker 1: We ask that when you pose your question, you pick up your handsets to provide optimum sound quality. Once again, to initiate a question, Please press star.

Speaker 1: First question comes from the line of Justin Post with Bank of America. Please proceed with your question.

Speaker 5: Thanks for that. I'll ask about AWS. I guess the first question is: as you look forward, in the fourth quarter you mentioned you signed some new deals. Are you seeing less co cost optimization as as you look forward, or do you think it would be similar to Q3? And then second, you couldn't help but notice the big margin improvement in AWS. All the way back to you were seven quarters ago. Could you talk about the drivers and sustainability of those margins? Thank you.

Speaker 3: You know, I think if you look at a w's, we grew 12% year over year and I think that you saw a continued stabilization of our year over year growth rate. You know, and it includde $919 million incremental quarter over quarter revenue, which it's hard to compare and do the math across different players because not everyone disclosse of them. Clearly, as far as we can tell, that also looks like the most absolute growth of any players out there. We're still.

Speaker 3: Look at the growth of customers using easyc two instances that are Graviton based, which is our generally our custom.

Speaker 3: And you know, one of the things that customers love about Graviton is that it provides forty.

Speaker 3: See a lot of growth in Graviton. You also see a lot of customers who are moving from the hourly on demand rates.

Speaker 3: Call savings plans, And so though, they're just good examples of some of the cost optimization that customers are making in less certain economy.

Speaker 3: But we're starting to see, as I said, we're seeing that that optimization attenuate. I expect that to continue over time. I remain very optimistic about eight's in the medium to long term and it's.

Speaker 3: I think we're the most customer focus, even if you look during optimization time.

Speaker 3: Economy customers have really noticed how a b's cleaned in with them for the long term and I think that that matters to customers and then you know we have a $92 billion revenue run rate business where 90% of the global IP spend still resides on premises And if you believe like we do that equation is going to flip is.

Speaker 3: Tens of billions dollars of revenue for a w's over the next several years you know I think we have a unique and broad.

Speaker 3: It with. You know the array of customers I mentioned that are using.

Speaker 3: Start to build workloads for generative ally who have already on top.

Speaker 3: You can see it also. Just you know the growth rate for us.

Speaker 3: gener eyes is very fast, you know. Again i'have I've seen a lot of different numbers publicly. It's a little hard to measure a Apple toapples.

Speaker 3: Our best estimisy estimation are: you know, the amount of growth we're seeing in the absolute amount of generative AI, business we're seeing compares very.

Speaker 3: So you know, I think that you, you can see that in, you know, in the deals that we're doing too.

Speaker 3: Significant number of appeals that we've closed over the last couple of months. A lot of those conversations, you know.

Speaker 3: Big piece of it is what I mentioned earlier: the functionality, the ecosystem, the operational performance, the security, how you take care of customers, but also whether or not they like your vision and the set of products that you're building in this brand: new technologies.

Speaker 3: You know to me I think there's a lot of growth in front of a w's very.

Speaker 5: Just on your comment about question about es margin. So yes, the margin improved six or basis points quarter over-quarter.

Speaker 5: Billion quarter of quarter for's is driven by primarily by our headcount reductions.

Speaker 5: And also continued slowness and hiring, rehiring- open position.

Speaker 5: Been also a lot of cost control and nonpeople categories.

Speaker 5: Like infrastructure costs and also discretionary cost.

Speaker 5: Natural gr gas prices and other energy costs have came down a bit in Q3 as well So.

Speaker 5: As we've said, historically the margins on the operating margin for b's is going to fluctuate quarter-to-quarter and this is a good example that.

Speaker 2: Thanks very much. Can you just talk more about how the regional fulfillment network is exceeding your expectations? And then also, how does that support your confidence in moving North America beyond mid single digit margin levels? And then just perhaps on generator the a i- obviously a lot of innovation here. You talked about a number of different customers running early workloads. How should we think about the timing just to drive some tangible monetization there? Thank you.

Speaker 3: Well I'll start the you know on regionalization you know I think it was such a significant change for us in the network it's it's hard to really.

Speaker 3: Was that. You know first, to make such a change has all sorts of risk and you know, I think the team did a great job planning around it.

Speaker 3: We were able, with our placement algorithms, to get more regional, local in stock levels than we anticipate, you know. And then I think, until you actually put all the connections together, you know we changed a lot of the connections from. You know a lot of these.

Speaker 3: But I think that we were able. The connections that we made in the optimization that we made there allowed us to get shorter transportation.

Speaker 3: Then always one of the issues you've got to worry about when you make a change that big is whether or not you end up splitting shipments and having more your fewer items per pur.

Speaker 3: In the design and in the early stages, and we've gotten a lot better on. So we're across the boardjust. We're seeing sure transportation distances in much faster delivery to customers and when you.

Speaker 5: They actually start to consider you for a lot more items than they otherwise would. I think it's part of what, if you look at our very significant growth rates right now and everyday essentials and consumables, a lot of it is when you know if if you're going to order something that you need in.

Speaker 3: They actually start to consider you for a lot more items than they otherwise would. I think it's part of what, if you look at our very significant growth rates right now and everyday essentials and consumables, a lot of it is when you know if if you're going to order something that you need in.

Speaker 5: Second question was on was on jai and in the tim, ing of monetization.

Speaker 3: Second question was on was on jai and in the tim, ing of monetization.

Speaker 3: What I would tell you is that we have been surprised at the page.

Speaker 3: Growth in generer of AI, our generer of a I business is drawn very, very quickly, as I mentioned earlier, and almost by any measure.

Speaker 3: Business for us right and yet I would also say that.

Speaker 3: compies are still in the relatively early stages. I mean, now you have to get perspective. My perspective is that the cloud is still in the early stages. You know if.

Speaker 3: On premises where I think that equation'is going to flip in 10 years, I think.

Speaker 5: With that clean on, I still think we're very early in generative they and what's interesting too, around genative a, because we have so many.

Speaker 3: With that clean on, I still think we're very early in generative they and what's interesting too, around genative a, because we have so many.

Speaker 3: All sorts of prototyp, es and it's really accelerated very rapidly on the.

Speaker 3: tradium and in ftiia, and then on the application building and running side with bedrock, is that companies are still trying to sort out for themselves what they're going to run at large scale production.

Speaker 3: Results of the model and then you plug it into your application, and what a lot of companies figure out quickly is that using the really large, the large models and the large sizes ends up often being more expse.

Speaker 5: pated and what they want to spend on that application, and sometimes too much latency in getting the answers is shovel to.

Speaker 3: pated and what they want to spend on that application, and sometimes too much latency in getting the answers is shovel to.

Speaker 3: So customers are experimenting with lots of different types of models and then different model sizes to get the cost and latency characterics characteristics.

Speaker 3: one of the things that I think is so useful about bedrock is that customers are trying so many variants right now that to have a service.

Speaker 3: That not only lets you leverage lots of third party and, as well as Amazon large language modees, but also lots of different sizes, and then makes the transition of moving those worklos easy between them, is very evident.

Speaker 6: Thanks ta king. My questions I have to 108 of's. one on the retail.

Speaker 6: S AI and I recognize you have a pretty multi prongs AI approach. But just could you talk us through sort of one or two of the early jari I products where you're you're seeing the most early demand and interest and as you talk to customers, are there still hurdles or pain points that you're not quite serving in your product suite you look to solve and innovate on over the next couple of years in a I.

Speaker 6: And then the second one you made a lot of steps on the regionalization of warehouses and making a more efficient. Where are you on robotics in the warehouse and how should wethink about potential impact for that to drive profitability even higher?

Speaker 3: On the AI side I think that if you're looking for some of the products that we're offering that are that have a lot of early resonents and traction you know I would I'd start with bedrock customers are they're very excited about bedrock and it's making a.

Speaker 3: Excited about for 25 years. You know my opinion. About a half dozen years ago it took a pretty significant Leap forward where it was much.

Speaker 3: For everyday developers to start to interact with AI. But it just it took another meaningful step forward with generative AI.

Speaker 5: hated to actually figure out which moes you want to work we want to use and how you actually.

Speaker 3: hated to actually figure out which moes you want to work we want to use and how you actually.

Speaker 5: Employ them and trying to make sure you have the right results trying to make sure you get safe results trying to make sure you you end up with a cost structure and.

Speaker 3: Hard customers look like you know there's a certain number of customers who have.

Speaker 3: Very deep a I expert practitioners, but most companies don't, And so betterrock.

Speaker 3: Variables that people are very excited about bedrock. They're using it in a very broad way. They're extremely excited about not just the set of models in there But if you look at you know a leader like an.

Speaker 3: Inclusive early access to models and customization tools, and.

Speaker 3: More control. It's just, there's a lot of buz and a lot of usage and a lot of tracks.

Speaker 5: bedrock, I would also say our chips. You know trainiingum and inferenrentiia. We you know as most people.

Speaker 3: bedrock, I would also say our chips. You know trainiingum and inferenrentiia. We you know as most people.

Speaker 3: So it's just another reason why training in French are so attractive to people. You know they have better price performanceter.

Speaker 3: Options out there, but also the fact that you can get access to them. And we've, you know, we've done a, I think.

Speaker 3: Very large l m providers make big bets on those chips. If you know, I think anthropic deciding to train their future l m models on trainium and using infrench.

Speaker 3: The game changer if you can allow your engineers not to have to do the more repetitive work of cutting.

Speaker 5: So it's a real develop, it's a productivity game changer for developers and then actually launching that customization vehicle So that they actually understand yourown.

Speaker 3: Those are all tim me early tracks.

Speaker 5: Yeah there's. There's so much more to provide, Brian . I mean there's.

Speaker 5: I think people you know, even though bedrock is incredible, it is so much easier to use than people trying to.

Speaker 3: I think people you know, even though bedrock is incredible, it is so much easier to use than people trying to.

Speaker 5: Big corpus of data and I' run an agent on top of it, or maybe they don't have doel all that work themselves. I think people are looking for automated ways to.

Speaker 5: Developer environments and be would ask any question of developer byon is. There's a lot more. It's going to be a long time before.

Speaker 3: Developer environments and be would ask any question of developer byon is. There's a lot more. It's going to be a long time before.

Speaker 5: Where we run out of services and you, I think it,'s. It's a good thing to look toward the next few months. Reinvent to see the additional things that team launches.

Speaker 3: Where we run out of services and you, I think it,'s. It's a good thing to look toward the next few months. Reinvent to see the additional things that team launches.

Speaker 5: It's a very significant investment for us it has been for several years it's made a huge difference for us it's made a big difference for us both on the.

Speaker 3: It's a very significant investment for us it has been for several years it's made a huge difference for us it's made a big difference for us both on the.

Speaker 5: Day we have a very substantial investment of additional robotics.

Speaker 3: Day we have a very substantial investment of additional robotics.

Speaker 5: Initiatives, I would say, many of which are coming to fruition in 24 and 25. two thousand and 24.

Speaker 7: Thanks so much for taking the questions. Maybe one follow of an a's and one on the ads business and he would love your perspective. You know the cloud optimization theme started in the second half of 22 when there were a lot of macro concerns and then the a I theme really only sort of came to the forefront in the last eight or nine months. What's your perspective on how turning the calendar into twentthousand and 24 and there being a new it budget cycle could possibly lead us to put the optimization theme in the background? That's of the a I team to.

