Q1 2024 Amazon.com Inc Earnings Call

Operator: Thank you for standing by. Good day, everyone, and welcome to the Amazon.com first quarter 2024 financial results teleconference. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Today's call is being recorded, and for opening remarks, I will be turning the call over to the Vice President of Investor Relations, Mr. Dave Fildes. Please go ahead.

Thank you for standing by good day, everyone and welcome to the amazon.comfirst quarter 2024 financial results teleconference. At this time all participants are in a listen only mode. After the presentation. We will conduct a question and answer session. Today's call is being recorded and for opening remarks, I'll be turning the call over to the Vice President.

<unk> of Investor Relations Mr. Dave Files. Please go ahead.

Dave Fildes: Hello, and welcome to our Q1 2024 financial results conference call. Joining us today to answer your questions is Andy Jassy, our CEO, and Brian Olsavsky, our CFO.

Dave Fildes: Hello, and welcome to our Q1 2024 financial results Conference call.

Dave Fildes: Joining us today to answer your question, just Andy Jaffe, our CEO and Brian <unk> our CFO.

Dave Fildes: 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 2023. Our comments and responses to your questions reflect management's views as of today, April 30, 2024 only, and will include forward-looking statements. However, actual results may differ materially.

Dave Fildes: 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 2023.

Dave Fildes: Comments and responses to your questions reflect management's views as of today April 32024, only and will include forward looking statements 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.

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.

Dave Fildes: This call, we may discuss certain non-GAAP financial measures.

Dave Fildes: 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.

Dave Fildes: 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, 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.

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

Dave Fildes: Our results are inherently unpredictable and maybe 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.

Dave Fildes: <unk> 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.

Dave Fildes: 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.

Dave Fildes: Our guidance assumes among other things that we don't conclude any additional business acquisitions restructurings or legal settlements.

Dave Fildes: It's not possible to accurately predict demand for our goods and services and therefore, our actual results could differ materially from our guidance.

Dave Fildes: And now I'll turn the call over to Andy.

Andrew R. Jassy: Thanks Dave. Today we're reporting $143.3 billion in revenue, up 13% year-over-year excluding the impact of foreign exchange rates, $15.3 billion in operating income, up 221% year-over-year, or $10.5 billion, and $48.8 billion in trailing 12-month free cash flow adjusted for equipment finance leases, up $53.2 billion year-over-year. We remain focused on driving better experiences for our customers while also delivering efficiency improvements.

Andrew R. Jassy: Today, we're reporting $143 3 billion in revenue up 13% year over year, excluding the impact from foreign exchange rates 15.3 billion and operating income of 221% year over year or $10 5 billion and $48 8 billion in trailing 12 month free cash flow adjusted for equipment finance.

Andrew R. Jassy: Leases of $53 2 billion year over year.

Andrew R. Jassy: We remain focused on driving better experiences for our customers. While also delivering efficiency improvements or financial results are an encouraging reminder of the progress we're making.

Andrew R. Jassy: Starting with our stores business, despite having hundreds of millions of items and the broadest selection available, we remain intensely focused on adding even more selection. One way is to continue adding brands we know our customers want. For instance, in the U.S., we recently welcomed Clinique and two Gen Z fashion favorites, Parade and Cider, and announced a collaboration with Hardly Ever Worn It in Europe to offer customers pre-owned items from luxury brands.

Andrew R. Jassy: Starting with our stores business, despite having hundreds of millions of items and the broadest selection available we remain intensely focused on adding even more selection.

Andrew R. Jassy: One way is to continue adding brands, we know our customers want for instance in the U S. We recently welcomed clinique and two Gen Z fashion favorites parade in cider and announced the collaboration with hardly ever worn it in Europe to offer customers pre owned items from luxury brands.

Andrew R. Jassy: Another way to drive selection is to make it easier for our third-party sellers to add their products to our store. We've recently launched a new generative AI tool that enables sellers to simply provide a URL to their own website, and we automatically create high-quality product detail pages on Amazon. Already, over 100,000 of our selling partners have used one or more of our Gen AI tools. We remain focused on making sure we're offering everyday low prices, which we know is even more important to our customers in this uncertain economic environment.

Andrew R. Jassy: Another way to drive selection is to make it easier for third party sellers to add their products to our store.

Andrew R. Jassy: We've recently launched a new generative AI tool that enables sellers to simply provide a your L to their own web site and we.

Andrew R. Jassy: We automatically create high quality product detail pages on Amazon.

Andrew R. Jassy: Already over 100000 of our selling partners have used one or more of our gen AI tools.

Andrew R. Jassy: We remain focused on making sure we're offering everyday low prices, which we know is even more important to our customers in this uncertain economic environment.

Andrew R. Jassy: As our results show, customers are shopping but remain cautious, trading down on price when they can, and seeking out deals. In Q1, we helped customers save with shopping events worldwide, including our first big spring sale in Canada and the U.S. We also held spring deal days in Europe and a Ramadan event in Egypt, Saudi Arabia, and the UAE.

Andrew R. Jassy: As a result show customers are shopping but remain cautious trading down on price when they can and seeking out deals in Q1, we help customers save was shopping events worldwide, including our first big spring sale in Canada and the U S. We also held spring deal days in Europe, and a Ramadan event in Egypt, Saudi Arabia, and the UAE.

Andrew R. Jassy: Delivery speed really matters to customers, and we've continued to get faster while improving our safety performance. In this past Q1, we delivered to Prime members at our fastest speeds ever. In March, across our top 60 largest U.S. metro areas, nearly 60% of Prime members' orders arrived the same or next day. And globally, in cities like Toronto, London, and Tokyo, about three out of four items were delivered the same or next day.

Andrew R. Jassy: Delivery speed really matters to customers and we've continued to get faster, while improving our safety performance.

Andrew R. Jassy: In this past Q1, we delivered the prime members that our fastest speeds ever.

Andrew R. Jassy: In March across our top 60 largest U S metro areas nearly 60% of Prime members orders arrived the same or next day and globally in cities like Toronto, London, and Tokyo about three out of four items were delivered the same or next day.

Andrew R. Jassy: Faster delivery times have another important effect. As we get items to customers this fast, customers choose Amazon to fulfill their shopping needs more frequently, and we can see the results in various areas, including how fast our everyday essentials business is growing and the continued increase in prime member purchase frequency and total spend with us. Over the past year, we've talked about how our regionalization efforts have helped lower our cost to serve.

Andrew R. Jassy: Faster delivery times have another important effect as we get items to customers. This fast customers choose Amazon to fulfill their shopping needs more frequently and we can see the results in various areas, including how fast are everyday essentials business is growing and the continued increase in prime member purchase frequency and total spend with us over.

Andrew R. Jassy: Over the past year, we've talked about how our regionalization efforts have helped to lower our cost to serve.

Andrew R. Jassy: We've continued to examine our fulfillment network for additional opportunities and are working on several areas where we believe we can lower costs even further, while also improving customer experience. One example of this is our work to increase the consolidation of units into fewer boxes. As we further optimize our network, we've seen an increase in the number of units delivered per box, an important driver for reducing our costs. When we're able to consolidate more units into a box, it results in fewer boxes and deliveries, a better customer experience, reduces our cost to serve, and lowers our carbon impact.

Andrew R. Jassy: We've continued to inspect our fulfillment network for additional opportunities and are working on several areas, where we believe we can lower cost even further while also improving customer experience blending.

Andrew R. Jassy: One example of this is our work to increase the consolidation of units into fewer boxes as we further optimize our network. We've seen an increase in the number of units delivered per box is an important driver for reducing our costs and we're able to consolidate more units into a box. It results in fewer boxes and deliveries are better customer experience reduce.

Andrew R. Jassy: Our cost to serve and lowers our carbon impact another prominent examples our efforts to revamp our U S inbound fulfillment architecture to allow for better inventory placement closer to our customers.

Andrew R. Jassy: Another prominent example is our efforts to revamp our U.S. inbound fulfillment architecture to allow for better inventory placement closer to our customers. This will be an iterative process throughout the year as we work with sellers and retail partners, and teams are making good progress on their plans. Advertising performance remained strong, with ad sales up 24% year-over-year, excluding the impact of foreign exchange.

Andrew R. Jassy: This will be an iterative process throughout the year as we work with sellers and retail partners and teams are making good progress on their plans.

Andrew R. Jassy: <unk> performance remained strong with AD sales up 24% year over year, excluding the impact of foreign exchange the strength in advertising was primarily driven by sponsored products supported by continued improvements in relevancy and measurement capabilities for advertisers, we still see significant opportunity ahead in our sponsored products as well as Arie.

Andrew R. Jassy: The strength in advertising was primarily driven by sponsored products, supported by continued improvements in relevancy and measurement capabilities for advertisers. We still see significant opportunity ahead in our sponsored products as well as areas where we're just getting started, like Prime Video Ads. Prime Video Ads offers brands values so we can better link the impact of streaming TV advertising to business outcomes, like product sales or subscription signups, whether the brands sell on Amazon or not.

Andrew R. Jassy: Is where we're just getting started like prime video ads.

Andrew R. Jassy: Prime video ads offers brands values, we can better lengthy impact of streaming television advertising to business outcomes like product sales or subscription sign ups, whether the brands sell on Amazon or not it's very early for streaming TV ads, but we're encouraged by the early response.

Andrew R. Jassy: It's very early for streaming TV ads, but we're encouraged by the early response. Moving to AWS, year-over-year revenue growth accelerated to 17.2% in Q1, up from 13.2% in Q4. However, it's useful to remember that year-over-year percentages are only relevant relative to the total base from which you start.

Andrew R. Jassy: Moving to AWS year over year revenue growth accelerated to 17, 2% in Q1 up from 13, 2% in Q4.

Andrew R. Jassy: It's useful to remember that year over year percentages are only relevant relative to the total base from what you start and given our much larger infrastructure cloud computing base at this growth rate, we see more absolute dollar growth again quarter over quarter in AWS and we can see elsewhere.

