Q3 2024 Amazon.com Inc Earnings Call
[inaudible]
Thank you for standing by. Good day everyone and welcome to the AMZLON.com, third quarter 2024 financial results teleconference.
At this time, all participants are an elicin 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 to call over to the Vice President and the Investor Relations Mr. Dave Fildes. Thank you, sir. Please go ahead.
Hello and welcome to our Q3 2024 Financial Results Conference call.
Joining us today to answer your questions is Andy Jassy, RCEO, and Brian Olsavsky, RCFO.
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, my other wife 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 views as is today, October 31, 2024 only, and will include forward-looking statements. Actual results may differ materially.
Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10K and subsequent filings.
During this call we may discuss certain non-GAP financial measures. In our press release, slides the company's webcasts and our findings with the SEC, each of which is posted on our IR website. We will find additional disclosures regarding these non-GAP measures, including reconciliation of these measures with comparable GAP measures.
Our guidance incorporates the order trends that we've seen today and what we believe today to be appropriate assumptions.
Our results are inherently unpredictable and may be materially affected by many factors.
including fluctuations in foreign exchange rates.
Changes in global economic and geopolitical conditions and customer demand and spending, including impact of recessionary fears.
Inflation, Contrastrates, Regional Labor Market Constraints, World Events, the rate of growth of the Internet, online commerce, cloud services, and new and emerging technologies. And the various factors detailed in our filings with the SEC.
Our guidance assumes, among other things, that we don't conclude any additional business acquisitions, restructuring or legal settlements.
It's not possible to accurately predict demand for our goods and services and therefore our actual results could differ materially from our guidance.
and now I'll turn the call over to Andy.
Andy: Thanks Dave, today we're reporting 158.9 billion dollars in revenue, up 11% you every year excluding the impact from foreign exchange rates.
operating income with 17.4 billion, a 56% year every year, and trailing 12 month free cash flow adjusted for equipment finance leases was $46.1 billion, up $128% or $25.9 billion year every year.
As always, we're focused on making our customers live better and easier and thinking long-term with respect to how we can keep helping customers and build a successful business to outlast all of us.
In our stores business, we saw sales growth of 9% year every year in the North America segment and 12% year every year in the international segment.
Our team continues to focus on the influence that matter most to customers.
Really broad selection, low prices, fast and free delivery.
and a range of compelling prime member benefits, including our recent additions.
Andy: Well, unlimited grocery delivery from Whole Foods Market, Amazon Fresh, and Local Third Party grocery partners for 99, 99 a month, and fuel savings with 10 cents a gallon at BP, AMACO and AMPM stations in the US.
At a time when consumers are being careful about how much they spend, we're continuing to lower prices and ship even more quickly, and we can see this resonating with customers as our unit growth continues to be strong and outpaced even our revenue growth.
The last few months we've hosted our Gorgeous, the most successful Prime Day and Prime Big Deal Days ever, and helped customers save over $5 billion across more than $50 million deals. And for the second year in a row, we are on track to deliver it our fastest speeds ever for Prime Members globally.
We also continue to focus on the lower and our costs to serve, and are pursuing several initiatives that we believe will have meaningful long-term impact in this area.
First, we continue to believe there are more gains on top of what we've captured thus far in outbound regionalization and getting more items closer to end consumers. As such, we're in the process of significantly changing the way we endbound items into our fulfillment network and subsequently spread them to our regional fulfillment nodes.
Andy: And the last few months we've made hundreds of changes to our U.S.M.Bound network and open more than 15 inbound buildings.
Andy: While still relatively early in this re-architecture, we've already improved our ability to spread inventory across our 5th film and centers by 25% year-re-year.
Andy: Malayon, I have more of the requisite items in the Films Center as closest to the customer, so we can compile shipments and ship the customers even more quickly.
Andy: As we scale and optimize this new design, we expect these changes will further improve inventory placement, offer faster delivery times, save transportation costs, enable us to increase unit ships per box.