Speaker 5: Come more to the forefront when there might be more distinct budgeting around a. I is a team that be number one and then in your ad business, you're approaching $5 billion run rate and it's compounding in the mid twenty's. What are you most excited about on the initiative front? To continue to build scale both on Amazon properties and possibly off. Amazon is a broader digital Advertising player. Thanks so much on the eight of u's side. You know my, my perspective.

Speaker 3: Come more to the forefront when there might be more distinct budgeting around a. I is a team that be number one and then in your ad business, you're approaching $5 billion run rate and it's compounding in the mid twenty's. What are you most excited about on the initiative front? To continue to build scale both on Amazon properties and possibly off. Amazon is a broader digital Advertising player. Thanks so much on the eight of u's side. You know my, my perspective.

Speaker 5: Relatively low hanging fruit and optum.

Speaker 3: Relatively low hanging fruit and optum.

Speaker 5: There was. You know there's more of a hanging fruit when you have very large footprints and you built a lot of applicate.

Speaker 3: There was. You know there's more of a hanging fruit when you have very large footprints and you built a lot of applicate.

Speaker 5: So I thinktwo thousand and twent where are seeing it now with the attenuation of optimization over the last several monthsbut I think you'll continue to see that attenuation continue and we're already seeing more and more companies that are turning their attention to newer initiatives and I think what you will see in twent thousandy four and 20.005 thousand is wellwhati think. I don't think we don't think it's a oneyear deal. I think there's going to be a several year.

Speaker 3: So I thinktwo thousand and twent where are seeing it now with the attenuation of optimization over the last several monthsbut I think you'll continue to see that attenuation continue and we're already seeing more and more companies that are turning their attention to newer initiatives and I think what you will see in twent thousandy four and 20.005 thousand is wellwhati think. I don't think we don't think it's a oneyear deal. I think there's going to be a several year.

Speaker 5: wary of an uncertain economy, And so I think they would. You'll see increased.

Speaker 3: wary of an uncertain economy, And so I think they would. You'll see increased.

Speaker 5: Companies will both go back to those transformations they were planning on making. You know, working with. You know with.

Speaker 3: Companies will both go back to those transformations they were planning on making. You know, working with. You know with.

Speaker 5: duction in large scale of the generendativeb iye applications that they're all working on in prototyping and starting to deploy into.

Speaker 3: duction in large scale of the generendativeb iye applications that they're all working on in prototyping and starting to deploy into.

Speaker 5: Well you know I'm excited about on on the ad side as well. You know, I think that it's interesting what's happening in our ads business. As you know, if you look around the industry.

Speaker 3: Well you know I'm excited about on on the ad side as well. You know, I think that it's interesting what's happening in our ads business. As you know, if you look around the industry.

Speaker 5: Being more cautious. On the ad side, in the top of funnel products, you know things like display in a little bit of video. We're still seeing a lot of strength.

Speaker 3: Being more cautious. On the ad side, in the top of funnel products, you know things like display in a little bit of video. We're still seeing a lot of strength.

Speaker 5: We have fared pretty well in part because we have a number of owned and operated properties that have very large volumes that advertisers and brands want to get in front of you know we even in a harder economy there's going to be a lot of e commerce purchasing you know And so.

Speaker 3: We have fared pretty well in part because we have a number of owned and operated properties that have very large volumes that advertisers and brands want to get in front of you know we even in a harder economy there's going to be a lot of e commerce purchasing you know And so.

Speaker 5: Here and that's a property and it's really valuable. It's the one game that week.

Speaker 3: Here and that's a property and it's really valuable. It's the one game that week.

Speaker 5: Watching So I think part of it is because we have bonus and operating properties that have a lot of volume, and I think the other piece is that most of our resource in the Advertising side is spent on machine learning expert practition.

Speaker 3: Watching So I think part of it is because we have bonus and operating properties that have a lot of volume, and I think the other piece is that most of our resource in the Advertising side is spent on machine learning expert practition.

Speaker 5: Relevant and because of that those ads perform better for advertisers So when they have to think about budget decisions they're going to choose the ones that have large volume and perform better and.

Speaker 3: Relevant and because of that those ads perform better for advertisers So when they have to think about budget decisions they're going to choose the ones that have large volume and perform better and.

Speaker 3: You know, in terms of additional things we're excited about. I think that we have.

Speaker 5: barely strcrape the surface with respect to figuring out how to intelligently integrate Advertising into video into all.

Speaker 3: barely strcrape the surface with respect to figuring out how to intelligently integrate Advertising into video into all.

Speaker 3: journalizing. Some of our products like, like sponsored products, to third party websites and you see that.

Speaker 5: So I think there's again we're still pretty early in that area but it's groong well and.

Speaker 3: So I think there's again we're still pretty early in that area but it's groong well and.

Speaker 1: And our final question comes from the line of Mark mahane, with evercorre I S.

Speaker 8: okay on the those a w's de, als- any that you talked about in the September quarter. Was there something different about those deals- different industry, different verticals, different geographic markets, or is it, you know, just kind of?

Speaker 8: Kind of a resumption of kind of kind of the kind of the deal flow that you've had in years past So that's the first question and secondly a Brian international is it international finally at a point where it can be sustainably profitable going forwards maybe except for the know the the seasonally challenge March quarter have you rung out enough efficiencies and gotten enough scales and the oldest markets there are big enough and scalable enough and profit enough that it offsets the newer countries have you finally reached that point Thanks.

Speaker 9: un international. Thanks for your question. Yeah quarter was just sort of break ven and.

Speaker 5: un international. Thanks for your question. Yeah quarter was just sort of break ven and.

Speaker 9: Prior trends? I would to answer that question this way. You know, there multiple things going on internationally.

Speaker 5: Prior trends? I would to answer that question this way. You know, there multiple things going on internationally.

Speaker 9: Those countries are profitable and have been profitable, and continue to work on price selection and convenience.

Speaker 5: Those countries are profitable and have been profitable, and continue to work on price selection and convenience.

Speaker 9: Scaling Advertising and improving the cost structure of our ops network. So many of the ops productivity initiatives- probably the exception regional.

Speaker 5: Scaling Advertising and improving the cost structure of our ops network. So many of the ops productivity initiatives- probably the exception regional.

Speaker 9: Currently globally and you're seeing that internationally- and customers are responding on the emerging side. In the last six years we've launched 10 new countries. History has shown us that those all take a time to grow into profitability. The? u to.

Speaker 5: Currently globally and you're seeing that internationally- and customers are responding on the emerging side. In the last six years we've launched 10 new countries. History has shown us that those all take a time to grow into profitability. The? u to.

Speaker 9: Selection a number of other variables. So that's those.

Speaker 5: Selection a number of other variables. So that's those.

Speaker 9: We're going to continue to invest internationally in things like Prime and expanding Prime benefits.

Speaker 5: We're going to continue to invest internationally in things like Prime and expanding Prime benefits.

Speaker 9: Customers So I can't say it's permanently reached to breakkeven threshold for profitability I think the trend lines are clear though and we'll continue to work on accelerating the journey and.

Speaker 5: Customers So I can't say it's permanently reached to breakkeven threshold for profitability I think the trend lines are clear though and we'll continue to work on accelerating the journey and.

Speaker 5: So you know all these deals don't hit in the months they happen over a period of time as you help those customers safethfully transition and migrate their workloads to ws but.

Speaker 3: So you know all these deals don't hit in the months they happen over a period of time as you help those customers safethfully transition and migrate their workloads to ws but.

Speaker 5: bute over a calendar year I do think though that we've seen this in 23 for sure that the.

Speaker 3: bute over a calendar year I do think though that we've seen this in 23 for sure that the.

Speaker 5: So I think what you're just starting to see along with some of the optimization attenuation is that companies.

Speaker 3: So I think what you're just starting to see along with some of the optimization attenuation is that companies.

Speaker 3: gust for several months where, I think frankly, both sides thought they would close that.

Speaker 2: Thanks for joining us, for joining us today, for the call and for your questions. The replay will be available on our invetor Relations website for at least three months. We appreciate your interest in Amazon and look forward to talking with you again next quarter.

Speaker 10: I.

Speaker 9: I.

Thank you for standing by.

Good day, everyone and welcome to the amazon.comthird quarter 2023 financial results teleconference at.

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 filed Thank you. Sir. Please go ahead.

Hello, and welcome to our Q3 2023 financial results Conference call.

Joining us today to answer your questions as Andy Jesse 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 2022.

Comments and responses to your questions reflect management's views as of today October 26th 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 are.

Our guidance incorporates the order trends that we've seen to date and what we believe today to be appropriate assumptions.

Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates changes in 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 <unk>.

Our net online commerce cloud services, and new and emerging technologies 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 Andy.

Thanks, Steve today, we're reporting a $143.1 billion in revenue up 11% year over year.

$11.2 billion in operating income of 343% year over year or $8 $7 billion and $20 $2 billion in trailing 12 month free cash flow adjusted for equipment finance leases, which is up $41 $7 billion versus the comparable period last year we.

We continue to be encouraged by the progress, we're making in lowering our cost to serve improving our customer experiences and investing for future growth.

I'll start with our stores business.

Our move earlier this year from a single National fulfillment network in the U S to eight distinct regions represented one of the most significant changes to our fulfillment network in our history.

This change has gone more smoothly and made more impact than we optimistically expected and you can see the benefits in many forms.

Digital fulfillment clusters with higher local in stock levels and optimize connections between fulfillment centers and delivery stations means shorter distances and fewer touches to get items to customers.

Shorter travel distances and fewer touches mean lower cost to serve but perhaps most importantly shorter distances and fewer touches mean that customers are getting their shipments faster.

We remain on pace to deliver the fastest delivery speed for prime customers and our 29 year history and as I talked about last quarter, we know how important speed of delivery as to customer satisfaction buying behavior. A. Good example is the significant growth, we're seeing in consumables and everyday essentials.

Thank you for standing by.

Operator: Good day everyone and welcome to the Amazon.com 3rd quarter 2023 Financial Results Teleconference. At this time, all participants are in a listen-only mode.

Customers are getting items as quickly and conveniently as they are now from Amazon, they're going to consider us more frequently for more of their shopping needs.

Dave Fildes: After the presentation, we will conduct a question and answer session. Today's call is being recorded and for opening remarks, I will be turning the call over to the Vice President of Investor Relations, Dave Fildes.

As we've shared the last few quarters, we've reevaluated every part of our fulfillment network over the last year. The first substantial re architecture centered on the regionalization change, we obviously like the results, but don't think we fully realized all the benefits yet and we continue to make steady improvements in fine tuning the placement algorithms to enable even more in <unk>.

Dave Fildes: Thank you sir, please go ahead. Hello and welcome to our Q3 2023 Financial Results Teleconference. 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.

<unk> fulfillment and to further increase consolidation into fewer shipments.

We've also identified several substantial changes to our inbound processes that we believe could have a significant impact on our cost to serve and speed of delivery.

Dave Fildes: Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2022. Our comments and responses to your questions reflect management's views as of today, October 26th, 2023 only. We 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 10K and subsequent filings.

We have a long way before being out of ideas to improve costs and speed.

The team is really humming on this I'm proud of the way, they're inventing and executing together.

Moving to AWS and our investments in generative AI <unk>.