Andrew R. Jassy: And given our much larger infrastructure cloud computing base, at this growth rate, we see more absolute dollar growth again quarter-over-quarter in AWS than we can see elsewhere. We're seeing a few trends right now. First, companies have largely completed the lion's share of their cost optimization and turned their attention to newer initiatives. Before the pandemic, companies were marching to modernize their infrastructure, moving from on-premises infrastructure to the cloud to save money, innovate at a more rapid rate, and drive more developer productivity. The pandemic and uncertain economy that followed distracted from that momentum, but it's picking up again.

Andrew R. Jassy: We're seeing a few trends right now first companies of guards really completed the lion's share of their cost optimization and turn their attention to newer initiatives.

Andrew R. Jassy: Before the pandemic companies were marching to modernize their infrastructure moving from on premises infrastructure to the cloud to save money innovated, a more rapid rate and to drive more developer productivity dip.

Andrew R. Jassy: The pandemic and uncertain economy their fall distracted from that momentum, but it's taking up again.

Andrew R. Jassy: Companies are pursuing this relatively low-hanging fruit of modernizing their infrastructure, and with the broadest functionality by a fair bit, the deepest partner ecosystem, and the strongest security in operational performance, AWS continues to be their strong partner of choice. Our AWS customers are also quite excited about leveraging Gen AI to change their customer experiences and businesses. We see considerable momentum on the AI front, where we've accumulated a multi-billion dollar revenue run rate already. You've heard me talk about our approach before, and we continue to add capabilities in all three layers of the Gen AI stack.

Andrew R. Jassy: These are pursuing this relatively low hanging fruit of modernizing their infrastructure and with the broadest functionality by a fair bit deepest partner ecosystem is strong security operation performance AWS continues to be their strong partner of choice.

Andrew R. Jassy: Our AWS customers are also quite excited about leveraging gen AI to change the customer experiences and businesses, we see considerable momentum on the AI front, where we've accumulated a multibillion dollar revenue run rate already.

Andrew R. Jassy: You've heard me talk about our approach before and we continue to add capabilities that all three layers of the gen. A I stack at the bottom there which is for developers and companies building models themselves. We see excitement about our offerings. We have the broadest selection of Nvidia compute instances around the demand for our custom silicon training and French's Cui.

Andrew R. Jassy: At the bottom layer, which is for developers and companies building models themselves, we see excitement about our offerings. We have the broadest selection of NVIDIA compute instances around, but demand for our custom silicon, Trainium, and Inferentia is quite high given its favorable price-performance benefits relative to available alternatives. Larger quantities of our latest generation Trainium-2 are coming in the second half of 2024 and early 2025.

Andrew R. Jassy: Right, Hi, given its favorable price performance benefits relative to available alternatives.

Andrew R. Jassy: Larger quantities of our latest generation training them too is coming in the second half of 'twenty 'twenty four and early 2025.

Andrew R. Jassy: Companies are also starting to talk about the eye-opening results they're getting using SageMaker. Our managed end-to-end service has been a game-changer for developers in preparing their data for AI, managing experiments, training models faster, lowering inference latency, and improving developer productivity. For example, Perplexity AI trains models 40% faster in SageMaker. Workday reduces inference latency by 80% with SageMaker.

Andrew R. Jassy: Companies are also starting to talk about the eye opening results. They are getting using sage maker are managed end to end service. It's been a game changer for developers are preparing their data for AI managing experiments training models faster lowering inference latency and improving developer productivity.

Andrew R. Jassy: Perplexity AI trains models, 40% faster than stage maker workday reduces inference latency by 80% with Sage maker and Natwest reduces time to value for AI from 12 to 18 months to under seven months using Sage maker. This changes how challenging it is to build your own models and we see an increasing number of model builders standards.

Andrew R. Jassy: And NatWest reduces its time-to-value for AI from 12 to 18 months to under seven months using SageMaker. This changes how challenging it is to build your own models, and we see an increasing number of model builders standardizing on SageMaker. The middle layer of this stack is for developers and companies who prefer not to build models from scratch but rather seek to leverage an existing large-language model, or LLM, customize it with their own data, and have the easiest and best features available to deploy secure, high-quality, low-latency, cost-effective production Gen AI apps.

Andrew R. Jassy: Rising Unsay Jamaica.

Andrew R. Jassy: Middle layer of the stack is for developers and companies, who prefer not to build models from scratch, but rather seek to leverage an existing large language model or a L. M. Customize it with their own data had the easiest and best features available to deploy secure high quality low latency cost effective production Gen AI apps.

Andrew R. Jassy: This is why we built Amazon Bedrock, which not only has the broadest selection of LLMs available to customers but also unusually compelling model evaluation, retrieval, augmented generation, or RAG to expand models' knowledge base, guardrails to safeguard what questions applications will answer, agents to complete multi-step tasks, and fine-tuning to keep teaching and refining models. Bedrock already has tens of thousands of customers, including Adidas, New York In the last few months, Bedrock has added Anthropic's Cloud 3 models, the best performing models on the planet right now, Metaslama 3 models, Mistral's various models, Cohera's newest models, and new first-party Amazon Titan models. A week ago, Bedrock launched a series of other features, but perhaps most importantly, custom model import.

Andrew R. Jassy: This is why we built Amazon bedrock, which not only has the broadest selection of L. A that was available to customers, but also unusually compelling model evaluation retrieval augment a generation of rag to expand models knowledge base guardrails to safeguard what questions applications will answer agents to complete multistep tasks and fine tune.

Andrew R. Jassy: <unk> to keep teaching and refining models.

Andrew R. Jassy: Bedrock already has tens of thousands of customers, including Adidas, New York Stock Exchange, Pfizer Ryanair and Toyota.

Andrew R. Jassy: In the last few months bedrock added anthropic Claude three models the best performing models on the planet right now that Islam of three models mistrials various models coheres newest models and new first party Amazon tightened models, a week ago bedrock launch a series of other features but perhaps most importantly custom model import.

Andrew R. Jassy: Custom model import is a sneaky big launch as it satisfies a customer request we've heard frequently and that nobody has yet met. As more customers are using SageMaker to build their models, they're wanting to take advantage of all the bedrock features I mentioned earlier that make it so much easier to build high-quality production-grade Gen AI apps. Bedrock custom model import makes it simple to import models from SageMaker or elsewhere into Bedrock before deploying their application.

Andrew R. Jassy: Custom model important as a sneaky big launches of satisfies the customer requests we've heard frequently and that nobody has yet met.

Andrew R. Jassy: Is increasingly more customers are using sage maker to build their models, they're wanting to take advantage of all the bedrock features I mentioned earlier that make it so much easier to build high quality production grade Gen AI apps.

Andrew R. Jassy: Bedrock custom model import makes it simple to import models from sage maker or elsewhere into bed rock before deploying their application customers are excited about this and as more companies fine theyre employing a mix of custom built models, along with leveraging existing L. EMS. The prospect of these two linchpin services and Sage maker in bedrock working well.

Andrew R. Jassy: Customers are excited about this, and as more companies find they're employing a mix of custom-built models along with leveraging existing LLMs, the prospect of these two linchpin services in SageMaker and Bedrock working well together is quite appealing. At the top of the stack are the Gen AI applications being built. And today, we announce the general availability of Amazon Q, the most capable generative AI-powered assistant for software development and leveraging companies' internal data.

Andrew R. Jassy: Altogether is quite appealing.

Andrew R. Jassy: The top of the stack or the Gen AI applications being built and today, we announced the general availability of Amazon Q. The most capable generative AI powered assistant for software development and leveraging company's internal data.

Andrew R. Jassy: On the software development side, Q doesn't just generate code; it also tests code, debugs code in conflicts, and transforms code from one form to another. Today, developers can save months using Q to move from older versions of Java to newer, more secure, and capable ones. In the near future, Q will help developers transform their.NET code as well, helping them move from Windows to Linux.

Andrew R. Jassy: On the software development side Q doesn't just generate code. It also test codes to bugs coding conflicts and transforms code from one form to another today developers can save months using Q to move from older versions of Java to newer more secure and capable ones in the air.

Andrew R. Jassy: Your future Q will help developers transform their dot net code as well, helping them move from Windows to Linux Q also has a unique capability called agents, which can autonomy as we perform a range of tasks everything from implementing features documenting and refactoring code to performing software upgrades to.

Andrew R. Jassy: Q also has a unique capability called Agents, which can autonomously perform a range of tasks, everything from implementing features, documenting, and refactoring code to performing software upgrades. Developers can simply ask Amazon Q to implement an application feature, such as asking it to create an add to favorites feature in a social sharing app. And the agent will analyze their existing application code and generate a step-by-step implementation plan, including code changes across multiple files and suggested new functions. Developers can collaborate with the agent to review and iterate on the plan, and then the agent implements it, connecting multiple steps together and applying updates across multiple files, code blocks, and test suites.

Andrew R. Jassy: Developers can simply ask Amazon cute implement an application feature such as asking it to create and add to favorites feature in a social sharing app and the agent will analyze their existing application code and generate a step by step implementation claim including code changes across multiple files and suggested new functions developer.

Andrew R. Jassy: Developers can collaborate with the agent to review and iterate on the plan and then the agent implemented connecting multiple steps together and applying updates across multiple files cold box and test suites is quite handy.

Andrew R. Jassy: It's quite handy. On the internal data side, most companies have large troves of internally relevant data that resides in wikis, Internet pages, Salesforce, storage repositories like Amazon S3, and a bevy of other data stores and SaaS apps that are hard to access. It makes answering straightforward questions about company policies, products, business results, code, people, and many other topics hard and frustrating. Q makes this much simpler.

Andrew R. Jassy: On the internal data side, most companies have large shows and internally relevant data that resides in wikis Internet pages sales for storage repositories like Amazon S. Three and a bevy of other data stores and SaaS apps that are hard to access it makes answering straightforward questions about company policies products business results code.

Andrew R. Jassy: People and many other topics hard and frustrating Q makes as much simpler.