Second, we continue to roll out same-day delivery facilities, which is not only the fastest way to get products to customers.
But also one of our lowest cost ways to deliver.
Over 40 million customers this past quarter have had their orders delivered for free with same day delivery and increase them more than 25% of your year. And third, we continue to innovate in robotics to speed delivery, lower cost to serve, and further improve safety in our fulfillment network.
We recently launched our 12th generation fulfillment center design for the first building launching a Shreepport, Louisiana. This is the first facility that incorporates our newest robotics inventions, the simplified installing, picking, packing and shipping processes.
Thus far, this new design reduces the fulfillment processing time by up to 25% increases the number of items that can offer for same day or next day delivery and is expected to drive a 25% improvement in our cost to serve during peak within this next generation facility.
So we believe we have more expansive automation and robotics than other retail peers. It's still early days and how much automation we expect in our fulfillment network.
In advertising, we remain pleased with our progress, generating $14.3 billion of revenue in the quarter, 18.8% year over year growth.
Our expansive reach, ability to surface relevant offers to our customers, opportunity to engage customers from the top of the funnel to point of purchase, and leading capabilities around measuring outcomes at every touch point provide all types of brands with full funnel advertising at scale.
We sponsor products we're seeing meaningful growth on a very large base and we see further opportunity in driving even better performance for advertisers. But further improving the relevancy of the ads we show and by providing additional optimization controls.
At the same time, some of our newer offerings are in their very early days. We're just entering our first broadcast season for prime video advertising, following a very strong showing it up front.
and we're continuing to support brands of all sizes with our GenRVI power creative tools across display, video and audio, including our video generator that uses a single product image to curate custom AI-generate videos. While we're generating a lot of advertising revenue today, the remains considerable upside.
Andy: AWS grew 19.1% year-over-year, and now stands at a 110 billion dollar annualized run rate. We've seen significant re-exceleration of AWS growth for the last four quarters.
With the broadest functionality, the strongest security and operational performance, and the deepest partner community, AWS continues to be customer's partner of choice.
Andy: There are signs of this in every part of AWS's business.
We see more enterprises growing their footprint in the cloud, evidence in part by recent customer deals with the ANZ Banking Group, booking.com, Capital One, Fast Retailing, Eta U, Winobanko, National Australia Bank, Sony, T-Mobile, and Toyota.
You can look at our partnership with Nvidia called Project Siba, where Nvidia has chosen AWS's infrastructure for its R&D Supercomputer, due in part AWS's leading operation performance and security, and you can see how AWS continues to innovate in its infrastructure capabilities.
Andy: With deliveries like Aurora, Limited of State of Base, which extends AWS's very successful relational database to support millions of database rights per second, and manage petabytes of data while maintaining the simplicity of operating a single database.
For where our custom Graviton IV CPU instances which provide up to nearly 40% better price performance for other leading X86 processors.
Companies are focused on new efforts again.
Andy: Spinning energy on modernizing their infrastructure from on-premises to the cloud.
Andy: This modernization enables companies to save money, innovate more quickly, and get more productivity from their scarce engineering resources.
However, it also allows them to organize their data in the right architecture and environment to do gender-vali as scale. It's much harder to be successful and competitive in gender-vali if your data is not in the cloud.
Andy: The AWS team continues to make rapid progress in delivering AI capabilities for customers and building a substantial AI business.
Andy: In the last 18 months, AWS has released nearly twice as many machine learning and Gen AI features as the other leading cloud providers combined.
AWS AI business is a multi-billion-dollar revenue run-right business that continues to grow at a triple digit year over year percentage. It's growing more than three times faster at this stage of its evolution as AWS itself grew. We felt like AWS grew pretty quickly.
We talk about our AI offering as three macro layers of the stack.
Andy: With each player being a giant opportunity and each is progressing rapidly.
At the bottom layer, which is for model builders, we were the first major cloud provider to offer Nvidia's H200 GPUs through our EC2P5E instances. Thanks to our network innovations like Elastic Fabric Adapter and Nitro.