AWS revenue grew 12% year over year in Q3 with $919 million of incremental quarter over quarter revenue and now has an annualized revenue run rate of $92 billion.

AWS is year over year growth rate continued to stabilize in Q3, while we still saw elevated cost optimization relative to a year ago. It's continued to attenuate as more companies transition to deploying net new workloads.

Dave Fildes: During this call, we may discuss certain non-GAAP financial measures. In our press release, slide the company in 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 gap measures. Our guidance incorporates the order trends that we've seen today and what we believe today to be appropriate assumptions. Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending, including the impact of recessionary fears.

Companies and move more slowly in an uncertain economy in 2023 to complete deals, but we are seeing the pace and volume of closed deals pick up and we're encouraged by the strong last couple of months of new deals signed for perspective, we signed several new deals in September with an effective date in October that won't show up in any GAAP reported number for Q3.

The collection of which is higher than our total reported deal volume for all of Q3.

T O signings are always lumpy and the revenue happens over several years, but we like the recent deal momentum we're seeing.

Dave Fildes: Inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies 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, restructuring, 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.

Top of mind for most companies continues to be generative AI as I mentioned last quarter, we think about generally the EIS, having three macro layers.

Each of which is very large in each of which we're investing a few updates there.

As always layer is the compute to train large language miles are L. EMS and produce inferences and predictions are key to this compute is the chip inside it as we've shared we've been working on custom silicon for training and inference with their training them in and friendships respectively.

Andy Jassy: And now I'll turn the call over to Andy. Thanks Dave. Today we're reporting $143.1 billion in revenue, up 11% year-rear, $11.2 billion in operating income, up 343% year-rear, or $8.7 billion. And $20.2 billion in trailing 12-month free cash flow adjusted for equipment finance leases, which is up $41.7 billion versus the comparable period last year. We continue to be encouraged by the progress we're making in lowering our costs to serve, improving our customer experiences, and investing for future growth.

Recently, we announced the leading L. A maker anthropic chose AWS as its primary cloud provider and will use training and inference you to build train and deploy future Ela lens as part of this partnership AWS Anthropic will collaborate on the future development of training them and Inferential technology. We believe this collaboration will be helpful and continuing.

To accelerate the price performance advantages that training in French and deliver for customers.

In the middle layer, which we think of as large language models as a service. We recently introduced general availability for Amazon bedrock, which offers customers access to leading L. M from third party providers like anthropic stability AI coherent AI 'twenty, one as well as from Amazon's own L. M called Titan where customers can take those model.

Andy Jassy: I'll start with our stores business. Our move earlier this year from a single national fulfillment network in the U.S, to eight distinct regions represented one of the most significant changes to our fulfillment network in our history. This change has gone more smoothly and made more impact than we optimistically expected, and you can see the benefits in many forms. Regional fulfillment clusters with higher local install levels and optimized connections between fulfillment centers and delivery stations means shorter distances and fewer touches to get items to customers.

[noise] customize them using their own data, but without weak net data back into the generalized L. M have access the same security access control and features that they run the rest of their applications with NATO U S. All through a managed service.

Andy Jassy: Shorter travel distances and fewer touches mean lower costs to serve. But perhaps most importantly, shorter distances and fewer touches mean that customers are getting their shipments faster. We remain on pace to deliver the fastest delivery speeds for prime customers in our 29-year history. And as I talked about last quarter, we know how important speed of delivery is to customer satisfaction and buying behavior. A good example is the significant growth we're seeing consumables and everyday essentials, tables.

In the last couple of months, we've announced the imminent addition of matters Lama to model to bedrock. The first time, it's being made available through a fully managed service, but also through our expanded collaboration with anthropic customers will gain access to future anthropic models to bedrock with exclusive early access to unique features model customization and the ability.

To fine tune the models.

And bedrock has added several new compelling features including the ability to create agents, which can be programmed to accomplish tasks like answering questions or automating workflows. In these early days of January I companies are still learning, which models they want to use which models they use for what purposes, and which model sizes. They should use to get the latency and cost care.

Andy Jassy: When customers are getting items as quickly and conveniently as they are now from Amazon, they're going to consider us more frequently for more of their shopping needs. As we've shared the last few quarters, we've re-evaluated every part of our fulfillment network over the last year. The first substantial re-architecture centered on the regionalization change. We obviously like the results, but don't think we fully realize all the benefits yet, and we continue to make steady improvements in fine tuning the placement algorithms to enable even more in-region fulfillment and to further increase consolidation into fewer shimmings.

Touristic they desire.

In our opinion the only certainty is that they will continue to be a high rate of change.

Bedrock helps customers with this fluidity, allowing them to rapidly experiment with move between model types and sizes and enabling them to take the right tool for the right job.

Andy Jassy: We've also identified several substantial changes to our inbound processes that we believe could have a significant impact on our cost to serve and speed of delivery. We have a long way before being out of ideas to improve cost and speed. The team is really humming on this and I'm proud of the way they're inventing and executing together.

The customer reaction bedrock has been very positive and the general availability is buoyed that further bedrock is the easiest way to build and scale enterprise ready generative AI applications and a real game changer for developers and companies trying to get value out of this new technology.

At the top layer, which are the applications that run yellow EMS her generative AI coding companion Amazon could whisper has gotten a lot of early traction and got a lot more powerful recently with the launch of its new customization capability. The number one enterprise request for Conan companions as been wanting these companions to be familiar with.

Andy Jassy: Moving to AWS and our investments in General AI, AWS revenue grew 12% year-over-year in Q3 with $919 million of incremental quarter-over-quarter revenue, and now as the annualized revenue run rate of $92 billion. AWS's year-over-year growth rate continued to stabilize in Q3. While we still saw elevated cost optimization relative to a year ago, it's continued to attenuate as more companies transitioned to deploying net new workloads.

<unk> proprietary code basis is not just having code companions trained in open source code <unk>.

<unk> want the equivalent of a longtime senior engineer, who knows their code base well.

Andy Jassy: Companies have moved more slowly in an uncertain economy in 2023 to complete deals, but we're seeing the pace and volume of closed deals pick up and were encouraged by the strong last couple of months of new deals signed. For perspective, we signed several new deals in September with an effective date in October that won't show up in any gap reported number for Q3, but the collection of which is higher than our total reported deal volume for all of Q3. Deal signings are always and the revenue happens over several years, but we like the recent deal momentum we're seeing.

That's what code Whisper just launched another first of its kind out there in its current form and customers are excited about it.

Few last comments on Aws's generative AI work.

As you can tell we're focused on doing what we've always done for customers, taking technology that can transform customer experiences and businesses, but they can be complex and expensive and democratizing it for customers of all sizes and technical abilities.

Worth remembering the customers want to bring the models to their data and not the other way around and much of that data resides in AWS as the clear market segment leader in cloud infrastructure.

Andy Jassy: Top of mind for most companies continues to be General AI, as I mentioned last quarter, we think about General AI as having three macro layers, each of which is very large and each of which we're investing. A few updates there. At the lowest layer is the compute to train large language models or LLMs and produce inferences or predictions. The key to this compute is the chip inside it. As we've shared, we've been working on custom silicon for training and inference with our training and inferential chips respectively.

We're innovating and delivering at a rapid rate and our approach is resonating with customers. The number of companies building generative AI apps and AWS is substantial and growing very quickly, including Adidas booking dot com Bridgewater, Clarient, Godaddy, Lexisnexis, Merck Royal Philips and United Airlines to name a few.

We are also seeing success with generative AI startups like perplexity Dot AI.

Choose to go all in with AWS, including running future models in training them in and friendship.

Andy Jassy: Recently, we announced that leading LLM maker andthropic chose the AWS as his primary cloud provider and will use training and inferential to build training deploy its future LLMs. As part of this partnership, AWS and Anthropic will collaborate on the future development of training and inferential technology. We believe this collaboration will be helpful and continue to accelerate the price performance advantages the training and inferential deliver for customers. In the middle layer, which we think of as large language models as a service, we recently introduced General Availability for Amazon Bedrock, which offers customers access to leading LLMs from third-party providers like Anthropics, Stability AI, Cohear and AI21, as well as from Amazon's own LLMs called Titan, where customers can take those models, customize them using their own data, but without leaking that data back into the generalized LLM, have access to the same security, access control and features that they run the rest of their applications with AWS all through a managed service.

And the AWS team has a lot of new capabilities to share with its customers its upcoming AWS re invent conference.

Beyond AWS all of our significant businesses are working on generative AI applications to transform their customer experiences.

There are too many for me to name on this call, but a few examples include in our stores business, we're using generative AI to help people better discover products they want to more easily access to information needed to make decisions will.

We used generative AI models to forecast inventory, we need in our various locations and to derive optimal last mile transportation routes for drivers to employ.

We're also making it much easier for our third party sellers to create new product pages.

Entering much less information and letting the models to the rest.

In advertising, we just launched regenerative AI image generation tool for all brands need to do is upload a product photo and description to quickly create unique lifestyle images that will help customers discover products they love.

Andy Jassy: Service. In the last couple months, we've announced the imminent addition of Metas Lama II model to Bedrock, the first time it's being made available through a fully managed service. Also through our expanded collaboration with Anthropic, customers will gain access to future Anthropic model through Bedrock with exclusive early access to unique features from model customization and the ability to fine tune the models. And Bedrock is added several new compelling features, including the ability to create agents, which can be programmed to accomplish tasks like answering questions or automating workflows.

And and Alexa, we built a much more expansive than all of them and preview. The early version of this far from being a more intelligent version of herself collections, new conversational AI capabilities, including the ability to make multiple requests are ones as well as more natural conversation requests without having to use specific phrases.

We continue to be convicted that the vision of being the world's best personal assistant as a compelling and viable one.

It is actually is a good chance to be one of those long term winners in this arena.

Every one of our businesses building generative AI applications to change what's possible customers and we have a lot more to come.

Andy Jassy: In these early days of Gen. AI, companies are still learning which models they want to use, which models they use for what purposes, and which model sizes they should use to get the latency and cost characteristics they desire. In our opinion, the only certainty is that there will continue to be a high rate of change. Bedrock helps customers with this fluidity, allowing them to rapidly experiment with the move between model types and sizes, and enabling them to pick the right tool for the right job.

We're also encouraged by the progress we're making in our newer initiatives just to name a few.

We're pleased with what we're seeing in Prime video Prime video continues to be an integral part of the prime value proposition, where it's often one of the top two drivers of customers signing up for prime.

We also have increasing conviction that prime video can be a large and profitable business in its own right. As we continue to invest in compelling exclusive content for prime members, but also offer the best selection of premium streaming video content anywhere with our marketplace offering including channels, where customers can subscribe to channels like Max Paramount plus P.

Andy Jassy: The customer reaction to Bedrock has been very positive, and the general availability is buoyed that further. Bedrock is the easiest way to build and scale enterprise ready, generative AI applications in a real game changer for developers and companies trying to get value out of this new technology.

T plus M G M plus as well as our broad transaction video on demand selection.

Andy Jassy: And the top layer, which are the applications that run the LLMs, her generative AI coding companion Amazon code whisperer has gotten a lot of early traction and got a lot more powerful recently with the launch of its new customization capability. The number one enterprise request for Conan Companions has been wanting these companions to be familiar with customers for proprietary code bases. If not just having code companions trained and open source code, companies want the equivalent of a long time senior engineer who knows their code base well. That's what code whisperer just launched, another first of its kind out there in his current forum and customers are excited about it.