Andrew R. Jassy: You can point Q at all of your enterprise data repositories, and it'll search all this data, summarize it logically, analyze trends, and engage in dialogue with customers about this data. We also introduced today a powerful new capability called Q-Apps, which lets employees describe in natural language what apps they want to build on top of this internal data, and Q-Apps will quickly generate that app. This is going to make it so much easier for internal teams to build useful apps from their own data.

Andrew R. Jassy: You can point to you at all of your enterprise data repositories and a search all of this data summarized logically analyzed trends and engaged in dialogue with customers about this data.

Andrew R. Jassy: We also introduced today, a powerful new capability called Q apps, which lets employees describe in natural language what else they want to build on top of this internal data in Q absolute quickly generate that app. This is going to make it so much easier for internal teams to build useful apps from their own data.

Andrew R. Jassy: Q is not only the functionally capable AI-powered assistant for software development and data but is also setting the standard for performance. Q has the highest known score and acceptance rate for co-suggestions, outperforms all other publicly benchmarkable competitors on catching security vulnerabilities, and leads all software development assistants on connecting multiple steps together and applying automatic action.

Andrew R. Jassy: He was not only the most functionally capable AI powered assistant for software development and data, but also setting the standard for performance.

Andrew R. Jassy: Q as the highest known score an acceptance rate for coast suggestions outperformed all other publically benchmark competitors in catching security vulnerabilities and lease all software development assistance on connecting multiple steps together and applying automatic actions.

Andrew R. Jassy: Customers are gravitating to Q, and we already see companies like Brightcove, British Telecom, Datadog, GitLab, GoDaddy, National Australia Bank, NCS, NetSmart, Slalom, Smartsheet, SunLife, Tata Consultancy Services, Toyota, and Wiz using Q, and we've only been in beta till today. I'd also caution folks not to overlook the security and operational performance elements of these Gen AI services.

Andrew R. Jassy: Customers are gravitating to Q, and we already see companies like Brightcove British Telecom data dog get lab, Godaddy National Australia Bank N C. S. Net smart slalom smart sheet Sun life, Tata consultancy services, Toyota and with using cute and we've only been in beta till today.

Andrew R. Jassy: I would also caution folks not to overlook the security and operational performance elements of these gen. AI services, it's less sexy the critically important most companies care deeply about the privacy of the data in their AI applications and the reliability of their training and production apps.

Andrew R. Jassy: Most companies care deeply about the privacy of the data in their AI applications and the reliability of their training and production apps. If you've been paying attention to what's been happening in the last year or so, you can see there are big differences between providers on these dimensions. AWS is a meaningful edge platform which is adding to the number of companies moving their AI focus to AWS. We expect the combination of AWS's re-accelerating growth and high demand for Gen AI to meaningfully increase year-over-year capital expenditures in 2024, which given the way the AWS business model works is a positive sign of future growth.

Andrew R. Jassy: If you've been paying attention to what's been happening the last year or so you can see there are big differences between providers. In these dimensions AWS is a meaningful age which is adding to the number of companies moving their AI focused AWS.

Andrew R. Jassy: We expect the combination of AWS is re accelerating growth in high demand for Gen AI to meaningfully increase year over year capital expenditures in 'twenty, 'twenty, four which given the way the AWS business model works as a positive sign of the future growth.

Andrew R. Jassy: The more demand AWS has, the more we have to procure new data centers, power, and hardware. And as a reminder, we spend most of the capital up front, but as you've seen over the last several years, we make that up in operating margin and free cash flow down the road as demand steadies out. And we don't spend capital without very clear signals that we can monetize it this way.

Andrew R. Jassy: The more demand AWS has the more we have to procure new data centers power and hardware and as a reminder, we spend most of the capital upfront, but as you've seen over the last several years, we make that up in operating margin and free cash flow down the road as demand studies out and we don't spend the capital without very clear signals that we can monetize it this way we.

Andrew R. Jassy: We remain very bullish on AWS. We're at a $100 billion plus annualized revenue run rate, yet 85% or more of the global IT spend remains on-premises. And this is before you even calculate Gen AI, most of which will be created over the next 10 to 20 years from scratch and on the cloud.

Andrew R. Jassy: We remain very bullish in AWS, where at 100 billion dollar plus annualized revenue run rate get 85% or more of the global it spend remains on premises and this is before you even calculate gen AI.

Andrew R. Jassy: Most of which will be created over the next 10 to 20 years from scratch and on the cloud there is a very large opportunity in front of us.

Andrew R. Jassy: There is a very large opportunity in front of us. We also continue to make strong progress on our newer investments. Our emerging international stores are growing and moving towards profitability. Our third-party logistics business, offering services like Buy with Prime, Amazon Shipping, and multi-channel fulfillment, continues to grow well. We just launched a Prime delivery grocery benefit that lets customers receive free, unlimited grocery delivery for just $9.99 a month, which is great value, and customers are responding accordingly.

Andrew R. Jassy: We also continue to make strong progress in our newer investments are emerging international stores are growing and moving towards profitability. Our third party logistics business offering services like buy with Prime Amazon shipping and multichannel fulfillment continues to grow well wishes.

Andrew R. Jassy: We just launched a prime delivery grocery benefit that lets customers receive free unlimited grocery delivery for just 999, a month, which is great value and customers are responding. Accordingly later this year in Manhattan, we're launching a new smaller whole foods market concept called whole foods market daily shop.

Andrew R. Jassy: Later this year in Manhattan, we're launching a new, smaller Whole Foods market concept called Whole Foods Market Daily Shop. Prime Video continues to produce compelling content, with Fallout being our latest big hit on the heels of the very successful Roadhouse movie, with strong customer engagement in our original and partner content. Our health services business is growing robustly as customers are loving our pharmacy customer experience. And we've launched same-day delivery of prescription medications to customers in eight cities, including Los Angeles and New York City, with plans to expand to more than a dozen cities by the end of the year, with customers now getting first fill medications 75% faster year over year nationwide.

Andrew R. Jassy: Prime video continues to produce compelling content with fallout being our latest big hit on the heels of a very successful roadhouse movie with strong customer engagement in our original and partner content.

Andrew R. Jassy: Our health services business is growing robustly as customers are loving our pharmacy customer experience and we've launched same day delivery of prescription medications to customers in eight cities, including Los Angeles, New York City with plans to expand to more than a dozen cities by the end of the year with customers now getting first fill medications, 75% faster year over year.

Andrew R. Jassy: Nationwide and kiper is getting closer to having its production satellites in space and entering a commercial data.

Andrew R. Jassy: And Kuiper is getting closer to having its production satellites in space and entering our commercial beta. There's a lot of invention happening across our business, and I'm super grateful to all our employees for their hard work and ingenuity. I'll close by sharing that I'm enthusiastic about how we started this year.

Andrew R. Jassy: There's a lot of invention happening across our business and I'm Super Grateful to all our employees for their hard work and ingenuity.

Andrew R. Jassy: I'll close by sharing that I'm enthusiastic about how we started this year with a lot of opportunity in front of us and every one of our businesses to make our customers' lives better and easier.

Brian Olsavsky: We have a lot of opportunity in front of us in every one of our businesses to make our customers' lives better and easier. With that, I'll turn it over to Brian for a financial update. Thanks, Andy.

Brian Olsavsky: Starting with our top line financial results, worldwide revenue was $143.3 billion, representing a 13% increase year-over-year, excluding the impact of foreign exchange. I'd like to highlight a couple points to help you interpret our growth rates. First, we saw an impact from LEAP year in Q1, which added approximately 120 basis points to the year-over-year quarterly revenue growth rate. Second, while I typically talk about growth rates excluding the impact of year-over-year changes in foreign exchange, we did see an unfavorable impact from global currencies weakening against the U.S. dollar more than we had planned in Q1.

Andrew R. Jassy: With that I'll turn it over to Brian for financial update thanks.

Brian: Thanks, Andy starting with our top line financial results worldwide revenue was $143 $3 billion, representing a 13% increase year over year, excluding the impact of foreign exchange and near the top end of our guidance range.

Brian: I'd like to highlight a couple of points to help you interpret our growth rates first we saw an impact from leap year in Q1, which added approximately 120 basis points to the year over year quarterly revenue growth rate.

Andrew R. Jassy: Second while it typically talked about growth rates, excluding the impact of year over year changes in foreign exchange, we did see an unfavorable impact from global currencies weakening against the U S dollar more than we had planned in Q1.

Brian Olsavsky: This led to a $700 million, or 50 basis point headwind to revenue, relative to what we got. Excluding this FX headwind, we would have exceeded the top end of our guidance range. Worldwide operating income was $15.3 billion, which was our highest quarterly income ever, and it was $3.3 billion above the high end of our guidance range. This was driven by strong operational performance across all three reportable segments and better than expected operating leverage, including lower costs to serve. The impact on operating income from our Q1 FX rate headwind was negligible.

Andrew R. Jassy: This led to a $700 million or 50 basis point headwind to revenue relative to what we guided.

Andrew R. Jassy: Excluding this FX headwind, we would have exceeded the top end of our guidance range worldwide operating income was $15 $3 billion, which was our highest quarterly income ever and it was $3 $3 billion above the high end of our guidance range. This was driven by strong operational performance across all three reportable segments and better than expect.

Andrew R. Jassy: Operating leverage including lower cost to serve.

Andrew R. Jassy: The impact on operating income from our Q1 FX rate headwind was negligible I'll speak more to our profitability trends in a moment in the North America segment first quarter revenue was $86 $3 billion, an increase of 12% year over year.

Brian Olsavsky: I'll speak more to our profitability trends in a moment. For the North America segment, first quarter revenue was $86.3 billion, an increase of 12% year over year. In the international segment, revenue was $31.9 billion, an increase of 11% year over year, excluding the impact of foreign exchange. We remain focused on the inputs that matter most to our customers. Selection, price, and convenience. During the quarter, around the world, we help customers save with our shopping events. We added a selection, including premium and luxury brands.

Andrew R. Jassy: In the International segment revenue was $31.9 billion, an increase of 11% year over year, excluding the impact of foreign exchange, we remain focused on the inputs that matter most to our customers selection price and convenience.

Andrew R. Jassy: During the quarter around the world, we help customers save with our shopping events.