We continue to offer advantage to networking performance.
And while we have a deep partnership with NVIDIA, we've also heard from customers that they want better price performance on their AI workloads. As customers approach higher scale and their implementations, they realize quickly that AI can get costly.
Andy: It's why we invest in our own custom silicon, Intranium for training, and Infravenor for inference.
The second version of Trainium, Trainium 2, is starting to ramp up the next few weeks, and will be very compelling for customers and price performance. We're seeing significant interest in these chips, and we've gone back to our manufacturer and partners multiple times to produce much more than we'd originally planned.
Andy: We also continue to see increasingly more model builders standardizing Amazon SageMaker, our service that makes it much easier to manage your AI data build models, experiment and deploy to production.
This team continues to add features at a rapid clip, punctuated by SageMakers unique hyper pod capability, which automatically splits training workloads across more than a thousand AI accelerators.
Andy: Events interruptions by periodically saving checkpoints and automatically repairing faulting instances from their last save checkpoint and saving training time, up to 40%.
A DEMILAIR, where teams want to leverage an existing foundation model, customize with their data, and then have features to deploy high quality gender-AI applications.
Andy: AMZL and bedrock has the broadest selection of leading foundation models, and most compelling modules for key capabilities like model valuation, guardrails, rag and agents.
Recently, we've added an Anthropics Club 3.5-sonant model, MetasLama 3.2 models, Mistralzlar 2 models, and multiple stability AI models.
We also continue to see teams use multiple model types from different model providers and multiple model sizes in the same application.
There's a Muckin' Orchestration required to make this happen, In part of what makes BEDROX SOAP, willing to customers, and why it has so much traction, is that BEDROX makes this much easier.
Andy: Customers have many other requests, access to even more models, making prompt management easier for their optimizing inference costs, and our better-ock team is hard to work making this happen.
At the application or top layer, we're continuing to see strong adoption of AMZL on Q. The most capable gender-they-eye-powered assistance for software development into leverage your own data.
2 has the highest reported code acceptance rates in the industry for multi-lying code suggestions.
Andy: The team is at an all sorts of capabilities in the last few months, but the very practical use case recently shared, where Q Transform saved AMZON's teams $260 million and $4500 developer years and migrating over 30,000 applications to new versions of the Java JDK.
and Excited Developers and ProjectM to ask how else we could help them with tedious and painful transformations.
Spend a few minutes reading developer forums, but what they wish they could move away from, and you'll get an idea of what they want. Expect more practical AI game changers from Q.
Andy: We're also using the general AI, pervasively across Amazon's other businesses.
with hundreds of apps and development are launched.
For consumers, we've expanded Rufus, or gender-they-eye-powered expert shopping assistant to the UK, India, Germany, France, Italy, Spain, and Canada. And in the US...
We've added more personalization, the ability to better narrow customer intent and real-time pricing and deal information.
We've recently debuted AI Shopping Guides for Consumers, which simplifies product research by using Gen or AI to pair key factors to consider an aprodic category with Amazon's wide selection, making it easier for customers to find the right product for their needs.
For sellers, we've recently launched Project of Millium, an AI assistant that offers tailored business insights to boost productivity and drive seller growth.
Andy: We continue to re-architect the brain of Alexa with a new set of foundation models that will share with customers in the near future, and we're increasingly adding more AI into all of our devices.
Take the new Kindle scribe with just an else. The note-taking experience is much more powerful with the new built-in AI power notebook, which enables you to quickly summarize pages of notes into concise bullets and a script font that can easily be shared.
Andy: Speaking of Kindle products, we just launched a completely new Kindle lineup. The first time we've got a portfolio of refresh in this size.
Andy: Apart from the scribe, it includes the first ever color candle, the fastest candle people and new pocket size candle.
The early sales for these devices have significantly outperformed our expectations, and Kindle is having an excellent year with customers reading more than ever. We now have over 20 billion average monthly pages running Kindle devices worldwide.