As we continue to invest in compelling content getting in early 2020 for Prime video shows and movies will include limited advertisements, we aimed to have meaningfully fewer ads in linear television and other streaming TV providers, if customers prefer an AD free option, we plan to offer that for an additional 299 per month for U S members.

Theres still a lot of work to be done in innovation ahead, but we're excited about our future and prime video.

We're seeing progress in a number of our investments to expand our ability to serve more consumers and sellers and their ecommerce missions.

Our emerging international stores continue to improve their customer experiences in profitability and a strong trajectory.

Andy Jassy: Few last comments on AWS's generative AI work. As you can tell, we're focused on doing what we've always done for customers taking technology that can transform customer experiences and businesses, but they can be complex and expensive and democratizing it for customers of all sizes and technical abilities. It's also worth remembering the customers want to bring the models to their data, not the other way around. And much of that data resides in AWS is the clear market segment leader in cloud infrastructure.

Both consumers and sellers are excited about by with Prime which enables third party sellers with direct to consumer websites to offer Amazon Prime members, the same fast payments and delivery options they receive on amazon.com.

We recently announced the capability for sellers to integrate by with prime with their Shopify account.

The easier for shopify merchants to manage their businesses with inventory pricing and promotions automatically sync in one place.

Andy Jassy: We're innovating and delivering at a rapid rate and our approach is resonating with customers. The number of companies building generative AI apps in AWS is substantial and growing very quickly, including Adidas booking dot com bridge water, clarion, go daddy. Lexus nexus, Merck, Royal Phillips and United Airlines name a few. We are also seeing success with generative AI startups like perplexity dot AI, who chose to go all in with AWS, including running future models and training and friendship.

We're seeing very positive early response from sellers to supply chain by Amazon.

Fully automated set of supply chain services for Amazon can pick up inventory from manufacturing facilities around the world shifted across borders handle customs clearance in ground transportation store inventory and bulk managed replenishment across Amazon and other sales channels and deliver directly to customers all without sellers having to work.

Andy Jassy: And the AWS team has a lot of new capabilities to share with its customers is upcoming AWS reinvent conference. Beyond AWS, all of our significant businesses are working on generative AI applications to transform their customer experiences. There are too many for me to name on this call, but a few examples include in our stores business, we're using generative AI to help people better discover products they want, the more easily access the information needed to make decisions.

Worry about managing their supply chain.

Our health care team is continuing to make health care easier for people to access the Amazon pharmacy customer experience has significantly evolved this year and customers are responding that both in their purchasing behavior and qualitative feedback.

We built Rx task for customers get unlimited supply of eligible medications for $5 per month meaningfully reduce the cost for customers to get insulin in diabetes products and partner with Blue Shield of California to offer a first of its kind model to provide more affordable pharmacy care to its $4 8 million members, providing fast and free delivery and <unk>.

Andy Jassy: We use generative AI models to forecast inventory we need in our various locations and to derive optimal last miles transportation routes for drivers to employ. We're also making it much easier for our third party sellers to create new product pages by entering much less information and letting the models to the rest. Post. In advertising, we just launched a gender to AI image generation tool where all brands need to do is upload a product photo and description to quickly create unique lifestyle images that will help customers discover products they love.

Scripture medications and 24 seven access to pharmacists.

We remain convinced that we can be part of the solution and making health care a better customer experience.

And our low Earth orbit satellite initiatives project, Kuyper, which aims to bring fast affordable broadband to underserved communities around the world took a meaningful step forward in the last few weeks with the successful launch of two prototype satellite.

Andy Jassy: And in Alexa, we built a much more expansive LLM and previewed the early version of this. Apart from being a more intelligent version of herself, Alexa's new conversational AI capabilities include the ability to make multiple requests at once, as well as more natural and conversational requests without having to use specific phrases.

We will use this multi month mission to test our satellite network from space and collect data ahead of the planned startup satellite production later this year.

I'd like to close by thanking our teams around the world. We're gearing up for two of our most significant events across the company first our annual AWS re invent conference that begins on November 27.

Andy Jassy: We continue to be convicted that the vision of being the world's best personal assistant is a compelling and viable one, and that Alexa has a good chance to be one of the long-term winners in this arena. Every one of our businesses is building gender to AI applications to change what's possible for customers, and we have a lot more to come.

<unk> is excited to share a lot of new capabilities with customers provide an array of opportunities for builders to learn and connect with one another.

And on the store side, we've already kicked off what will be our 29th holiday shopping season.

Brian Big deal days held earlier. This month was our most successful October holiday kickoff event ever with prime members saving more than $1 billion across hundreds of millions of items sold just as we do all year long, we aim to make our customers lives easier and better every day and there is no time, where it's more important to us that we deliver on this mission.

Andy Jassy: We're also encouraged by the progress we're making in our newer initiatives, just to name a few. We're pleased with what we're seeing in Prime Video. Prime Video continues to be an integral part of the Prime Value Proposition, where it's often one of the top two drivers of customers signing up for Prime. We also have increasing conviction that Prime Video can be a large and profitable business, and its own right as we continue to invest in compelling, exclusive content for Prime Members, but also offer the best selection of premium streaming video content anywhere, with our marketplace offering including channels where customers can subscribe to channels like Max, Paramount Plus, BET Plus, and MGM Plus, as well as our broad transaction video on demand selection.

And during the busy holiday shopping season with that I'll turn it over to Brian. Thanks.

Thanks, Andy.

Overall, we saw strong performance in the third quarter.

Worldwide revenue was $143 $1 billion, representing an increase of 11% year over year, excluding the impact of foreign exchange and approximately $100 million above the top end of our guidance range.

Andy Jassy: As we continue to invest in compelling content, getting in early 2024, Prime Video shows and movies will include limited advertisements. We aim to have meaningful fewer ads than linear TV and other streaming TV providers, and if customers prefer an ad-free option, we plan to offer that for an additional $2.99 per month for U.S, members.

It's our highest quarterly worldwide operating income ever which was $11 $2 billion for the quarter, an increase of $8 $7 billion year over year from $2 7 billion above the high end of our guidance range.

North America revenue was $87 $9 billion, an increase of 11% year over year and international revenue was $32 1 billion, an increase of 11% year over year, excluding foreign exchange.

Andy Jassy: There's still a lot of work to be done in innovation ahead, but we're excited about our future in Prime Video.

Andy Jassy: We're seeing progress on a number of our investments that expand our ability to serve more consumers and sellers in their e-commerce missions. Our emerging international stores continue to improve their customer experiences and profitability, and are a strong trajectory. Both consumers and sellers are excited about buy with Prime, which enables third-party sellers with direct-to-consumer websites to offer Amazon Prime members the same fast payments and delivery options they receive on Amazon.com. We recently announced the capability for sellers to integrate buy with Prime with their Shopify account, making it easier for Shopify merchants to manage their businesses with inventory pricing and promotions automatically synced in one place.

During the quarter, we held our biggest prime day than ever with prime members purchasing more than 375 million items worldwide and saving more than $2.5 billion.

<unk> of deals across the Amazon store.

Outside of Prime day, we've continued to see strong demand across everyday essentials, including categories like beauty and health and personal care.

From a customer behavior standpoint, we still see customers remaining cautious about price trading down where they can and seeking out deals coupled with lower spending on discretionary items.

Building on the momentum from last quarter, we set another record for delivery speed.

Andy Jassy: And we're seeing very positive early response from sellers to supply chain by Amazon, a fully automated set of supply chain services where Amazon can pick up inventory from manufacturing facilities around the world, ship it across borders, handle customs clearance and ground transportation, store inventory and bulk, manage replenishment across Amazon and other sales channels, and deliver directly to customers all without sellers having to worry about managing their supply chain.

For the year to date period through the third quarter, we have delivered the fastest speeds ever in the United States.

These improvements in delivery speeds have been a key driver of growth and a resulting in increased purchase frequency by our prime members.

Third party sellers grew at 18% year over year, excluding foreign exchange, primarily driven by selection expansion and growing adoption of our optional services for sellers, including fulfillment by Amazon and paid account management and more.

Andy Jassy: Our healthcare team is continuing to make healthcare easier for people to access. The Amazon pharmacy customer experience has significantly evolved this year, and customers are responding that both in their purchasing behavior and qualitative feedback. We build RxPass for customers to get unlimited supply of eligible medications for $5 per month, meaningfully reduce the cost for customers to get insulin and diabetes products, and partner with Blue Shield of California to offer a first-of-its-kind model to provide more affordable pharmacy care to its 4.8 million members, providing fast and free delivery of prescription medications and 24-7 access to pharmacists. We remain convinced that we can be part of the solution in making healthcare a better customer experience.

During the quarter, we hosted Amazon accelerate our annual seller conference, where we launched a number of new innovations and product developments for our sellers, including supply chain by Amazon.

Also continue to see durable growth in advertising, which grew 25% year over year, excluding foreign exchange.

Primarily driven by sponsored products as we lean into machine learning to improve the relevancy of the ads, we show our customers and enhance our measurement capabilities on behalf of advertisers we've.

We've seen strong improvement in our profitability.

North America operating income was $4 $3 billion, an increase of $4 $7 billion year over year, resulting in an operating margin of four 9%.

Andy Jassy: And our low-earth orbit satellite initiative Project Kuiper, which aims to bring fast, affordable broadband to underserved communities around the world, took a meaningful step forward in the last few weeks with the successful launch of two prototype satellites. We will use this multi-month mission to test our satellites and network from space and collect data ahead of the planned start of satellite production later this year.

Up 100 basis points quarter over quarter.

Since North America operating margins bottomed out in Q1 of 2022, we have now seen six consecutive quarters of improvement, resulting in a cumulative improvement of over 700 basis points over these past six quarters.

The third quarter marked our second full quarter of regionalization within the U S and we're pleased with the early results.

Andy Jassy: I'd like to close by thanking our teams around the world for gearing up for two of our most significant events across the company.

Andy Jassy: First, our annual AWS re-invent conference that begins on November 27th. The team is excited to share a lot of new capabilities with customers, provide an array of opportunities for builders to learn and connect with one another. And on the source side, we've already kicked off what will be our 29th holiday shopping season. Prime big deal days held earlier this month was our most successful October holiday kickoff event ever. With prime members saving more than a billion dollars across hundreds and millions of items sold.

Regionalization has allowed us to simplify the network by reducing the number of line haul lanes, increasing volume within existing line haul lanes and adding more direct fulfillment center to delivery station connections.

We have also been focused on optimizing inventory placement and a new regionalized network.

Which when coupled with the simplification mentioned earlier is helping contribute to an overall reduction in cost to serve.

Additionally, in the quarter, we saw benefits from lower inflation, primarily within line haul Ocean and rail shipping rates, which were partially offset by higher fuel prices.

Andy Jassy: Just as we do all year long, we aim to make our customers lives easier and better every day. And there's no time where it's more important to us that we deliver on this mission and during the busy holiday shopping season.

While we are encouraged by the improvements in operating profit, we still see a lot of opportunity in front of us.