Andrew R. Jassy: We added selection, including premium and luxury brands and we delivered our fastest speeds ever for prime members.

Brian Olsavsky: And we delivered at our fastest speeds ever for Prime members. Third-party sellers continue to be an important part of our offering. Third-party seller services revenue increased 16% year-over-year, excluding the impact of foreign exchange. We saw strong 3P unit growth coupled with increased adoption of our optional services such as fulfillment and global logistics. For the quarter, the 3P unit mix was 61%, up 200 basis points year-over-year.

Andrew R. Jassy: Third party sellers continue to be an important part of our offering third party seller services revenue increased 16% year over year, excluding the impact of foreign exchange. We saw strong three P unit growth coupled with increased adoption of our optional services such as fulfillment in global logistics for the quarter third party.

Andrew R. Jassy: Seller unit mix was 61% up 200 basis points year over year.

Brian Olsavsky: Shifting to profitability, North America segment operating income was $5 billion, an increase of $4.1 billion year over year. Operating margin was 5.8%, up 460 basis points year over year. We saw improvements in our cost to serve, including continued benefit from our work to regionalize our operations, savings from more consolidated customer shipments, and improved leverage driven by strong unit growth and lower transportation rates. In our international segment, operating income was $903 million, an improvement of $2.2 billion year-over-year. Operating margin was 2.8%, up 710 basis points year-over-year.

Andrew R. Jassy: Shifting to profitability North America segment operating income was $5 billion, an increase of $4 $1 billion year over year.

Andrew R. Jassy: Operating margin was five 8% up 460 basis points year over year.

Andrew R. Jassy: We saw improvements in our cost to serve including continued benefit from our work to regionalize, our operations savings from more consolidated customer shipments and improved leverage driven by strong unit growth and lower transportation rates.

Andrew R. Jassy: In our international segment operating income was $903 million, an improvement of $2.2 billion year over year.

Andrew R. Jassy: Operating margin was two 8% up 710 basis points year over year is primarily driven by our established countries as we improve cost efficiencies through network design enhancements and improved volume leverage. Additionally, we saw good progress in our emerging countries as they expand their customer offerings and make strides on their respective journey.

Brian Olsavsky: This was primarily driven by our established countries, as we improved cost efficiencies through network design enhancements and improved volume leverage. Additionally, we saw good progress in our emerging countries, as they expanded their customer offerings and made strides on their respective journeys to profitability. Looking ahead, we see several opportunities to further lower cost-to-serve and improve profitability in our worldwide retail business while still investing to improve the customer experience. Within our fulfillment network, we are focused on investing in our inbound network, streamlining and standardizing process paths, and adding robotics and automation. These improvement opportunities will take time. However, we have a solid plan in place, and we like the path we are on. Advertising remains an important contributor to profitability in North America and international segments.

Andrew R. Jassy: <unk> profitability.

Andrew R. Jassy: Looking ahead, we see several opportunities to further lower cost to serve and improved profitability in our worldwide stores business, while still investing to improve the customer experience within our fulfillment network. We are focused on investing in our inbound network streamlining and standardizing process paths and adding robotics and automation is improvement.

Andrew R. Jassy: Opportunities will take time, however, we have a solid plan in place and we like the path we're on.

Andrew R. Jassy: Advertising remains an important contributor to profitability in North America and international segments.

Brian Olsavsky: We've seen many opportunities to grow our offerings, both in the areas that are driving growth today, like sponsored products, and in areas that are newer, like streaming TV ads. Moving to AWS, revenue is $25 billion, an increase of 17% year over year, and AWS is now a $100 billion annualized revenue run rate business. Excluding the impact from leap years, AWS revenue increased approximately 16% year-over-year. During the first quarter, we saw growth in both generative AI and non-generative AI workloads across a diverse group of customers and across industries, as companies are shifting their focus towards driving innovation and bringing new workloads to the cloud. Additionally, we continue to see the impact of cost optimizations diminish.

Andrew R. Jassy: We've seen many opportunities to grow our offerings. Both in the areas that are driving growth today like sponsored products and in areas that are newer like streaming TV ads.

Andrew R. Jassy: Moving to AWS revenue was $25 billion, an increase of 17% year over year and AWS is now a $100 billion annualized revenue run rate business.

Andrew R. Jassy: Excluding the impact from leap year, AWS revenue increased approximately 16% year over year.

Andrew R. Jassy: During the first quarter, we saw growth in both generative AI and non generative AI workloads across a diverse group of customers and across industries as companies are shifting their focus towards driving innovation and bringing new workloads to the cloud.

Andrew R. Jassy: Additionally, we continue to see the impact of cost optimizations diminish.

Brian Olsavsky: While there will always be a level of ongoing optimization, we think the majority of the recent cycle is behind us, and we're likely closer to a steady state of these optimization efforts. AWS operating income was $9.4 billion, an increase of $4.3 billion year over year. As a reminder, these results include the impact of the change in the estimated useful life of our servers, which primarily benefits the AWS segment. We've made progress in managing our infrastructure and fixed costs while still growing at a healthy rate, which has resulted in improved leverage.

Andrew R. Jassy: While there always be a level of ongoing optimization, we think the majority of the recent cycles behind us and we're likely closer to a steady state of these optimization efforts Ada.

Andrew R. Jassy: <unk> AWS operating income was $9.4 billion, an increase of $4.3 billion year over year.

Andrew R. Jassy: As a reminder, these results include the impact from the change in the estimated useful life of our servers, which primarily benefits the AWS segment.

Andrew R. Jassy: We've made progress in managing our infrastructure and fixed costs, while still growing at a healthy rate, which has resulted in improved leverage.

Brian Olsavsky: As we've said in the past, over time, we expect the AWS operating margins to fluctuate, driven in part by the level of investments we are making in the business. We remain focused on driving efficiencies across the business, which enables us to invest to support the strong growth we're seeing in AWS, including generative AI, which brings us to capital investment. As a reminder, we define these as the combination of CapEx plus equipment finance lease.

Andrew R. Jassy: As we've said in the past overtime, we expect the AWS operating margins to fluctuate driven in part by the level of investments, we're making in the business.

Andrew R. Jassy: We remain focused on driving efficiencies across the business, which enables us to invest to support the strong growth, we're seeing in AWS, including generative AI, which brings us to capital investments.

Andrew R. Jassy: As a reminder, we define these as the combination of Capex plus equipment finance leases.

Brian Olsavsky: In 2023, overall capital investments were $48.4 billion. As I mentioned, we're seeing strong AWS demand for both generative AI and our non-generative AI workloads, with customers signing up for longer deals and making bigger commitments, still relatively early days for generative AI and, more broadly, the cloud space. And we see sizable opportunity for growth. We anticipate our overall capital expenditures to meaningfully increase year-over-year in 2024, primarily driven by higher infrastructure CapEx to support growth in AWS, including generative AI.

Andrew R. Jassy: In 2023 overall capital investments were $48 $4 billion.

Andrew R. Jassy: As I mentioned, we're seeing strong AWS demand in both generative AI in our non generative AI workloads with customers signing up for longer deals and making bigger commitments still.

Andrew R. Jassy: Still relatively early days in generative AI and more broadly the cloud space and we see sizeable opportunity for growth.

Andrew R. Jassy: Anticipating our overall capital expenditures to meaningfully increase year over year in 2024, primarily driven by higher infrastructure capex for growth in AWS, including generative AI.

Brian Olsavsky: Turn to our revenue guidance for Q2. Net sales are expected to be between $144 billion and $149 billion, or to grow between 7% and 11% compared with the second quarter of 2023. We saw an unfavorable impact from year-over-year changes in foreign exchange in our Q1 results, and we expect that headwind to grow in the second quarter. Our Q2 net sales guidance anticipates an unfavorable foreign exchange impact of approximately 60 basis points.

Andrew R. Jassy: Turning to our revenue guidance for Q2 net sales are expected to be between $144 billion and $149 billion or to grow between 7% and 11% compared with the second quarter of 2023.

Andrew R. Jassy: An unfavorable impact from year over year changes in foreign exchange in our Q1 results and we expect that headwind to grow in the second quarter.

Andrew R. Jassy: Our Q2 net sales guidance anticipates and unfavorable foreign exchange impact of approximately 60 basis points.

Brian Olsavsky: As part of our guidance considerations, we also continue to keep an eye on consumer spending and macro-level trends, specifically in Europe, where it appears to be a bit weaker relative to the U.S. Operating income is expected to be between $10 billion and $14 billion in Q2. This estimate includes the impact of our seasonal step-up in stock-based compensation expense driven by the timing of our annual compensation cycle. I want to thank our customers, our partners, and our teammates around the world for a very strong start to the year, and we're excited to build on this momentum.

Andrew R. Jassy: As part of our guidance considerations. We also continue to keep an eye on consumer spending and macro level trends, specifically in Europe, where it appears to be a bit weaker relative to the U S.

Andrew R. Jassy: Operating income is expected to be between $10 billion and $14 billion in Q2.

Andrew R. Jassy: This estimate includes the impact of our seasonal step up in stock based compensation expense driven by the timing of our annual compensation cycle.

Speaker Change: I want to thank our customers our partners and our teammates around the world for a very strong start to the year and we're excited to build on this momentum we will remain focused on streamlining and prioritizing projects in a way that allows us to continue inventing for customers in a cost effective way with that let's move on to your questions.

Brian Olsavsky: We'll remain focused on streamlining and prioritizing projects in a way that allows us to continue inventing for customers in a cost-effective way. With that, let's move on to your questions. I will now open the call to questions.

Operator: At this time, we will now open the call up for questions. We ask each caller to please limit themselves to one question. If you would like to ask a question, please press star 1 on your telephone keypad. We ask that when you ask your question, you pick up your handsets to provide optimum sound quality. Once again, to initiate a question, please press star, then 1 on your touchtone telephone at this time. Please hold while we pull for questions. Thank you. Our first question comes from the line of Doug Anmuth with JPMorgan. Please proceed with your question. Thanks.

Speaker Change: At this time, we will now open the call up for questions. We ask each caller to please limit yourself to one question.