Andy: There are so many things we're energized by right now, but we'll quickly mention one more, the progress we're making and improving customers' pharmacy experience.
Rick and Mortar Pharmacy's account for just over 90% of prescription suspense in the U.S. but require customers to make trips to foreloar and physical venues.
With much of the selection behind Lockshelves, waitin' lines for meds.
and only find out about pricing at the point of purchase. The largest mail order pharmacies offer deliver in 5-10 business days. We think customers deserve better. Today we can deliver to 95% of first time Amazon pharmacy customers in the US within 2 businesses.
and to 20% of US Prime members within 24 hours. Next year we plan to launch operations in 20 new cities, so nearly half the US will have the ability to have their medications delivered to their door within hours.
Andy: We believe making it easier for customers to get their medications, will improve medication adherence, which we know can directly improve health outcomes.
Andy: Across Amazon, we have a lot coming in the next few months. We eagerly look forward to sharing these with customers, and a big thank you to my Amazon teammates around the world for all their hard work. And with that, I'll turn it over to Brian for a financial update.
Thanks Andy. Let's start with our top line financial results. Worldwide revenue was $150.9 billion and 11% increase year of year, excluding a 20-vacet point unfavorable impact of foreign exchange.
As a reminder, our key three guidance head and just phase a larger unfavorable impact at the approximately 90 basis points.
We'll write operating income, increased 56% year every year to $17.4 billion. Our highest quarterly operating income ever. It was $2.4 billion above the high end of our guidance range.
Remain focus on streamlining and managing costs in a way that allows us to continue inventing customers in a cost effective way.
In the third quarter North America's segment revenue was $95.5 billion, and increased of 9% year over year.
and a national segment revenue was $35.9 billion and increased of 12% year over year.
Worldwide paid units accelerated to 12% growth year every year. As our customers continue to come to Amazon for low prices, fraud selection and convenient faster delivery.
Prime Remains Accord Contributor to Disgrowth.
The Airvier Paid Membership Growth Accelerated in Q3 from both the US and globally. Help by our 10th Annual Prime Day event in the July.
Customers are enjoying even faster delivery speeds. We also help drive strong growth in items like everyday essentials.
This includes items like health, beauty, and personal care, as well as non-perishable grocery.
And while these items often have a lower average selling price, the strength in everyday essentials, revenue, is a positive indicator, the customers are turning to us from more of the daily needs.
Andy: We see them in customers' purchase these types of items from us. They build bigger baskets, shop more frequently, and spend more on Amazon.
Remain focus on keeping prices sharp and offering broad selection and gives customers options when making purchase decisions.
16th of profitability, our North America and international segments each deliver their seventh consecutive quarter of year over year operating margin improvement.
Andy: North America segment operating income was $5.7 billion and increased some $1.4 billion year per year.
Andy: North America Operating Margin, 65.9% up 100 basis points here per year.
In the third quarter, we continue to make progress and improving our fulfillment network cost structure, driven in part by improved inventory placement.
Self-destruct, better productivity in our transportation network and shipping efficiency from higher units for box.
and the International segment, operating income was $1.3 billion and improvement of $1.4 billion year a year.
Andy: International Operating Marginal is 3.6% up 390 base points year-re year.
Supply this year, we've generated operating profits in each of the three quarters of the international segment, and total $2.5 billion due to date.
We're seeing a strength in our established countries, like the UK and Germany, as we continue to draw deficiencies to improve on road productivity and our transportation network and better execution in our fulfillment centers.
Andy: Our merging countries are growing revenue to health through ADLs, and they are leveraging the cost structures on besting strategically in prime benefits.
We have confidence that our focus on the inputs, coupled with the strength of our global teams, will continue to drive improvement over time.
Advertising remains an important contributor to profitability and in North America, and international segments. This quarter we saw strong growth on an increasing large base of advertising revenue.
See many opportunities the further expand our ads offering in areas that are driving growth today like sponsor products, as well as more recent growth areas like Prime Video Ads.