Brian Olsavsky: With that, I'll turn it over to Brian. Thanks, Andy. Overall, we saw strong performance in the third quarter. Worldwide revenue was $143.1 billion, representing an increase of 11% year-over-year excluding the impact of foreign exchange and approximately $100 million above the top end of our guidance range. This is our highest quarterly worldwide operating income ever, which was $11.2 billion for the quarter, an increase of $8.7 billion year-over-year and $2.7 billion above the high end of our guidance range.

In international we were closer to breakeven during the quarter with an operating loss of $95 million.

Was an improvement of $2 $4 billion year over year. This.

This improvement was primarily driven by lowering our cost to serve through higher productivity decreased inflationary pressures and improvements and leverage across our established and emerging international countries. As we continue to focus on customer inputs and improve efficiencies within our operations.

Going to AWS revenues were $23 $1 billion, an increase of 12% year over year.

Brian Olsavsky: North America revenue was $87.9 billion and increased 11% year-over-year. An international revenue was $32.1 billion and increased 11% year-over-year excluding foreign exchange. During the quarter, we held our biggest prime day event ever with prime members purchasing more than 375 million items worldwide and saving more than $2.5 billion on millions of deals across the Amazon store. Outside of prime day, we continue to see strong demand across everyday essentials, including categories like beauty and health and personal care.

On a quarter over quarter basis, we added more than $900 million of revenue in AWS as customers are continuing to shift their focus towards driving innovation and bringing new workloads to the cloud.

<unk> will be shared last quarter, while optimization still remain a headwind we have seen the rate of new class optimization slowdown in AWS and we are encouraged by the strength of our customer pipeline.

Customers are excited about our approach degenerative AI with several new announcements made during the quarter, including a strategic collaboration with Entropic.

Brian Olsavsky: From a customer behavior standpoint, we still see customers remaining cautious about price, trading down where they can and seeking out deals, coupled with lower spending on discretionary items. Building on the momentum from last quarter, we set another record for delivery speed. For the year-to-day period to the third quarter, we have delivered at the fastest speeds ever in the United States. These improvements in delivery speeds have been a key driver of growth, and are resulting in increased purchase frequency by our prime numbers.

Opening Amazon bedrock up to general availability.

Adding matters Lama to model to bedrock in the near future.

And new customization capabilities of code Whisper.

AWS remains a clear cloud infrastructure leader with a significant leadership position in the number of customers the size of our partner ecosystem, our breadth of functionality and the strongest operational performance in the industry.

When we look at the fundamentals of the business. We believe we are in good position to drive future growth as the rates of cost optimization slowdown.

Brian Olsavsky: 3rd party sellers grew at 18% year of a year, excluding foreign exchange, primarily driven by selection expansion and growing adoption of our optional services for sellers, including fulfillment by Amazon and paid account management and more. During the quarter we hosted Amazon Accelerate, our annual seller conference, where we launched a number of new innovations and product developments for our sellers, including supply chain by Amazon. We also continue to see durable growth in advertising, which grew 25% year-to-year, excluding foreign exchange, primarily driven by sponsored products as we lean into machine learning to improve the relevancy of the ads we show our customers and enhance our measurement capabilities on behalf of advertisers.

AWS operating income was $7 billion, an increase of $1 $6 billion year over year.

Our operating margin for the quarter was 33%.

This is an improvement of approximately 600 basis points quarter over quarter, primarily driven by increased leverage on our head count costs.

Shifting to free cash flow on a trailing 12 month basis.

Free cash flow adjusted for finance leases was $20 $2 billion, an improvement of $41 $7 billion year over year.

The largest driver of the improvement in free cash flow is our increased operating income, which we're seeing across all three of our segments.

Key drivers of this improvement include reductions in our cost to serve continued advertising growth and improved leverage on our fixed costs. We're also seeing improvements in working capital, notably with our inventory efficiency as we improve our inventory placement.

Now, let's turn to our capital investments, we define our capital investments is a combination of Capex plus equipment finance leases is investments were $50 billion for the trailing 12 month period ended September 30th down from $60 billion in the comparable prior year period for the full year 2023, we expect <unk>.

Brian Olsavsky: The third quarter marked a second full quarter of regionalization within the U.S., and we're pleased with the early results. Regionalization has allowed us to simplify the network by reducing the number of line haul lanes, increasing volume within existing line haul lanes, and adding more direct fulfillment center to delivery station connections. We have also been focused on optimizing inventory placement in a new regionalized network, which when coupled with the simplification mentioned earlier is helping contribute to an overall reduction in cost to serve. Additionally, in the quarter we saw benefits from lower inflation, primarily within line haul, ocean, and rail shipping rates, which were partially offset by higher fuel prices.

Capital investments to be approximately $50 billion compared to $59 billion in 2022, we expect fulfillment and transportation capex to be down year over year, partially offset by increased infrastructure capex spur growth of our AWS business, including additional investments related to degenerative AI in large law.

<unk> model efforts.

As we head into the fourth quarter, we are ready to make this a great holiday season for our customers looking at our operations network. Our inventory is the best position, it's ever been heading into the holiday season, enabling us to serve customers with fast delivery speeds from their local regions. We continue to believe putting customers first is the only reliable way to create.

Lasting value for our shareholders with that let's move on to questions.

Brian Olsavsky: While we are encouraged by the improvements in operating profit, we still see a lot of the opportunity in front of us. In international, we were closer to break even during the quarter with an operating loss of $95 million. This was an improvement of $2.4 billion year-over-year. This improvement was primarily driven by lowering our cost to serve through higher productivity, decreased inflationary pressures, and improvements in leverage across our established and emerging international countries. As we continue to focus on customer inputs and improve efficiencies within our operations.

Thank you at this time, we will now open the call up for questions. We ask each caller to please limit yourself to one question. If you would like to ask a question. Please press star one on your telephone keypad, we ask that when you pose your question you pick up your handset to provide optimal sound quality once again to <unk>.

Initiate a question. Please press Star then one on your Touchtone telephone at this time.

These hold while we poll for questions. Thank you.

Brian Olsavsky: Moving to AWS, revenues were $23.1 billion in increase of 12% year-over-year. On a quarter-over-quarter basis, we added more than $900 million of revenue in AWS, as customers are continuing to shift their focus towards driving innovation and bringing new workloads to the cloud. Similar to what we shared last quarter, while optimizations through remain a headwind, we've seen the rate of new cost optimizations slow down in AWS, and we are encouraged by the strength of our customer pipeline.

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

Justin Your line is live.

Thanks for that I'll ask about AWS I.

I guess the first question is as you look forward in the fourth quarter. You mentioned you signed some new deals are you seeing less cost optimization as you look forward or do you think it would be similar to Q3, and then second you Couldnt help but notice the big margin improvement and AWS all the way back to where you were seven quarters ago could you talk about the drivers and sustainability.

Brian Olsavsky: Customers are excited about our approach to generative AI with several new announcements made during the quarter, including a strategic collaboration with Anthropic, opening Amazon bedrock up to general availability. Adding Meta's Lama-2 model to bedrock in the near future and new customization capabilities of code whisperer. AWS remains a clear, cloud infrastructure leader with a significant leadership position in the number of customers, the size of our partner ecosystem, our breadth of functionality and the strongest operational performance in the industry.

<unk> of those margins. Thank you.

Yes sure this is Andy.

Yes, I think.

If you look at AWS with grew 12% year over year.

Think that you saw continued stabilization.

Our year over year growth rate.

$919 million of incremental quarter over quarter revenue, which it's hard to compare and do the math across different players because not everyone.

Brian Olsavsky: When we look at the fundamentals of the business, we believe we are in good position to drive future growth at the rates of cost optimization slowdown. AWS operating income with $7 billion in increase of $1.6 billion every year, our operating margin for the quarter was 30.3%. This is an improvement of approximately 600 basis points quarter over quarter primarily driven by increased leverage on our headcount costs, shifting to free cash flow on a trailer 12 month basis free cash flow adjusted for finance leases was $20.2 billion in improvement of 41.7 billion dollars every year.

At disclosed then clearly there as far as we can tell that also looks like the most absolute growth players out there we're still seeing.

Elevated customer optimization.

Levels than we've seen in the last year.

A year before this I should say so if you look at the <unk>.

Optimization, it's more than a year ago.

But it's meaningfully attenuating from where we've seen the last few quarters.

And if you look at the optimization to what's interesting is it's not.

Not all customers.

Siding to shutdown workloads with very significant portion of the optimization our customers taking advantage of it.

Brian Olsavsky: The largest driver of the improvement in free cash flow is our increased operating income, which we are seeing across all three of our segments, key drivers of this improvement include reductions in our cost to serve, continued advertising growth, and improved leverage on our fixed costs. We're also seeing improvements from working capital, notably with our inventory efficiency as we improve our inventory placement.

Enhanced price performance capabilities in AWS.

And making use of it so for example.

If you look at the growth of customers using easy two instances that are graviton days, which is our generally our.

Our custom chip that we'd go for generalized Cpus.

Brian Olsavsky: Now let's turn to our capital investments.

Andy Jassy: We define our capital investments as a combination of the[inaudible] Yeah, just insure, this is Andy. You know, I think if you look at AWS, we grew 12% year-over-year, and I think that you saw a continued stabilization of our year-over-year growth rate. You know, it included $919 million incremental quarter of a quarter revenue, which it's hard to compare and do the math across different players because not everyone disclosed them clearly. As far as we can tell, that also looks like the most absolute growth of many players out there.

Number of people on the percentage of instances launched their graviton base as opposed to Intel or AMD phase.

Very substantially higher than it was before.

And one of the things that customers love about graviton is that it provides 40% better price performance and the other leading X 86.

Officers. So you see a lot of growth in Graviton, you also see a lot of customers who are moving from the.

The hourly on demand rates for significant portions of their workloads.

Two one to three year commitments, which we call savings plans and so those are just great. Examples of some of the cost optimization that customers are making less certain economies, where it's really good for customers short and long term and I think it's also good for us, but we're starting to see as I said, we're seeing that that optimization.

Attenuate I expect that to continue over time.

I remain very optimistic about AWS in the medium to long term and it's because we have the most functionality by large them now with <unk>.

Much larger partner ecosystem and Youll find elsewhere, we have stronger security and operational performance.

And you can find elsewhere.

We are the most customer focused even if you look during optimization times in this difficult economy customers have really noticed how AWS cleaned and with them for the long term and I think that matters to customers.

We have a $92 billion revenue run rate business.

90% of the global it spend still resides on premises and if you believe like we do that equation is going to flip.

He has a lot more of their for US and then you look at the <unk>.

Very substantial gigantic new generative AI opportunity, which I believe will be.

Tens of billions of dollars in revenue for AWS over the next several years.

I think we have a unique broad.

Broached, it's really resonating with customers and you can see it with.

With the array of customers I mentioned that are using us sorry.

Starting to build workloads for generate AI, who have already on top of us Hackett.

I can see it also just.

Growth rate for us in general AI is very fast again.

I've seen a lot of different numbers publicly it's a little hard to measure them apples to apples, but.

Our best estimates estimation.

Art.

The amount of growth, we're seeing in the absolute amount of generative AI business. We're seeing compares very favorably with anything else vaccine externally. So.

I think that you can.

Can see that in.

And the deals that we're doing to I spoke about the <unk>.

A significant number of deals that we've closed over the last couple of months a lot of those conversations.