Speaker Change: I'd 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.

Speaker Change: Once again to initiate a question. Please press Star then one on your Touchtone telephone at this time.

Speaker Change: Please hold while we poll for questions.

Brian Olsavsky: Hi Doug. Yeah, we have historically always mentioned that you have seen something of a pendulum shift sometimes between profitability and investment. I think we're at the stage now where we're doing both at the same time continuously. So we are more apt to talk about the specific investments that we're making and how that might impact our short-term outlook. So if you look at, you know, the progress we've made on operating income and free cash flow over really the last 18 months, a lot of it's driven by improvements in our stores business, lower cost to serve. We've talked about regionalization efforts and how that's moving into inbound areas now. Advertising has been growing strong, and AWS has been strong. And you saw AWS margins increase 800 basis points sequentially off Q4.

Speaker Change: Thank you. Our first question comes from the line of Doug Anmuth with J P. Morgan. Please proceed with your question.

Douglas Till Anmuth: Thanks, so much for taking the question probably for both Andy and Brian.

Douglas Till Anmuth: Historically Amazon has shifted between periods of heavy investment and then margin expansion back into heavier investment, but you now have a much bigger base of gross profit and overall operating income as you think about gen AI and capital intensity or grocery or type or health care is there anything from an investment perspective.

Douglas Till Anmuth: That could materially impact our profitability going forward in your view thanks.

Speaker Change: Hi, Doug Yeah, we have historically always mentioned.

Douglas Till Anmuth: You mentioned that.

Speaker Change: You have seen like a pendulum shifts sometimes between profitability and investment I think we're at the stage now where we're doing both at the same time continually.

Speaker Change: So we are more apt to talk about the specific investments that we're making and how that.

Speaker Change: It might impact our short term outlook. So if you look at it.

Brian Olsavsky: A lot of that's driven by cost controls and, you know, expanding revenue on the top line and a lower cost structure throughout the company. We do see, though, on the CapEx side, that we will be meaningfully stepping up our CapEx, and the majority of that will be in our AWS infrastructure and specifically generative AI efforts. So I would expect that that will, you know, increase; it will increase depreciation definitely in that segment. On the other hand, when we're talking about CapEx, right now in Q1, we had $14 billion of CapEx. We expect that to be the lowest quarter for the year.

Speaker Change: The progress we've made on operating.

Speaker Change: Income and free cash flow.

Speaker Change: Over really the last 18 months a lot of it's driven by improvements in our stores business lower cost to serve we've talked about regionalization efforts and how that's moving into inbound areas now advertising has been growing strong in either AWS has been strong in.

Speaker Change: <unk> saw AWS margins increased 800 basis points sequentially off Q4.

A lot of that is driven by cost controls and expanding.

Speaker Change: Revenue on the top line.

Speaker Change: The lower cost structure throughout the company we.

Speaker Change: We do see though on the Capex side that we will be meaningfully stepping up our capex and the majority of that will be in our.

Speaker Change: To support AWS infra.

Speaker Change: Infrastructure and specifically.

Speaker Change: Out of AI efforts, so I would expect that that will.

Speaker Change: Sure.

Speaker Change: It will increase depreciation definitely in that segment on the.

Speaker Change: We're talking about Capex right now.

Speaker Change: One we had $14 billion of Capex, we expect that to be the low quarter for the year.

Brian Olsavsky: As Andy said earlier, we are seeing strong demand signals from our customers and longer deals and larger commitments, many with generative AI components. So those signals, you know, are giving us confidence in our expansion of capital in this area. And as he also mentioned, you know, we've done this for 18 years.

Speaker Change: As Andy said earlier, we are seeing strong demand signals from our customers and longer deals.

Speaker Change: The larger commitments, many with charity they I components, so those signals.

Speaker Change: Aren't giving us confidence in our expansion of capital in this area and <unk>.

Speaker Change: He also mentioned you know we've done this for 18 years, we invest capital and resources upfront.

Brian Olsavsky: We invest capital and resources up front. We create capacity very carefully for our customers, and then we see the revenue, operating income, and free cash flow benefits for years to come after that with strong returns on invested capital. So a little bit of a long-winded answer to your question, but yes, we have. But the main issue that we'll see in the near term is additional CapEx. And we've talked about that.

We create capacity very carefully for our customers and then we see the revenue operating income and free cash flow that benefit for years to come after that with strong returns on invested capital so a little bit of a long winded answer to your question, but yes, we are.

Speaker Change: Hum.

Speaker Change: But the main.

Speaker Change: Issue that we'll see in the near term as additional Capex and we've talked about that.

Brian Olsavsky: And we continue to see, you know, strong CapEx performance in our stores business. Most of that will be related to modest capital or capacity increases, in addition to our same-day fulfillment network and some Amazon logistics upgrades to the fleet. But for the most part, what you'll see is really going to be on the AWS side. You know, I just would add briefly, just to summarize: I understand where the question's coming from, Doug, and I think we're in a position to do both.

Speaker Change: And we continue to see strong capex performance in our stores business.

Speaker Change: Most of that will be related to a modest capital or capacity increases in addition.

So our same day fulfillment network and some Amazon logistics.

Speaker Change: Upgrades to the fleet, but for the most part what Youll see is really going to be on the AWS side. Yeah. I just would add briefly just summarize I understand where the question is coming from Doug and and I think I think we're in a position to do both is the short answer.

Brian Olsavsky: I think there's actually an opportunity in our existing large businesses, in the stores business, along with advertising and AWS, there's a lot of growth in front of us, and I think we're investing in a meaningful way. But I also, as we've been pretty consistent about, don't believe that we're at the end of what we can do in terms of improving our cost structure on the store side.

Speaker Change: Think there's actually an opportunity in our existing large businesses in the stores business, along with advertising and AWS. There's there's a lot of growth in front of us and I think we're investing in a meaningful way, but I think we also as we've been pretty consistent about don't believe that we're at the end of what we can do in terms of.

Andrew R. Jassy: Yeah, I think there are really unbelievable growth opportunities in front of us. And I think what people sometimes forget on the AWS side, it's a $100 billion revenue run rate business, is that we're still 85 percent plus of the global IT spend is on premises. And if you believe that equation is going to flip, which we do, it means we have a lot of growth in front of us. And that's before the generative AI opportunity, which I don't know if any of us have seen a possibility like this and technology in a really long time, you know, for sure, since the cloud, perhaps since the internet.

Speaker Change: Improving our cost structure on the storage side.

Speaker Change: I think they're really unbelievable growth opportunities in front of us and I think what people sometimes forget on the AWS side. It's 100 billion dollar revenue run rate business that we're still 85 plus percent of the global it spend is on premises and if you believe that equation is going to.

Speaker Change: Which we do it means we have a lot of growth in front of us and that's before the generative AI opportunity, which I don't know if any of us have seen a possibility like this in technology in a really long time.

Andrew R. Jassy: And, you know, unlike in the cloud, where so much work has to be done to move from on premises to the cloud, people do it, and they get value out of it, which is why they modernize their infrastructure, but it's work. All of this generative AI sets of workloads, which will transform every experience, are going to be built from scratch on the cloud, largely. And so there are just tremendous opportunities there, along with some of the other areas that we're investing in that are really early stage. So I think it's both for us.

Speaker Change: For sure since the cloud, perhaps since since the Internet.

Speaker Change: And you know unlike in the cloud where so much there's a lot of work to be done to move from on premises to the cloud it people do it and they get value out of it which is why they modernize their infrastructure, but it's work all of this generally I set of workloads, which will transform every experience they're going to be built from scratch on the cloud.

Speaker Change: And so it's just tremendous opportunities there along with some of the other areas that we're investing that are really early stage. So I think it's both for us.

Operator: And our next question comes from the line of Ross Sandler with Barclays. Please proceed with your question.

Speaker Change: And our next question comes from the line of Ross Sandler with Barclays. Please proceed with your question.

Andrew R. Jassy: Hey guys, somewhat related question on CapEx intensity in AWS. So I think the CEO of Enthropic has said that he thinks the next generation of models costs in the neighborhood of 1 billion to train. This would be like CLAWD4, I guess, high-end, and then the generation after that might be as much as 10 billion to train. So is this something that you feel like the industry will do on top of AWS, do you feel like Olympus and some of the stuff you're doing in-house needs to kind of stay at the state-of-the-art, or can others do that? And then, how much did all this training have an impact on the acceleration that you saw in 1Q for AWS revenue? Thank you.

Ross Sandler: Hey, guys.

Ross Sandler: Related question on Capex intensity and AWS so.

The CEO of <unk> for Opex.

Ross Sandler: I think the next generation of.

Ross Sandler: Of models cost in the neighborhood of $1 billion to train, which would be like quad for I guess high end and then the generation after that might be as much as $10 billion to train. So is this.

Ross Sandler: Something that you feel like the.

Ross Sandler: Industry will do on top of AWS do you feel like Olympus.

Ross Sandler: Some of the stuff Youre doing in house.

Ross Sandler: To kind of stay at the state of the art work and others do that and then.

Ross Sandler: How much did all this training.

Ross Sandler: Have any impact on the acceleration that you saw in <unk> for AWS revenue. Thank you.

Andrew R. Jassy: Well, Ross, you know, I would tell you that, um... We have seen kind of three, I'll call them, macro trends that I think are contributing to AWS's performance, at least in the last quarter. First of all, I think the lion's share of cost optimization is behind us. I think companies will be smart and have learned a lot over the last number of months about how they run their infrastructure in the cloud.

Speaker Change: Well Ross and I would tell you that.

Speaker Change: We have seen kind of three are call. It macro trends in that I think are contributing to AWS as performance at least in the last quarter I think.

Speaker Change: First of all I think the lion's share of cost optimization is behind us. So I think companies will be smart and have learned a lot over the last number of months and how they run their infrastructure in the cloud, but I think the lion's share of the cost optimization is behind us and I think people have moved to newer.