Moving next to our AWS segment, Graviton was $27.5 billion, and increased of 19.1% year-veyear, excluding the impact of foreign exchange.
Andy: AWS now is an annualized revenue run rate of $110 billion.
The business continues to grow. Most of the opportunities you expand are core cloud offering and are AI services.
Andy: Customers increasingly recognize that you get the true benefit of Gen or the AI, they also need to move to the cloud.
AWS operating income was $10.4 billion in increase of $3.5 billion year every year. And as a result of our continued focus on cost control, including a measured pace of hiring, a focus on driving efficiencies on our infrastructure and reducing costs across the business.
Additionally, we increased the estimated useful live of our servers starting in 2024, which contributed approximately 200 basis points to the AWS margin increase here of year in Q3.
You've said in the past to expect the AWS operating margins to fluctuate, driven in part by the level of investments we're making at any point in time.
Andy: Now, turning to our capital investments. As a reminder, we define these as a combination of cash capx, plus equipment-finance leases.
Andy: Here today, Capital Investments were $51.9 billion. We expect to spend approximately $75 billion in CapEx in 2024. The majority of the spend is to support the growing need for technology and for structure.
This primarily relates to AWS as we invest support demand for AI services, also including technology infrastructure to support our North America and international segments.
Additionally, we're continuing to invest in our fulfillment and transportation network to support the growth of the business, improve delivery speeds, and lower our cost to serve.
This includes investments in same day delivery facilities in our inbound network and as well in robotics and automation.
We're encouraged by the start of the holiday season, which kicked off in October with a strong, prime, big deal days. We are ready to serve customers throughout the season, and I want to thank our teams across Amazon for delivering two very large prime number of events in the past four months.
Andy: and for getting us ready to delight customers during this holiday season.
With that, let's move on to your questions.
Speaker Change: Thank you. As this time, we will now open the call up for questions. We ask each caller to please limit yourself to one question. If you would like to ask a question, please press star 1 on your keypad. We ask that when you pose your question, you pick up your hand, set to provide optimum sound quality.
Thanks again to an Fiat question. Please press star, then one on your touch zone telephone at this time.
Andy: Please hold the report for questions. Thank you.
Andy: [inaudible]
Andy: [inaudible]
And the first question comes from the line of Doug Amman with JPMorgan. Please proceed with your question.
Doug Amman: Thanks for taking questions.
Brian, I'm so happy you talked a little bit more about the drivers of the 38% AWS margins. I know you mentioned the 200 basis points related to the useful lives.
Pushout, which is how to think about sustainability, you know, kind of in the 30s they're going forward. And then perhaps related the step up in CapEx that you saw.
Doug Amman: and 3Q, you gave the full year number, which was helpful any kind of early read or thoughts on how we should think about 2020-20-20-20.
Thanks, Doug, let me tell you a little bit about the AWS.
The primary drivers of the year of the year margin increase serve.
3-fold. So, first is accelerating top line demand. That helps with all of our efficiencies.
A cough control effort Senate, and of course what you just mentioned, I believe, the change in the useful life of our servers this year. We remind you on that one, we made the change in 2024 to extend the useful life of our servers, this added about 200 basis points of margin year or year.
On cost control, it's been a number of areas. It's first is hiring and staffing.
We're being very measured in our hiring and you can tell as a company we're our office staff is down slightly every year and it's a flat to the end of the last year. So we're really working hard to...
Maintain our efficiencies, not only in the Salesforce and other areas and production teams, but also in our infrastructure areas. Infrastructure is a big part of our cost structure in AWS, and we're probably the best at...
Andy: Matching up supply and driving cost efficiencies and driving this operation very strongly. Thank you so that this quarter, especially on the higher volume.
You know, for time this margin will fluctuate in segment. It's a number of factors to keep in mind, including our level of investment in the amount of innovation and product development. We're doing it for new products and services, changes in our staffing for sales and support organizations.
and of course, Capital to Support Customer Growth and to build cost-performing chips for our customers' applications.