A big piece of it is what I mentioned earlier the functionality of the ecosystem. The operational performance of security, how you take care of customers, but also whether or not they like your vision and a set of products that you are building in this brand new technology space generally, which I think has been very effective so far so.

Andy Jassy: We're still seeing elevated customer optimization levels than we've seen in the last year, or a year before this, I should say. So if you look at the optimization, it's more than a year ago, but it's meaningfully attenuating from where we've seen the last few quarters. And you know, if you look at the optimization too, what's interesting is it's not all customers deciding to shut down work well, the very significant portion of the optimization are customers taking advantage of enhanced price performance capabilities in AWS and making use of it.

To me I think there's a lot of growth in front of AWS I'm very optimistic about it.

And just on your comment about a question about AWS margins. So yes, the margin improved 600 basis points quarter over quarter.

An increase of op income of $1 6 billion quarter over quarter for AWS.

Driven by primarily by our head count reductions in Q2.

Andy Jassy: So for example, if you look at the growth of customers using EC2 instances that are graviton-based, which is our custom chip that we built for generalized CPUs, the number of people in the percentage of instances launched their graviton-based as opposed to Intel or AMD-based is very substantially higher than it was before. And one of the things that customers love about graviton is that it provides 40% better price performance than the other reading X86 processors.

And also continued slowness in hiring rehiring open positions.

Then also a lot of cost control and non people categories things like infrastructure costs and also discretionary costs.

Natural gas prices.

Their energy costs came down a bit in Q3 as well so.

As we've said historically that the margins on the operating margin for AWS is going to fluctuate quarter to quarter and this is a good example of that.

Andy Jassy: So you see a lot of growth in graviton. You also see a lot of customers who are moving from the hourly on demand rates for significant portions of their workloads to one to three year commitments, which we call savings plans. So those are just good examples of some of the cost optimization that customers are making in less certain economies where it's really good for customers short and long-term. And I think it's also good for us.

Our next question is from Doug Anmuth with J P. Morgan. Please proceed with your question.

Thanks, very much Peter.

Ill talk more about how the regional fulfillment network is exceeding your expectations and then also how does that support your confidence in moving North America beyond mid single digit margin levels and then just perhaps on generally the AI. Obviously a lot of innovation here you talked about a number of different customers running early workloads.

Andy Jassy: But we're starting to see, as I said, we're seeing that optimization attenuate. I expect that to continue over time. I remain very optimistic about AWS and the medium to long-term. And it's because we have the most functionality by large amount. We have a much larger partner ecosystem than you'll find elsewhere. We have stronger security and operational performance than you can find elsewhere. I think we're the most customer-focused even if you look during optimization times in this difficult economy, customers have really noticed how AWS leaned in with them for the long-term.

Should we think about the timing just to drive some tangible monetization there. Thank you.

Well I'll start.

On regionalization.

Yes.

It was such a significant change for us in the network, it's hard to really.

Appreciate what a big change across so many dimensions. It was that first to make such a change has all sorts of risk and I think the team did a great job planning around it being very thorough.

I think that we were able to.

We were able with our placement algorithms to get more regional local in stock.

Andy Jassy: And I think that matters to customers. And then, you know, we have a $92 billion revenue run rate business where 90% of the global IT spend still resides on premises. And if you believe like we do, that equation is going to flip. There's a lot more there for us. And then you look at the very substantial, gigantic new generative AI opportunity, which I believe will be tens of billions of dollars in revenue for AWS over the next several years, and I think we have a unique and broad approach that's really resonating with customers and you can see it with you know the array of customers I mentioned that are using us and start to build workloads for generator AI and you have already on top of us.

Levels than we anticipated.

Until you actually put all the connections together, we changed a lot of the connections from a lot of these middle connections going from fulfillment centers sortation centers, and then to delivery stations to connecting the fulfillment centers and delivery stations more directly which of course is easier to do when you have more local in stock in our region.

But I think that we were able the connections that we made in the optimization that we made there.

Allowed us to get.

Shorter transportation distances than we even anticipated and items to people a lot quicker.

And then always one of the issues you got to worry about when you make a change that big is whether or not you end up.

Andy Jassy: I could see it also just you know the growth rate for us in generator AI is very fast you know again I have seen a lot of different numbers publicly and it's a little hard to measure our map of staples but in our best estimate estimation art you know the amount of growth we're seeing and the absolute amount of generator AI business we're seeing compares very favorably with anything else I've seen externally so you know I think that you can see that in you know in the deals that we're doing too I spoke about the significant number of deals that we've closed over the last couple of months a lot of those conversations you know it's a big piece of it is what I mentioned. Earlier the functionality the ecosystem the operation performs the security how you take care of customers but also whether or not they like your vision and the set of products that you're building in this brand new technology space generator AI which I think has been very effective so far so you know to me I think there's a lot of growth in front of AWS I'm very optimistic about it.

Splitting shipments and having more fewer items for per box per shipment and that was also something that we.

We had to work through in the <unk>.

The design and in the early stages and we've gotten a lot better on so we're just across the board.

We're seeing shorter transportation distances and much faster delivery to customers and when you when you deliver faster delivery to customers. They actually start to consider you for a lot more items than they otherwise would I think it's part of what if you look at our <unk>.

Very significant growth rates right now in everyday essentials and consumables a lot of it is when you if you're going to order something that you need.

AME day or next day.

Youre not going to consider it if it's coming in three or four days, but when you are consistently getting in sub same day or the next stages changes what you are willing to do.

I think the second question was on.

Jan AI and the timing of the monetization.

Andy Jassy: In Justin on your comment about a question about AWS margin so yes the margin improved section or basis points quarter of recorder increase of up income of 1.6 billion quarter of recorder for AWS was driven by primarily by our headcount reductions in Q2 and also continued slowness and hiring rehiring open positions. There's been also a lot of cost control and non people categories things like infrastructure costs and also discretionary costs natural gas prices and other energy costs that came down a bit in Q3 as well so as we've said historically the margins on the operating margin for AWS is going to fluctuate quarter to quarter and this is a good example of that.

What I would tell you is that we have been surprised at the pace of growth in general.

Our generative AI business is growing very very quickly as I mentioned earlier.

Almost by any measure.

It's a pretty significant business for us and yet.

I would also say that.

Companies are still in the relatively early stages. I mean, you have to get perspective, my perspective is that the cloud is still in the early stages.

If you think about 90% plus.

Of the global it spend being on premises, where I think that equation is going to flip.

In 10 years I think cloud is early so with that Glen Zhan I still think we're very early in January with AI and what's interesting too around generative AI because we have so many companies who are doing all sorts of prototypes and it is really accelerating very rapidly.

Doug: Our next question is from Doug and with JP Morgan please proceed with your question. Thanks very much. Can you just talk more about how the regional fulfillment network is exceeding your expectations and then also how does that support your confidence in moving North America beyond mid single digit margin levels and then just perhaps on generative AI obviously a lot of innovation here you talk about a number of different customers running early workloads. How should we think about the timing just to drive some tangible monetization there. Thank you.

On the training side with with with trading them in and French and then on the application building and running side with bedrock is that companies are still trying to sort out for themselves.

What theyre going to run.

Large scale production.

All of these areas because what happens is you try and model your test model you'd like.

Results of the model and then you plug it into your application.

A lot of companies figure out quickly is that using the really large the large models in the large sizes ends up often being more expensive than what they anticipated.

Andy Jassy: Well I'll start the you know on regionalization you know I think it was such a significant change for us in the network it's hard to really appreciate what a big change across so many dimensions it was that you know first to make such a change has all sorts of risk and you know I think the team did a great job. Playing around it being very thorough. Yeah I think that we were able to we were able with our placement algorithms to get more regional local in stock levels, and then we anticipate it.

They want to spend on that application and sometimes too much latency and getting the answers is the shovels through the really large models.

So customers are experimenting with lots of different types of models and the different model sizes to get the costs in latency characteristics characteristics or they need for different use cases, it's one of the things that I think is so useful about bedrock is that customers are trying so many variance right now but to have a <unk>.

Andy Jassy: And then I think until you actually put all the connections together, we changed a lot of the connections from a lot of these middle connections going from fulfillment centers to sortation centers and then to delivery stations to connecting the fulfillment centers and delivery stations more directly, which of course is easier to do when you have more vocal in stock in a region. But I think that we were able, the connections that we made and the optimization that we made there allowed us to get shorter transportation distances than we even anticipated in items to people a lot quicker.

Service, they not only led to deleverage lots of third party.

Well as Amazon large language miles, but also lots of different sizes, and then makes the transition of moving those workloads easy between them is very advantageous.

Our next question is from Brian Nowak with Morgan Stanley. Please proceed with your question.

Thanks for taking my questions I have two.

Two one on AWS, one on the retail business.

AWS AI, Andy I recognize you have a pretty multi pronged AI approach, but just could you talk us through sort of one or two of the early genre of AI products, where you're seeing the most early demand and interest and as you talk to customers or there are still hurdles or pain points that youre not.

Andy Jassy: And then always one of the issues you've got to worry about when you make a change, that big is whether or not you end up splitting shipments and having more your fewer items per box and for shipment. And that was also something that we really had to work through in the design and in the early stages and we've gotten a lot better on. So we're just across the board, we're seeing shorter transportation distances and much faster delivery to customers.

Quite serving in your product suite, you look to solve and innovate on over the next couple of years in AI.

Andy Jassy: And when you when you deliver faster delivery to customers, they actually start to consider you for a lot more items and they otherwise would. I think it's part of what if you look at our very significant growth rates right now and everyday essentials and consumables. Because a lot of it is when you, you know, if you're going to order something that you need in the same day or next day, you're not going to consider it if it's coming in three or four days. But when you're consistently getting a sub-same day or the next day, it just changes what you're willing to do.

And then the second one you made a lot of steps on the regionalization of warehouses and making them more efficient where are you on robotics in the warehouses and how should we think about potential impact of that to drive profitability even higher.

Okay.

On the AI side.

And if you're looking for some of the products that we're offering that are that have a lot of early residents and traction.

I'd start with bedrock.

Customers are very excited about bedrock and it's making it so much easier to get applications generative AI applications built in.

And again it's.

Andy Jassy: I think the second question was on, was on Gen AI and in the timing of monetization. What I would tell you is that we have been surprised at the pace of growth in gender AI. Our gender AI business has grown very, very quickly as I mentioned earlier. And almost by any measure, it's pretty significant business for us right. And yet I would also say that companies are still in the relatively early stages.

Machine learning and AI has been something that people.

People have been excited about for 25 years in my opinion about a half dozen years ago. It took a pretty significantly forward.

Where it was much easier.

Yeah.

The economics, and scalability of compute and storage and then some of the tools that we felt like Sage maker. It was much easier for everyday developers to start to interact with AI.

But it just it took another meaningful step forward with generative AI, but still it's complicated to actually figure out which models you want to work, we want to use and how you actually want to employ them and trying to make sure you have the right results trying to make sure you get safe results trying to make sure you you end up with a cost.

Andy Jassy: I mean, now you have to get perspective. My perspective is that the cloud is still in the early stages. You know, if you think about 90% plus of the global IT spend being on premises where I think that equation is going to flip in 10 years. I think cloud is early. So if you, with that lens on, I still think we're very early in gender of AI. And what's interesting too around gender of AI because we've so many companies who are doing all sorts of prototypes.