Andrew R. Jassy: But I think the lion's share of the cost optimization is behind us. I think people have moved to newer initiatives that I would, at a macro level, describe as modernizing their infrastructure and then trying to drive value out of generative AI. On the former, I think we were in this march before the pandemic where most companies were trying to figure out how to move from on-premises to the cloud because it's more cost effective and it's faster to innovate, and they get real developer productivity. And then the pandemic hit, and people were in survival mode, and then the uncertain economy led people to save costs wherever they could, and they got distracted by that.

Speaker Change: Is that at a macro level describe is modernizing their infrastructure and then trying to drive value at a generative AI.

Speaker Change: On the former I think we were on this March before the pandemic, where both copies were trying to figure out how to move from on premises to the cloud because it's more cost effective and it's faster to innovate and they get real developer productivity.

And then the pandemic hit and people were in survival mode. In the uncertain economy led people to save costs wherever they could and they got distracted on that but there they are back to pursuing and figuring it out because it's low hanging fruit for them and we see very significant growth in that space.

Andrew R. Jassy: But they're back to pursuing and figuring it out because it's low-hanging fruit for them, and we see very significant growth in that space. And at the same time, we're seeing very significant momentum in people trying to figure out how to run their generative AI on top of AWS. You know, I mentioned we have a multi-billion dollar revenue run rate that we see in AI already, and it's still relatively early days. And I think that, you know, at a high level, there's a few things that we're seeing that's driving that growth.

Speaker Change: At the same time, we're seeing very significant momentum and people trying to figure out how to run their generative AI on top of AWS.

Speaker Change: I mentioned, we have a multibillion dollar revenue run rate.

Speaker Change: That we see in AI already and it's still relatively early days and I think that there's you know at a high level. There's a few things that we're seeing that's driving that growth I think first of all.

Andrew R. Jassy: You know, I think, first of all, there are so many companies that are still building their models, and these range from the largest foundational model builders like Anthropic, you mentioned, to every 12 to 18 months building new models. And those models consume an incredible amount of data with a lot of tokens, and they're significant to actually go train. And a lot of those are being built on top of AWS, and I expect an increasing amount of those to be built on AWS over time because of our operational performance and security, and as well as our chips, both of which we offer from NVIDIA.

Speaker Change: There are so many companies they are still building their models and these range from.

Speaker Change: The largest foundational model builders like Anthropic, you mentioned to every 12 to 18 months or building new models and you know those models consume an incredible amount of data with a lot of tokens and.

There is significant to actually go training and a lot of those are being built on top of AWS and I expect increasing amount of those to be built on AWS over time, because our operational performance and security and as well as our chips. Both what we offer from Nvidia, but you know you take anthropic as an example, they are training their future.

Andrew R. Jassy: But, you know, if you take Anthropic as an example, they're training their future models on our custom silicon platform, Trainium. And so I think we'll have a real opportunity for a lot of those models to run on top of AWS. I think that the thing that people sometimes don't realize is that while we're in the stage that so many companies are spending money training models, once you get those models into production, which not that many companies have, but when you think about how many generative AI applications will be out there over time, most will end up being in production when you see the significant run rates.

Models.

Speaker Change: On our custom silicon on training them and so I think we will have a real opportunity for a lot of those models to run on top of AWS I think that the.

Speaker Change: Thing that people, sometimes don't realize is that while we're in the stage that so many companies are spending money training models. Once you get those models into production, which not that many companies have but when you think about how many generative AI applications will be out there over time, most will end up being in production when you see the significant run rates.

Andrew R. Jassy: You spend much more on inference than you do in training because you train only periodically, but you're spitting out predictions and inferences all the time. And so we also see quite a few companies that are building their GenRV applications to do inference on top of AWS. And a lot of that has to do with the services. And, you know, the primary example we see there is how many companies, tens of thousands of companies, are already building on top of Amazon Bedrock, which has the largest selection of large language models around and a set of features that make it so much easier to build a high-quality, cost-effective, low-latency production-grade generative AI application.

Speaker Change: You spend much more inference than you do in training because you train only periodically, but you're spinning out predictions and influences all the time and so we also see quite a few companies that are building their general applications to do inference on top of AWS in a lot of it has to do with the services and.

Speaker Change: The primary example, we see there is.

Speaker Change: How many companies tens of thousands of companies already are building on top of Amazon bedrock, which has the largest selection of large weight language models around and a set of features that make it so much easier to build a high quality cost effective we'll wait and see production grade generative AI application. So.

Andrew R. Jassy: So we see both training and inference being really big drivers on top of AWS. And then you layer on top of that the fact that so many companies, their models, and these generative AI applications are going to have the most sensitive assets and data, and it's going to matter a lot to them what kind of security they get around those applications. And, yeah, if you just pay attention to what's been happening over the last year or two, you know not all the providers have the same track record.

Speaker Change: We see both training and inference being really big drivers on top of AWS and then you layer on top of that the fact that.

Speaker Change: So many companies their models and these generative AI applications are going to have the most sensitive assets and data and it's going to matter a lot to them what kind of security do they get around those applications and yeah. If you just pay attention to what's been happening over the last year or two you know not all of the providers. They have the same track record.

Andrew R. Jassy: And we have a meaningful edge on the AWS side, so as companies are now getting into the phase of seriously experimenting and then actually deploying these applications to production, people want to run their generative AI on top of AWS.

Speaker Change: And we have a meaningful edge on the AWS side, so that as companies are now getting into the phase of seriously experimenting and then actually deploying these applications to production people want to run their generative AI on top of AWS.

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

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

Brian Olsavsky: Great, thanks for taking my questions. I have two.

Brian Thomas Nowak: Great. Thanks for taking my questions I have two the first one is on is on cost to serve I. Appreciate all the color in the shareholder letter uneven Tonight on cost to serve and maybe could you just help us quantify a little more how to think about some of your north star cost to serve goals over the next couple of years and what could that mean for potential accompanying.

Brian Thomas Nowak: Reasonable ranges of outcomes for North America retail margins through all of that.

Brian Olsavsky: The first one is on cost to serve. I appreciate all the color in the shareholder letter and even tonight on cost to serve. Andy, maybe you could just help us quantify a little more how to think about some of your North Star cost to serve goals over the next couple of years, and what could that mean for potential accompanying reasonable ranges of outcomes for North America retail margins through all of that?

Brian Thomas Nowak: And then the second one is cost to serve does improve I think it should lead to significant incremental cash flow, even with more capex. So just remind us again, how you sort of think through philosophy the philosophy of.

Brian Thomas Nowak: Returning capital to shareholders. In addition to continue to invest for the long run. Thanks.

Brian Olsavsky: And then the second one, if cost to serve does improve, I think it should lead to significant incremental cash flow, even with more CapEx. So just remind us again how you sort of think through the philosophy of returning capital to shareholders in addition to continuing to invest for the long run. Thanks.

Brian Thomas Nowak: Hey, Brian This is Brian I will start with your second question so as.

Brian: As far as dividends or buybacks or any other capital structure moves we don't have anything to share with you on that today, but you know.

Brian: Reacquaint you with our.

Brian: General philosophy, so our first priority is to invest in to support the growth.

Brian: Growth opportunities and long term investments within our businesses and generally we still have many opportunities to put that capital to use that would generate meaningful returns, especially as you've heard in generative AI. So.

Brian Olsavsky: Brian, this is Brian. I will start with your second question. So as far as dividends or buybacks or any other capital structure moves, we don't have anything to share with you on that today. But, you know, I'll reacquaint you with our general philosophy. So our first priority is to invest in and support growth opportunities and long-term investments within our businesses. And generally, we still have many opportunities, but the capital to use that would generate meaningful returns, especially as you've heard in generative AI. So, you know, we're very passionate; we have a great deal of passion for that and conviction about that as well.

Brian: Pat we have a great deal of passion on that.

Brian: And conviction on that as well.

Pat: We are reaching a different stage of free cash flow as you mentioned, we had a negative free cash flow for two years 'twenty, one and 'twenty two.

Pat: Immediately after the pandemic as you know we.

It doubled the size of our operations network and had a lot of other expenses.

Brian Olsavsky: We are reaching a different stage of free cash flow. As you mentioned, we had negative free cash flow for two years, 21 and 22, immediately after the pandemic. As you know, we had doubled the size of our operations network and had a lot of other expenses. That was followed by 2023, when we had our largest or highest free cash flow ever. So, and those trends have carried into Q1.

Pat: That was followed by 2023, when we had our largest our highest free cash flow ever so.

Pat: And that is trends have carried into Q1. So we feel good about the free cash flow we are.

Pat: Again still anticipating a higher capex this year.

Brian Olsavsky: So we feel good about the free cash flow. We are, again, still anticipating a higher CapEx this year. The other thing that we're doing with cash flow right now is repaying some of the debt that we had taken on during that negative free cash flow period. We had reached a high watermark at the end of Q1 last year, and since then, and then through this year, we'll pay that down over $25 billion.

Pat: The other thing that we're doing with our cash flow right. Now is we're repaying some of the debt that we had taken on during that.

Pat: Negative free cash flow period, we had reached a high watermark at the end of Q1 last year and since then and then through this year, we'll pay that down over $25 billion. So that's our first priority.

Brian Olsavsky: So that's our first priority, as well as 2024 capital expenditures, but otherwise, nothing to share on that front. I'll tie up Andy on the storage profitability, because I know there's always the comment about how high operating margins can go. How do they compare to historic trends? And I think the same still holds. We look back to before the pandemic, and we say, first, we can achieve those operating margins even without the impact of advertising.

Pat: As well as a 2020 for capital expenditures, but other otherwise nothing to share on that front I'll tee up Andy on the store's profitability, because I know theres always generally the comment about.

Andrew R. Jassy: How high can operating margins go and.

How do they compare to historic trends.

Andrew R. Jassy: And I think the same still holds we look back to before the pandemic can we say firstly Ken.

Andrew R. Jassy: Achieve those operating margins.

Andrew R. Jassy: Without the impact of advertising.

Brian Olsavsky: And we're not quite there yet, but we're not limiting ourselves to that. We're looking for ways to, again, turn over every rock, look at every process, and everything that we do on the logistics side and see how we can get our cost structure down and how we can get speed up and selection up. So it's working on a lot of fronts there, but cost is certainly front and center as we meet and improve the customer experience. And the next question comes from the line of Youssef Squali with TruViz Securities. Please press... Great, thank you very much.