And as I mentioned, we do a really good job of matching supply and demand. And we do that in this business. It can result in quarters that we just saw.
I'll take the capx part of that. As Brian said in his opening comments, we expect to spend about $75 billion in 2024. I suspect we'll spend more than that in 2025. And the majority of it is for AWS.
and specifically the increased pumps here are really driven by gender of AI. As I was mentioning in my own opening comments, you know, our AI business is a multi-billion-dollar business.
Andy: Growing Triple Digit percentage is year over year, and is growing three times faster at its stage of evolution than AWS did itself, we thought AWS grew pretty fast.
Andy: and so the thing to remember about the AWS business is the cash life cycle is such that the faster we grow demand.
Andy: The faster we have to invest capital in data centers.
and Networking Gear and Hardware. And of course, in the hardware of AI, the accelerators, there's a chip through the, or more expensive than in the CPU hardware. And so we invest in all that upfront in advance of when we can monetize it with customers using the resources.
But, you know, of course, a lot of these assets are many year useful like assets. You know, data centers, for instance, are useful assets for 20 to 30 years. And so I think we've proven over time.
Andy: that we can drive enough operating and come in free cash flow to make this very successful return on a best-to-capable business.
and we expect the same thing will happen here with Gen or AI. It is a really unusually large, maybe once in a lifetime type of opportunity. And I think our customers, the business, and our shareholders will feel good about this long term that we're aggressively pursuing it.
and our next question comes in the line of Roth Sandler with Barclays. Please proceed with your question.
Andy, if I could push on that last answer, you know, you talk about how AI is about the same size, the wrong way faster than early AWS.
At the market, like the early 2010s, it was hyper-competitive on pricing. Your margins were all 15% of the way back then.
And it seems like a lot of that is what's going on right now in AI.
Andy: with the new AI data centers where you got competitive pricing.
Sravapamo, Utilization, [inaudible]
Houston, the whole industry. So as that revenue line grows from, you know, where it is today, to 10 to billion to dollars in coming years, how does that margin come on?
Andy: from the AI Data Center's versus.
You know, you're existing coming 30 plus percent.
Marginate, AWS, any thoughts on how quickly you can close the gap and how that works on the new AI workloads versus maybe this mid-30s with Tom?
The core business is running out. Thank you very much.
Yeah, so some quick context for us, you know, I think one of the least understood parts about AWS over time
Speaker Change: is that it is a massive logistics challenge. If you think about, we have 35 or so regions around the world, which is an area of the world where we have multiple data centers, and then probably about 130 availability zones or data centers. And then we have thousands of SKUs, we have to land in all those facilities.
and if you land too little of them, you end up with shortages which end up in outages for customers. So, most don't end up with too little, they end up with too much. And if you end up with too much, the economics are woefully inefficient. And I think you can see from our economics then...
We've done a pretty good job over time, managing those types of logistics and capacity.
Andy: It's meant that we've had to develop.
Andy: Very sophisticated models
and Anticipating how much capacity we need where and which SKUs and units.
You know, I think that the AI space is for sure.
Earlier stage, more fluid and dynamic than our non-AI part of AWS, but it's also true that
Andy: People aren't showing up for 30,000 chips in a day. They're planning an advance. We have very significant demand signals.
Giving us an idea about how much we need, and I think that one of the differences...
If you were able to get inside of the economics of the different types of providers here is how well they manage that utilization and that capacity, it has a very direct impact on what kind of margins you have over time and what kind of capital efficiency you also have over time.
and so I think you're right, Ross, you know, there are some...
Similarity in the early days here in the AI where the offerings are new and people are very excited about it, it's moving very quickly. And the margins are lower than...
What they think they will be over time the same was true with AWS. If you look at our margins around the time you were citing in 2010, they were pretty different than they are now. I think as the market mature is over time, they're going to be very healthy margins here in the general AI space.
and the next question comes along on a Brian Novak with Morgan Stanley. Please proceed with the question.