Structure in.

And a customer experience.

You want and so.

It is hard and customers will like there is a certain number of customers who have.

Andy Jassy: And it's really accelerating very rapidly on the training side with, with, with training in in French and then on the application building and running side with bedrock. Is that companies are still trying to sort out for themselves what they're going to run at large scale production in all these areas. Because what happens is you, you try a model, you test a model, you like the results of the model, and then you plug it into your application.

Very deep AI expert practitioners, but most companies don't and so bedrock just takes so much difficulty out of those decisions in those.

Variables that people are very excited about bedrock, they're using in a very broad way theyre extremely excited about.

Not just the set of models in there, but if you look at.

A leader like anthropic.

And the ability for our customers and bedrock to have.

Crews have early access to models and customization tools and fine tuning, which gives them more control. There's just there's a lot of buzz and a lot of usage and a lot of traction around.

Andy Jassy: And what a lot of companies figure out quickly is that using the really large, the large models and the large sizes ends up often being more expensive than what they anticipated and what they want to spend on that application, and the answers to the shovels through the really large models. And so, customers are experimenting with lots of different types of models and then different model sizes to get the cost and latency characteristics that they need for different use cases.

Bedrock.

I would also say our chips.

Graham and your friendship.

As most people know there is a real shortage right now in the industry and chips is really hard to get the amount of Gpus that everybody wants.

And so it's just another reason why trading in France are so attractive to people they have better price performance characteristics and then the other options out there but also.

Andy Jassy: It's one of the things that I think is so useful about Bedrock is that customers are trying so many variants right now, but to have a service that not only lets you leverage lots of third-party and as well as Amazon, large language models, but also lots of different sizes and then makes the transition of moving those workloads easy between them is very advantageous.

The fact that you can get access to them and we've we've done.

I think a pretty good job providing.

Hi, there in the quarter and meaningfully in advance as well and so you're seeing.

<unk> large providers make big bets on those chips, I think anthropic deciding to train their future.

Brian Novak: Our next question is from Brian Novak with Morgan Stanley. Please proceed with your question. Thanks for taking my questions.

Auto on training them and using a French as well.

Is really a statement and then you look at the really hot startup Perplexity got AI, who also just made a decision to do all their training and inference on top of training. Many branches. So those are two examples I'd say code whisper too.

Andy Jassy: I have two one on AWS, one on the retail business. On AWS AI, Andy, I recognize you have a pretty multi-pronged AI approach, but could you talk us through sort of one or two of the early gen of AI products where you're seeing the most early demand and interest? And as you talk to customers, are there still hurdles or pain points that you're not quite serving in your product suite you look to solve and innovate on over the next couple years in AI?

Again, it's just a game changer. If you can allow your engineers not to add to the.

The more repetitive work.

Cutting and pasting and.

Building certain functions that really if somebody knew your codebase better could do.

Andy Jassy: And then the second one, you've made a lot of steps on the regionalization of warehouses and making more efficient. Where are you on robotics in the warehouses and how should we think about potential impact for that to drive profitability even higher? On the AI side, I think that if you're looking for some of the products that we're offering that have a lot of early resonance and traction, I'd start with bedrock. Just customers, they're very excited about bedrock and it's making it so much easier to get applications, gendered AI applications built.

And so it's a real developed is the productivity game changer for developers and then actually launching that customization vehicles so that.

Actually understand your own proprietary code base that is something that customers are quite excited about so those are all to me.

Early.

Traction.

Yes, there is so much more to provide Brian.

I think people, even though bedrock is incredibly is so much easier to use and people trying to build models themselves and build the applications. I think people are still looking to find ways.

To make it easier to come to <unk>.

Look at a big Corpus of data and have run an agent on top of it or maybe they don't have to do all that work themselves. I think people are looking for automated ways to understand.

Andy Jassy: And again, machine learning and AI has been something that people have been excited about for 25 years. My opinion about a half dozen years ago, it took a pretty significant leap forward where it was much easier given the economics and skill abilities, computing storage and some of the tools that we built like SageMaker. It was much easier for everyday developers to start to interact with AI. But it took another meaningful step forward with gendered AI, but still it's complicated to actually figure out which models you want to work, we want to use and how you actually want to employ them and try to make sure you have the right results, trying to make sure you get safe results, trying to make sure you end up with a cost structure and a customer experience that you want.

Different developer environments and be able to ask any question to redevelop our women's isn't there's a lot more it's gonna be a long time before.

Before we run out of services I think it's a good thing to look toward the next few months and reinvent see the additional things that team launches.

On the robotics piece.

It's a very significant investment for us it has been for several years.

It's made a huge difference for us.

It's made a big difference for us both on the productivity side on the cost side as well as importantly on the safety side, where we can have our.

Our teammates working on things.

Or even safer than what they get to work on today, we have a very substantial investment of additional robotics initiatives I would say many of which are coming to fruition.

Andy Jassy: And so it's hard and customers will like, there's a certain number of customers who have very deep AI expert practitioners, but most companies don't. And so, bedrock just takes so much of the difficulty out of those decisions and those variables that people are very excited about bedrock. They're using it in a very broad way. They're extremely excited about not just the set of models in there, but if you look at a leader like anthropic and the ability for our customers and bedrock to have exclusive early access to models and customization tools and fine tuning, which gives them more control.

<unk> 24, and 25 2024, and 2025 that we think will make a further additional impact.

On the cost and productivity and safety in our fulfillment centers.

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

Thanks, So much for taking my questions, maybe one follow up on AWS and one on the ads business.

Would love your perspective.

The cloud optimization theme started in the second half of 'twenty two when there were a lot of macro concerns and then the AI seem really only sort of came to the forefront in the last eight or nine months, what's your perspective on how turning the calendar into 2024, and there being a new IP budget cycle could possibly lead us to put the <unk>.

Andy Jassy: There's just there's a lot of buzz and a lot of usage and a lot of traction around bedrock. I would also say our chips, you know, training and inferential. Most people know there's a real shortage right now in the industry and chips. It's really hard to get the amount of GPUs that everybody wants, and so it's just another reason why training and inferentials are so attractive to people. They have better price performance characteristics than the other options out there, but also the fact that you can get access to them.

Optimization theme in the background and some of the AI team.

More to the forefront when there might be more distinct budgeting around AI as the team that'd be number one and then in your ads business Youre approaching $50 billion run rate and its compounding in the mid twenties. What are you. Most excited about on the initiative front to continue to build scale both on Amazon properties.

Possibly off Amazon as a broader digital advertising player. Thanks, so much.

Andy Jassy: We've done a pretty good job providing supply there and ordering meaningfully in advance as well, and so you're seeing very large LLM providers make big bets on those chips. I think anthropic deciding to train their future LLM models on trainium and using inferentials as well is really a statement. And then you look at, you know, the really hot startup perplexi.ai, who also just made decision to do all their training and inference on top of training and inferentials.

Yeah.

On the AWS side.

Mike My perspective.

Well, obviously, all have to wait and see to some extent, but my perspective is that 2024.

Youre going to I think a lot of the.

Relatively low hanging fruit on optimization has happened in 2023, it's not to say there won't be any more optimization, it's just that.

There was there's more low hanging fruit when you have very large footprints.

Andy Jassy: So those are two examples. I take code whisperer to, you know, it's just again, it's just a game changer. If you can allow your engineers not to have to do the more repetitive work of cutting and pasting and building certain functions that really if somebody knew your code base better could do. And so it's a real developed, it's a productivity game changer for developers, and then actually launching that customization vehicle so that they actually understand your own proprietary code base. That is something that customers are quite excited about. So those are all to me early traction.

Built a lot of applications on our platform.

For you to go to site to optimize if that's what you want to go do and so I think 2020, we're seeing it now with the attenuation of optimization over the last several months, but I think youll continue to see that attenuation continue and we're already seeing more and more companies that are turning their attention to newer initiatives.

And I think what you will see in 'twenty, four and 'twenty five as well I think I don't think I don't think its a one year deal I think there's going to be a several year.

Our trajectory is that you're going to just see a lot of.

Andy Jassy: There's so much more to provide Brian. I mean, I think people, you know, even though bedrock is incredible, it is so much easier to use than people trying to build models themselves and build the applications. I think people are still looking to find ways to make it easier to look at a big corpus of data and run an agent on top of it, or maybe they don't have to do all that work themselves.

Companies not just looking at the new generative AI workloads, but also there was a significant number of new customer transformations, where companies are going to largely moved from being on premises to being in the cloud that got stalled in 2023, because companies were being more conservative with their spend.

Where you have an uncertain economy, and so I think what youll see increasingly is that companies will both go back to those transformations they were planning on making.

Andy Jassy: I think people are looking for automated ways to understand, you know, different developer environments and be able to ask any question or developer environment. This is a lot more. It's going to be a long time before we run out of services.

Working with.

With a lot of systems integrator partners as well as ourselves as well as.

Start to.

Andy Jassy: I think it's a good thing to look toward the next few months and reinvent to see the additional things that team launches. I think on the robotics piece, it's a very significant investment for us. It has been for several years. It's made a huge difference for us. It's made a big difference for us both on the productivity side on the cost side as well as importantly on the safety side where we can have our teammates. [inaudible] Workman things that are even safer than what they get to work on today. We have a very substantial investment of additional robotics initiatives.

To see the production in large scale of the generative AI applications that they are all working on a prototyping and starting to deploy into production.

I think on the AD front.

Well, there's a lot I am excited about <unk>.

Side as well.

It's interesting what's happening in our ads business as if you look around the industry. Most advertising heavy companies have struggled growth wise is the economy.

Been difficult in.

While we see.

Companies being more cautious on the AD side and the top of funnel products things like display and a little bit of video, we're still seeing a lot of strength in the <unk>.

Eric Sheridan: I would say many of which are coming to fruition in 24 and 25, 2024 and 2025 that we think will make a further additional impact on the cost and productivity and safety in our firms. Our next question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed with your question. Thanks so much for taking the questions. Maybe one follow up on AWS and one on the ads business. And you would love your perspective, you know, the cloud optimization theme started in the second half of 22 when there were a lot of macro concerns.

Lower funnel AD products like sponsored products.

In these types of economies.

We have fared pretty well.

In part because we have a number of owned and operated properties that have very large volumes that advertisers and brands, we want to get product.

Even in a harder economy.

Eric Sheridan: And then the AI theme really only sort of came to the forefront in the last eight or nine months. What's your perspective on how turning the calendar into 2024 and there being a new IT budget cycle? Could possibly lead us to put the optimization theme in the background and some of the AI theme to come more to the forefront when there might be more distinct budgeting around AI as a theme. That'd be number one.

A lot of e-commerce purchasing and so people want to be in front of our customers and our marketplace, where you can.

Take Thursday night football, which is.

Our second season of Thursday football and off to a great start the ratings are 25% higher than they were a year ago through six weeks.

But also we're doing much better on the advertising side than we did in our first year and Thats a property and it's really valuable. It's the one game that week and advertisers want to be in front of customers, because there's 13 million customers.

Eric Sheridan: And then in your ads business, you're approaching $50 billion run rate and it's compounding in the mid 20s. What are you most excited about on the initiative front to continue to build scale both on Amazon properties and possibly off Amazon as a broader digital advertising player? Thanks so much.