Andrew R. Jassy: And we're not not quite there yet, but we're not limiting ourselves to that we're looking for ways to again turnover every rock look at every process and everything that we do on the logistics side and see.

Andrew R. Jassy: How can we get our cost structure down and how can we get speed up and selection. So he is working on a lot of fronts. There, but cost is certainly front and center as we meet and improve customer experience.

Operator: And the next question comes from the line of Youssef Squali with Truist Securities. Please proceed. Great, thank you.

Andrew R. Jassy: And the next question comes from the line of Youssef Squali with <unk> Securities. Please proceed.

Youssef Houssaini Squali: Great. Thank you very much Andy on logistics in September you launched Amazon supply chain can you just help understand the opportunity you see there where are you in that journey to Delek Logistics Center service on a global basis and does that require a step function increase in capex. Thank you.

Andrew R. Jassy: Yeah, thanks for the question, Youssef. You know, I think that it's interesting what's happening with the business we're building in third-party logistics. And it really kind of mirrors some of the other businesses we've gotten involved in, you know, AWS being an example of it, even though they're very different businesses, in that we realized that we had our own internal need to build a bunch of these capabilities. And we figured that there were probably others who had those same needs, and we decided to build services out of them.

Andrew R. Jassy: Yeah. Thanks for the question Youssef.

Andrew R. Jassy: Thanks.

Andrew R. Jassy: It's interesting what's happening with our business, we are building and third party logistics and it really kind of in some ways mirrors. Some of the other businesses. We've gotten involved in AWS being example of it even though it's they're very different businesses and that we realized that we had our own internal need to build a bunch of these capabilities.

Andrew R. Jassy: And we figured that there were probably others, who have those same needs and we decided to build services out of them. So you know.

Andrew R. Jassy: So, you know, as our business has grown, and it turns out to be pretty hard work to actually import items from overseas, get them through customs and across the border, and then ship them from that point to various facilities. And then it turns out that you don't want to store those facilities in fulfillment centers because that space is really scarce. So you'd like to have them in upstream storage facilities that are very inexpensive.

Andrew R. Jassy: As our business has grown.

Andrew R. Jassy: It turns out to be pretty hard work to actually import items from overseas get them through customs and through the border and then ship them from that point to various facilities and then it turns out that you don't want to store those facilities and fulfillment centers because that space is really scares so you've got.

Andrew R. Jassy: To have them in upstream storage facilities that are very inexpensive and then you've got to have a way to to be able to know when youre more scarce supply in the film at centers need replenishment and be able to do it automatically from those upstream storage facilities and so all of those were capabilities that we had to build for ourselves.

Andrew R. Jassy: And then you'd like to have a way to know when your more scarce supply in the fulfillment centers needs replenishment and be able to do it automatically from those upstream storage facilities. And so all of those were capabilities that we had to build for ourselves to be able to operate our retail business in the way that we wanted to and that our sellers wanted. And so we built that capability for ourselves first, and then we opened up those services as individual services to our sellers.

Andrew R. Jassy: Debate about operate our stores business and the way that we wanted to end that our sellers wanted to.

Andrew R. Jassy: And so we build that capability for ourselves first and then we opened up those services as individuals services to our sellers and so sell we help sellers. We have a service that allows them to get items through the border and through customs. We are a service that allows them to ship from from customs to various facilities with her.

Andrew R. Jassy: And so, you know, we help sellers. We have a service that allows them to get items through the border and through customs. We have a service that allows them to ship from customs to various facilities, whether they're our own or their separate ones. We allow them to store items in our upstream low-cost warehouses that they can either automatically replenish into our fulfillment centers where we ship, or they can move to other facilities that they have.

Our own are there separate ones.

Andrew R. Jassy: We allow them to store items in our upstream go cost.

Andrew R. Jassy: Warehouses that they can either automatically replenish into our fulfillment centers, where we ship or they can move to other facilities that they have we have a service that lets them will ship either to our end customers, if they're selling on Amazon or two there.

Andrew R. Jassy: We have a service that allows them to sell on Amazon, where we'll ship either to our end customers if they're selling on Amazon or to their end customers. You know, we obviously have Buy with Prime, where we enable our Prime customers to be able to buy from our third-party Buy with Prime sellers' websites, which increases their conversion rate by 25 percent versus what they would do on their own, and it's a great benefit for our Prime customers.

Andrew R. Jassy: And customers.

Andrew R. Jassy: Obviously, a buy with prime where we enable our prime customers to be able to buy them.

Andrew R. Jassy: From our third party buy with prime sellers websites, which increases their conversion and 25% versus what they would do on their own and it's a great benefit for our prime customers. Yeah, then I would say that supply chain with Amazon is really a an aggregate an abstraction on top of those individual building blocks services I just meant.

Andrew R. Jassy: You know, and then I would say that the supply chain with Amazon is really an abstraction on top of those individual building block services I just mentioned that makes it easier for customers to have the whole end-to-end supply chain integrated. That collective set of businesses is growing very significantly. It's already what I would consider a reasonable-sized business, and I think it's just really early days. It is not something that we anticipate being a giant capital expense driver for us.

Andrew R. Jassy: And that makes it easier for customers to have the whole end to end supply chain integrating.

Andrew R. Jassy: That is the collective set of businesses is growing very significantly it's already what I would consider a reasonable sized business and I think it's just really early days. It is not something that we anticipate being a giant capital expense driver for us we have to build a lot of those capabilities any way to handle our stores business and we.

Andrew R. Jassy: We have to build a lot of those capabilities anyway to handle our stores business, and we think we can – you know, it would be a modest increase on top of that to accommodate third-party sellers, but our third-party sellers find high value in us being able to manage those components for them versus having to do it themselves, and they save money in the process.

We can and it will.

Andrew R. Jassy: A modest increase on top of that to accommodate third party sellers are third party sellers find high value in us being able to manage those components for them versus having to do with themselves and they save money in the process.

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

Andrew R. Jassy: And our next question comes from the line of Justin Post with Bank of America. Please proceed with your question.

Andrew R. Jassy: Great. I'd like to ask you a couple questions about the growth drivers that you mentioned. First, groceries. It seems like, you know, you're still changing the threshold for free delivery or the subscription prices. Just can you say at all how much that's contributing to your growth right now, and do you think you're over the hump, or are you optimistic this can be a really big category for you? And then maybe a little bit extra on the Prime Video ramp, how that ramp went versus your expectations, and do you think that could be a meaningful contributor to add revenues, you know, going forward? Thank you.

Justin Post: Great and I ask a couple of growth drivers that you mentioned first grocery it seems like you are.

Justin Post: Youre still.

Justin Post: Changing the threshold for free delivery or the subscription prices.

Justin Post: Can you say at all how much that's contributing to your tier growth right now and do you think you are over the hump are you optimistic this can be a really big category for you.

Justin Post: And then maybe a little bit of extra on prime video ramp how that ramp went versus your expectations and do you think that could be a meaningful contributor to add revenues going forward. Thank you.

Andrew R. Jassy: Yeah, I'll take them in the opposite order just on Prime Video ads. Very early days, just launched a few months ago. It's off to a really good start. I think advertisers are excited about being able to expand their ability to advertise with us in video beyond Twitch and freebies to Prime Video shows and movies. I think they also find that, you know, the relevancy and the measurability of that type of advertising in Prime Video ads are unique to them.

Speaker Change: Yeah, I'll take them in the opposite order just on Prime video ads very early days, just launched a few months ago, it's off to a really good start.

Speaker Change: Think advertisers or.

Speaker Change: I'm excited about being able to expand their ability to advertise with us video beyond Twitch and freebie to two prime video shows and movies.

I think they also find that the relevancy and the measure ability of that type of advertising and prime video ads is unique for them. So it's off to a very good start and it's early days, but we're optimistic there.

Andrew R. Jassy: So it's off to a very good start. It's early days, but we're optimistic. On grocery, you know, I would tell you that we continue to be optimistic about what we're doing in grocery. We have a very large grocery business. It's kind of got a few different components, and you know, we have a very, very significant non-perishable grocery business, much the same way that the mass merchandisers ended this business 30 or 40 years ago.

Speaker Change: On grocery.

Speaker Change: I would I would tell you that we continue to be optimistic about what we're doing in grocery we have a very large grocery business, it's kind of got a few different components.

Speaker Change: We have a very very significant non perishables grocery business much the same way that the mass merchandisers and this business 30, or 40 years ago. These are consumables and can't goods in pet food and health care and beauty products that continues to grow at a very rapid rate.

Andrew R. Jassy: These are consumables and canned goods and pet food and healthcare and beauty products. That continues to grow at a very rapid rate. And we have an organic grocery business, Whole Foods Market, which is the pioneer in that space. And that business continues to grow very nicely.

Speaker Change: And we have a an organic grocery business in whole foods market, which is the pioneer in that space and that business continues to grow very nicely, we were introducing a new smaller.

Andrew R. Jassy: We're, you know, introducing a new, smaller format in the fall in Manhattan with the Whole Foods Market daily shop idea. We've worked very hard on the profitability trajectory over the last 18 months and like the way that that has taken shape. You know, and then if you want to have, you want to serve as many grocery missions as we aim to serve, you have to have a perishables business and a massive physical presence.

Speaker Change: Format.

In the fall in Manhattan, and the whole foods market daily shop idea.

Speaker Change: We've worked very hard in the profitability trajectory over the last 18 months and like the way that that has taken shape.

Speaker Change: And then if you want to have you want to serve as many grocery missions as we aim to serve you have to have a perishables business and a mass physics.

Andrew R. Jassy: And that's what we've been working on with Amazon Fresh. We launched our V2 format in physical stores over the last few months, primarily in Chicago and Southern California. We like the early results a lot. They're really meaningfully better in almost every dimension.