Thanks for taking my questions up. And I have to, that the first one, I feel like we talk a lot about your targets and sort of north stars for internet, for domestic profitability.
Can you talk to us a little bit about how you think about the drivers of international retail profitability from here and sort of how you just try to, I think, conceptually where the margins could go and what drives them there.
Andy: and then the second one, I wanted to sort of ask you more about the robotics that you mentioned. You know, I know you've been investing in robotics for quite a few years. Where are you now in that journey and how do we think about the next largest areas of investment in robotics in the warehouse network?
Thanks Brian, this is Brian, let me take the first part of that question on the International Segment Profitability.
Andy: So um...
If you've looked at the trends, we see quarter quarter fluctuation certainly in operating profit in the international segment, but we're starting to see clear trend lines that are moving positive and above zero.
and Frigid last seven quarters, as I mentioned, we've had year over your improvement in Op Margin.
and last quarter, operating in Camos, up a billion for 1.4 billion versus a prior year. Really, it is a lot of same factors you're seeing in North America. Lower cost to serve greater contribution from advertising.
Improves selection, faster delivery speeds, which help drive consumer demand.
Andy: and Stepback Further, International's really a mix of our established countries where we've been operating for a long time. The UK European Germany, excuse me, Europe and Japan, and a number of emerging countries.
Andy: including 10 new countries that we launched in the last 70 years. So there's a lot under the hood there and there's different stories in each country.
Each of them is on a different point in the path from launching to customer adoption, just scaling towards profitability.
to then making consistent operating profits. So I think our expectations in each of those countries mirror those in North America and we intend over the fullness of time that we're going to aim for North America margins, which are not static themselves.
So, you know, we're happy with the performance, glad to see a number above zero in many lives last few quarters, but really this is the story on a country by country basis that will work in hard.
On the robotics piece, what I would say is even though we believe we have more expansive and advanced.
Automation, Robotics, Capabilities in our fulfillment network, and other peers. It's so early with respect to what we're going to do, automation, robotics, why is our fulfillment network.
Andy: We're just at the stage right now, we're starting to roll out, we had about a 5 or 6 very significant new robotics capabilities in the areas of stowing, picking, packing and shipping.
that we are finally put into one facility to get the entire workflow. It's a facility in Treesport, Louisiana that we've just launched a few weeks ago. And as I mentioned in my opening comments, we're seeing very encouraging results there, and of course.
The reason why we're trying to have more robotics and automation or film in that work is it allows us to fast, to ship more quickly, to ship more cost effectively, and to make conditions even safer for our fulfillment teammates.
and then what they already have today. Something that the team has done in a very disciplined way. I talked about this a little bit in my annual letter. My shareholder letter is just...
They have been very thoughtful about defining what are the primitive, foundational building blocks that you need.
That you can then use a lot of different combinations to build additional automation, robotics capabilities down the roads that we can move even more quickly with the next generation of robotics capabilities.
and that team is investing in those and they're already working on the next generation. And the last piece I would add to that is...
We really do believe that AI is going to be a big piece of what we do in our robotics network.
We had a number of efforts going on there.
We just hired a number of people from an incredibly strong robotics AI organization, and I think that will be a very central part of what we do move forward to.
And the next question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed with your question.
Thanks for taking the question, maybe a two-part of I can. You're looking at the results in the commerce business, there's a clear...
and Paton Emerging with respect to ASP's versus Unicroses. Can you talk a little bit about what you're seeing in terms of consumer behavior and the propensity to be receptive to either lower ASP items or discounts among consumer behavior? And then the second part would be, can you talk a little bit about some of the strategic initiatives you're building for the long-term around capitalizing on lower ASP items and the potential shift to more consumables in the base of consumption habits on the platform? Thanks so much.
Yeah, hi, Eric, thank you for your question.
Yeah, you're right, Q3 Univ volume was strong, a 12% worldwide, pretty similar North America versus International.
The consumer factors, we've seen a continuation of many of the things we've discussed over the first...