Weak watching so I think part of it is because we have owned and operated properties that have a lot of volume and then I think the other piece is that.

Most of our resource in the advertising side is spent on machine learning expert practitioners, who are honing algorithms to make sure that the sponsor results people get when they search on something are relevant and because of that those ads perform better for advertisers. So when they have to think about budget decisions, they're going to choose.

Andy Jassy: On the AWS side, you know, my perspective, you know, we'll obviously all have to wait and see, to some extent, but my perspective is that in 2024, you're going to I think I think a lot of the relatively low hanging fruit on optimization has happened in 2023. It's not to say there won't be any more optimization. It's just that there was, you know, there's more low hanging fruit when you have very large footprints and you've built a lot of applications on a platform for you to go decide to optimize.

The ones that have large volume and perform better.

Both of those.

A real advantages in our advertising area right now.

Terms of additional things we're excited about I think that we have.

Barely scraped the surface with respect to figuring out how to intelligently integrate advertising into video and audio and into groceries. So I think we're early days in that.

Andy Jassy: That's what you want to go do. And so I think 2020, we're seeing it now with the attenuation of optimization over the last several months, but I think you'll continue to see the attenuation continue. And we're already seeing more and more companies that are turning their attention to newer initiatives. And I think what you will see in 24 and 25 is what I think I don't think we're, I don't think it's a one year deal.

I think that we also started.

Externalizing some of our products like <unk> like sponsored products to third party websites.

You see that with what we've done with Pinterest, and Hearst newspapers, and Buzzfeed and so.

I think there's again, we're still pretty early in that area.

Andy Jassy: I think there's going to be a several year trajectory is that you're going to just see a lot of companies not just looking at the new generative AI workloads. But also there was a significant number of new customer transformations where companies were going to largely move from being on premises to being in the cloud. That got stalled in 2023 because companies were being more conservative with their spend and you know, wary of an uncertain economy.

But it is growing well and we're very focused on continuing to make it a great customer experience.

And our final question comes from the line of Mark Mahaney with Evercore ISI. Please proceed with your question.

Okay.

Ws deals Andy that you talked about in the September quarter was there something different about those deals different industry different verticals different geographic markets or is it just kind of.

Kind of a resumption of kind of kind of a kind of a deal flow that you've had in years past. So that's the first question and secondly.

Andy Jassy: And so I think that what you'll see increasingly is that companies will both go back to those transformations. They were playing on making, you know, working with, you know, with a lot of systems integrative partners as well as ourselves, as well as start, to see the production and large scale of the gender of AI applications that they're all working on and prototyping and starting to deploy into production.

Ryan International is it international finally at a point, where it can be sustainably profitable going forward, maybe except for the <unk>.

Seasonally challenged March quarter have you wrung out enough efficiencies and gotten enough scales in the oldest markets there are big enough and scalable enough and profitable enough that it offsets the newer countries have you finally reached that point. Thanks.

Andy Jassy: I think on the ad front, well, there's a lot I'm excited about on the ad side as well. I think that it's interesting what's happening in our ads business as, you know, if you look around the industry, most advertising heavy companies have struggled growth wise. As the economy has been difficult. And you know, while we see companies being more cautious on the ad side and the top of funnel products, you know, things like display and a little bit of video, we're still seeing a lot of strength in the lower funnel ad products, like sponsored products.

First just to give Andy a break.

On international Thanks for your question Yeah.

Quarter was.

Just short of breakeven and.

As he pointed out that the departure from kind of.

Prior trends I was to answer that question this way.

Multiple things going on internationally.

And our established countries, UK, Germany, Japan and France.

Countries are profitable and have been profitable.

And we continue to work on price selection and convenience and all of that retail basics, essentially you know adding sellers.

Andy Jassy: And, you know, I think in these types of economies, we have fared pretty well. In part because we have a number of own and operated properties that have, you know, very large volumes that advertise some brands want to get in front of. You know, we, even in a harder economy, there's going to be a lot of e-commerce purchasing. You know, and so people want to be in front of our customers in our marketplace or they take Thursday night football, which is, you know, we're in our second season if Thursday night football.

Adding vendors and selection.

Scaling advertising and improving the cost structure of our ops network. So many of the ops productivity initiatives.

Probably with the exception of regionalization as more of a U S item right now but.

We're working on all those productivity elements and speed concurrently globally, and you'll see you're seeing that internationally and customers are responding on the emerging side.

Over the last six years, we've launched 10 new countries.

History has shown us that those all take time to.

Andy Jassy: And, you know, after a great start, the ratings are 25% higher than they were a year ago through six weeks. But also we're doing much better on the advertising side than we did in our first year. And that's a property that's really valuable. It's the one game that week. And advertisers want to be in front of customers because, you know, there's 13 million customers, you know, a week watching. So, I think part of it is because we have own and operated properties that have a lot of volume.

Growing the profitability of the U S took 10 years nine years, originally and Theyre all on their own.

Right.

Journey, there with profit to growth and scale and profitability and selection of a number of other variables. So that's.

Those are all going well as well we continue we're going to continue to invest internationally in things like prime and expanding prime benefits.

We're going to continue to build out the fulfillment and transportation networks to better serve customers. So I can't say it's permanently.

Andy Jassy: And then I think the other piece is that most of our resource in the advertising side is spent on machine learning expert practitioners who are honing algorithms to make sure that the sponsor results people get when they search on something are relevant. And because of that, those ads perform better for advertisers. So when they have to think about budget decisions, they're going to choose the ones that have large volume and perform better. I think both of those are real advantages in our advertising area right now.

Reached breakeven.

Breakeven threshold for profitability I think the trend lines are clear, though and we will continue to work on.

Are you accelerating that journey and in all countries, especially the merchant months.

On the AWS deals.

It's a.

It's a really broad mix of industries and geographies. So it's not comped up in one.

Some of them are kind of first first really big deals from customers. Some of them are very large expansions of existing agreements.

Andy Jassy: You know, in terms of additional things we're excited about, I think that we have barely scraped the surface with respect to figuring out how to intelligently integrate advertising into video, into audio, and into grocery. So I think we're early days in that. I think that we also started externalizing some of our products like sponsored products to third party websites and you see that with what we've done with Pinterest and burst newspapers and Buzzfeed. So I think this again, we're still pretty early in that area, but it's grown well and we're very focused on continuing to make it a great customer experience.

Gone from.

Call it 20% of their workloads to 50% of their workloads moving to AWS in the cloud.

It's also not.

I, even really including in that number or a number of really big public sector deals that we've done over the last.

Chunk of time that won't hit for a period of time and so all of these deals done here in a month they happen over a period of time as you help those customers.

Safely transition and migrate their workloads to AWS, but.

It hasnt been any one piece and I wish I could tell you.

We knew exactly why.

Mark Mahaney: And our final question comes from the line of Mark Mahaney with Evercore ISI. Please proceed with your question. Okay. On those AWS deals, Annie, that you talked about in the September quarter, was there something different about those deals, different industry, different verticals, different geographic markets, or is it just kind of a resumption of kind of the kind of the deal flow that you've had in years past. So that's the first question.

Starting to happen happened in faster numbers I do think in general.

Eric Lee.

Deal volume tends to be lumpy and it doesn't it doesn't perfectly.

Distribute over a calendar year I do think though that.

We've seen this in 'twenty three for sure that.

Yes.

The time to close deals lengthened.

And I think it's all reflective of what most companies in the world have been thinking about the last year, which is in the face of uncertain economy.

Mark Mahaney: And secondly, Brian, is it international finally at a point where it can be sustainably profitable going forward, maybe except for the seasonally challenged March quarter? Have you run out enough efficiencies in gotten enough scales and the oldest markets there are big enough and scalable enough and profitable enough that it offsets the newer countries? Have you finally reached that point? Thanks. , Perse, Steve Andy Brake, Uninternational, thanks for your question. Yeah, quarter was just sort of Brake even, and as you point out, as a departure from kind of prior friends, I would answer that question this way, you know, multiple things going on internationally, in our established countries, UK, Germany, Japan, France, those countries are profitable and have been profitable and we continue to work on price selection and convenience and all that retail basics essentially, you know, adding sellers, adding vendors and selection, scaling advertising and improving the cost structure of our ops network.

Youre going to be more conservative they're going to be more people involved you're going to spend more time on how you can save on on your existing cost instead of.

Migrating new workloads or thinking about signing new deals.

And so I think.

What youre just starting to see along with some of the optimization attenuation is that companies are starting to go forward again and so we've just seen a collection of those the last couple of months.

It had been being discussed for several months, where I think frankly, both sides thought they would close faster, but just went slower than they did so I just think youre starting to see companies look forward more.

Thank you for joining us for joining us today for 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.

Ladies and gentlemen that does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

[music].

Yeah.

Mark Mahaney: So many of the ops productivity initiatives, productivity, section of regionalization is more of a US item right now, but you know, working on all those productivity elements and speed concurrently globally, and you're seeing that internationally and customers are responding. On the emerging side, in the last six years we've launched 10 new countries, history has shown us that those all take time to grow into profitability, the US took 10 years, nine years originally, and they're all in their own journey there with profit to growth and scale and profitability and selection and a number of other variables.

Okay.

Uh huh.

[music].

Mark Mahaney: So that's, those are all going well as well. You know, we continue, we're going to continue to invest internationally in things like prime and expanding prime benefits, and we're going to continue to build out the fulfillment and transportation networks to better serve customers. So I can't say it's permanently re-vege to break even threshold for profitability. I think the trend lines are clear though, and we'll continue to work on, you know, accelerating that journey in all countries, especially the emerging ones.

Mark Mahaney: On the AWS deals, it's a really broad mix of industries and geography, so it's not, you know, clumped up in one. Some are kind of first, first, really big deal from customers, some are very large expansions of existing agreements where they've gone from, call it 20% of their workloads to 50% of their workloads moving data, the US and the cloud. You know, it's also, I'm not even really including in that number, a number of really big public sector deals that we've done over the last chunk of time that won't hit for a period of time.

Mark Mahaney: And so, you know, deals don't hit in a month. They happen over a period of time as you help those customers safely transition and migrate their workloads to AWS, but it hasn't been any one piece. And I wish I could tell you, we knew exactly why they're starting to happen and happen in faster numbers. I do think in general, historically, deal volume tends to be lumpy and it doesn't, you know, it doesn't hit in a year.

Mark Mahaney: I do think, though, that we've seen this in 23 for sure, or the time to close deals lengthened. And I think it's all reflective of what most companies in the world have been thinking about the last year, which is just in the face of uncertain economy. You're going to be more conservative, they're going to be more people involved, you're going to spend more time on how you can save on your existing costs instead of migrating new workloads or thinking about signing new deals.

Mark Mahaney: And so I think what you're just starting to see along with some of the optimization attenuation is that companies are starting to look forward again. And so we've just seen a collection of those the last couple months that had been being discussed for several months where I think frankly both sides thought they were closed faster, but just went slower than they did. So I just think you're starting to see companies look forward more.

Operator: Thank you for joining us today for the call and for your questions. The 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. Ladies and gentlemen, that does include today's teleconference. You may disconnect your lines at this time. Thank you for your participation. .

Q3 2023 Amazon.com Inc Earnings Call

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