Speaker Change: Physical presence and that's what we've been working on with Amazon Fresh we've launched our V. Two format in physical stores over the last few months, primarily in Chicago and Southern California, We like the early results of that they're really meaningfully better in almost every dimension. It's still early and there are some things to work through but we like.

Andrew R. Jassy: It's still early, and there are some things to work through, but we like what we're seeing there. And, you know, and then we'd have to decide the best way to roll those out over time. As you mentioned, Justin, we just launched a Prime benefit for groceries, which is all-you-can-eat delivery for $9.99 a month. If you order once from Whole Foods a month, it pays for itself, or once from Amazon Fresh for orders under $40.

Speaker Change: What we're seeing there and yeah, then we'd have to decide the best way to to roll those out over time as you mentioned, Justin we just launched a prime benefit for grocery.

Speaker Change: Which is all you can eat <expletive> delivery for 999, a month, which if you order once from whole foods a month it pays for itself or wants from Amazon fresh for orders under $40. It pays for itself, it's a very valuable.

Andrew R. Jassy: It's a very valuable offering for our prime members, and it's off to a great start. So, you know, we have lots of ways, in my opinion, we have lots of ways that we can continue to help customers satisfy their grocery needs. And we have some, you know, building blocks that I think might also change how people split up their grocery orders over time. But I continue to be optimistic that that's going to continue to grow for us.

Speaker Change: Offering for our prime members and it's off to a great start. So we have got in my opinion, we have lots of ways that we can continue to help customers satisfy their grocery needs and we have some building blocks that I think might also change how people split up their grocery.

Speaker Change: Orders over time, but I continue to be optimistic that that's going to continue to grow for us.

Operator: And our final question will come from the line of Ron Josie with Citi. Please proceed with your question.

Speaker Change: And our final question will come from the line of Ron Josey with Citi. Please proceed with your question.

Operator: Great, thanks for taking the question. Maybe, Andy, I wanted to ask about international profitability, just after 1Q's 2.8% margin, talk to us just about where we are in terms of international getting or consistent profitability. We're following a similar trajectory as North America in terms of benefiting from the regionalization shift, and we saw that the average distance each package traveled actually came down by 25 kilometers and whatnot. And if you can provide any insights on maybe how inbound fulfillment architecture might add to just continued benefits of faster shipping, same day, next day, et cetera.

Ron Josey: Hey, Thanks for taking the question, maybe Andy I wanted to ask on international profitability, just after <unk> to 8% margin touches just about where we are.

Ron Josey: In terms of international getting her to consistent profitability. We're following a similar trajectory as North America in terms of benefit regionalization shaft, and we saw what average distance of each package traveled actually came down by 25 kilometers and whatnot and if you could provide any insight on maybe how inbound fulfillment architecture might add to the continued benefit.

Brian Olsavsky: Thank you, Andy.

Speaker Change: On faster shipping same day next day et cetera. Thank you Ed.

Brian Olsavsky: Hey, Ron, I'm going to start with this one on international profitability. So, yes, in the quarter, our operating income was $902 million.

Speaker Change: Hey, Ron I'm going to start with this one on international profitability. So yes in the quarter. Our operating income was 900 million $902 million and if you've watched that we've seen a steady progression in.

Ed: Operating income in our international segment, it's up $2 $2 billion year over year. So we like the trend there it breaks down into a few areas I would say the established countries of Europe, Japan as well as the U K are falling a lot of the same trajectory as in the United States They are profitable.

Brian Olsavsky: And if you've watched that, we've seen a steady progression in operating income in our international segment. It's up $2.2 billion year over year. So we like the trend there. It breaks down into a few areas.

Ed: In their own right they are.

Uh huh.

Ed: Adding selection there, adding new features like grocery, they're adding to their prime benefits and.

Ed: Lot of the work that we do in the United States carries over there.

Brian Olsavsky: I would say the established countries of Europe, Japan, as well as the UK, are following a lot of the same trajectory as in the United States. They are profitable in their own right. They are, you know, adding selections. They're adding new features like grocery. They're adding to their prime benefits, and a lot of the work that we do in the United States carries over there. The second group is the emerging countries, and, of course, we've launched 10 new countries in the last seven years.

Ed: The second group is the emerging countries and of course, we've launched 10 new countries in the last seven years each of those has its own particular.

Ed: Trajectory on profitability. The first thing we see there is having a good customer experience having people sign up for prime.

Brian Olsavsky: Each of those has its own particular trajectory to profitability. The first thing we see there is having a good customer experience, having people sign up for Prime. A lot of times, our Prime video benefits help with that.

Brian Olsavsky: Then work on our cost structure as we get scale, add advertising and other things, and eventually, what we see is a country's break-even, and then they make positive income and free cash flow and are more of a positive contribution to the international segment. So we're seeing both the emerging and the established improving, and we like the trajectory, and I think you'll see more of it as we move forward. Yeah, I would add a few things.

Ed: Lot of times, our prime video benefits helped with that.

Ed: Then work on our cost structure as we get scale add advertising and other things and eventually what we see as a breakeven.

Ed: Countries are breakeven and then they make positive income and free cash flow and are more of a contribution to the positive contribution to the international segment. So.

Ed: We're seeing both the emerging and the established improving and.

Ed: We like the trajectory and I think you'll see more of as we move forward.

Andrew R. Jassy: I mean, I'm again quite bullish on our international stores business. It's already a very large business. We've added a number of countries that are on the right trajectory, as Brian just indicated, and it's going to be a big, profitable business for us. And I really like the direction it's headed.

Speaker Change: I would add a few things.

Speaker Change: Again quite bullish on our international stores business, it's already a very large business. We've added a number of countries that are on the right trajectory as Bryan just indicated.

Speaker Change: It's gonna be a big profitable business for us and I really like the direction. It's headed I'll take also just the second part of your question just really around continuing to take to work on cost structure.

I'd say you know first of all on the regionalization side, which we've talked a lot about the last year.

Andrew R. Jassy: I'll take also just the second part of your question, just really around continuing to take, to work on the cost structure. I'd say, you know, first of all, on the regionalization side, which we've talked a lot about the last year. It may sound a little boring to talk about, because we talked about it a lot of times, but I just tell you that we're not done there. You know, like we do, a lot of the work that we've done, we still have opportunities to refine and get more value out of that.

Andrew R. Jassy: And a lot of what we learned on the regionalization side in the US was inspired in part by what we saw in Europe, which is set up as a regional network because of the nature of how close those countries are to one another.

Speaker Change: It may sound, a little boring to talk about because we talked about a lot of times, but I. Just tell you that we're not done there you know like we have a lot of the work that we've done we still have opportunities to refine that to get more value out of that and a lot of what we learned on the regionalization side in the U S was in part inspired from what we saw in Europe, which in many ways.

Speaker Change: <unk> is set up as a regional network because of the nature of how close those countries are to one another and I would say we have also learned lessons from what we've done in the U S that we're gonna be able to apply to our international operations.

Andrew R. Jassy: And I would say we have also learned lessons from what we've done in the US that we're going to be able to apply to our international operations as well. I think we see additional opportunities in all sorts of places, you know, a good example of which is just how and where we inbound items. The architecture we've had set up has largely had people inbound to a couple places, and then we took, you know, we spent a lot of effort, time, and expense in breaking those down and shipping them to lots of other places.

Speaker Change: Operations as well I think we see additional opportunities in all sorts of places.

Speaker Change: A good example of which is just <unk>.

Speaker Change: How and where we inbound items too.

Speaker Change: The architecture, we've had set up is largely had people in bounding to a couple of places that we took we spent a lot of effort and time and expense.

In breaking those down and shipping them to lots of other places and we believe we can be much more efficient in how we use the inbound that work and how we partner with our sellers, you'll part of what we did with our change in seller fees, we lowered the outbound fees in a meaningful way, but then we added an incentive for.

Andrew R. Jassy: And we believe we can be much more efficient in how we use the inbound network and how we partner with our sellers. Part of what we did with our change in seller fees; we lowered the outbound fees in a meaningful way, but then we added an incentive for our sellers to inbound into locations that allow us to be more cost-following and allow both our sellers and us to enjoy those cost savings when we're able to do so.

Our sellers to inbound into locations that allow us to be more cost following and allow both our sellers and us to enjoy in those cost savings when we're able to do so and we're seeing very optimistic signs there too I.

Andrew R. Jassy: And we're seeing very optimistic signs there too. I think we're still early with respect to how we can continue to optimize the number of units per box, which has all sorts of good benefits. And then I'd just also say that it's been really interesting to watch, the same day facilities evolution in our fulfillment network and I think a lot of people have made the assumption over the last few years that faster speeds are going to mean higher costs and that is not the case if you build the infrastructure with the right building blocks the way we have over the last couple years and our sub you know our same day facilities are our least expensive facilities in the network we still have a fraction of the number of those that we will have in the U.S. and that we'll have in other parts of the world which will again both change our cost structure while increasing speed so I don't think we're at the limits of what we can do it's not going to all happen in you know in one year we're going to be working hard at this and inventing at this for several years but I think we have a lot upside in front of us.

Speaker Change: I think we're still early with respect to how we can continue to optimize the number of units per per box, which has all sorts of good benefits and.

Speaker Change: Then I just also say that it's been really interesting to watch.

Speaker Change: The same day facilities evolution in <unk>.

Our fulfillment network and I think a lot of people have made the assumption over the last few years that faster speeds are going to mean higher costs and that is not the case, if you build the infrastructure with the right building blocks. The way we have over the last couple of years and ourselves are same day facilities are our least expensive facilities.

Speaker Change: The network, we still have a fraction of the number of those that we will have in the U S and that will have in other parts of the world, which again both change our cost structure, while increasing speed. So I don't think we are at the limits of what we can do it's not going to all happen in one year, we're gonna be working hard at this and inventing at this for several years, but I think.

Speaker Change: We have a lot of upside in front of us.

Operator: Thank you for joining us on the call today 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 speaking with you again next quarter.

Speaker Change: Thank you for joining us on the call today 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 speaking with you again next quarter.

Operator: And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: And ladies and gentlemen that does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

Speaker Change: Yeah.

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Speaker Change: Yeah.