Last few quarters, customers looking for deals in a price conscious. This matches up well with our prime events, which we're well received and saved billions for our billions of dollars for our prime members.
Andy: They also led the prime member, paint prime member, Grof, Accelerating the Quarter, which is usually impactful for us, a lot of our...
Andy: Desk.
offers and deliveries are tuned to Prime membership and it's a best deal in retail.
So with all the benefits you get for the subscription price. So those are all positive signs. When you look at it...
Split between revenue growth and unit growth. You do see a some impact of the lower ASP.
Andy: products that we're selling, as well as...
and some of the trade-down consumers are doing. But we take that as a real positive, seeing the growth in everyday essential categories, which are really predicated on speed. So you have to have fast delivery to be able to sell those products to customers.
and when you do, it results in a secure consumer relationship.
Andy: Higher Order Building Larger Baskets, which help our ship economics.
and repeat orders of stronger. So, those are all positive signs and...
We'll take any, you know.
Andy: Short-term degradation in ASP.
and the VWP, because we're focused on D1 primarily as free cash flow here. And we see the ability to unlock a whole new element to the consumer spend.
I'll just add Eric on the VorySP strategy.
You know, there's an expression that we've used a lot of times over the years that it's easy to go our prices, but it's much harder to be able to afford to go our prices.
And the same thing is probably true about lower ASP items. It's pretty easy to choose to supply them, but it's much harder to be able to afford to economically supply them. So one of the reasons that we have been so maniacal about cost to serve over the last few years.
is that as we're able to take our costs served down, it just opens up the aperture for more items, particularly lower ASP items that we're able to supply in an economic way. And when you layer on top of that, you know, that broader selection, you layer on top of that faster speed.
What we're able to do in getting items and fulfillment nodes, local and close to our end customers, we're able to do and expanding our same day network, which allows us to ship same day, but also is one of our go-with-cost ways to ship, is it just let us serve.
SOMING MORE of customers shopping missions, and that's what we're seeing in our business right now, but again, I think there's a lot of opportunities to continue to expand that.
And then the question comes in the line of Colin Sebastian with there. Please proceed with your question.
I'd like to thank you guys, I'd like to ask you a question on online stores, the third party Unimics to kind of a little bit in Q3 which is unusual, so just wondering if there are any specific drivers
Andy: of that shift, and then...
Andy: Secondly, you made a lot of progress with the AI agents on AWS and for sellers.
Andy: Ruffus, Rubyers. I wonder with all the underlying data that you have and leveraging those agent capabilities, if you could provide any perspective on what a next generation elects on my look like and your opportunities there to perhaps drive and come on our revenues. Thank you.
Sure, Colin, thanks for your question. The first one, third party sellers, yes, the percent of paid units was 60%.
and if you'll go over the last two years it's...
Andy: hi
Speaker Change: Essentially it was at 59% stepping up to 60% stepping up to 61%
Primoge every second quarter. So, you know, what we're seeing is still in the tight band between 59 and 61, but what we're seeing is the impact of the everyday essentials. There's probably 3P demand is still strong.
Speaker Change: Univyams are strong, it's just the everyday essentials, Panda, SKU, Mordeo, 1P, then 3P.
Speaker Change: and on your second...
Speaker Change: Question, calling around Alexa.
Speaker Change: I think we have a really broad number of Alexa devices, all over people's homes and offices and automobiles and hospitality sweets. We've got a half a billion devices out there with a couple hundred million active endpoints.
Speaker Change: And we first were pursuing those acts, we had this vision of it being the world's best personal assistant, and people thought that was kind of a crazy idea, and I think if you look at what's happened, gender of AI,
Over the last couple of years, I think, you're kind of missing the boat if you don't believe that's going to happen. It absolutely is going to happen. We have a really broad footprint where we believe if we re-architect the brains of Alexa with...
Next Generation, Foundational Models, which we're in the process of doing. We have an opportunity to be the leader in that space. I think if you look at a lot of the applications today that use GenRVI,
You know there's a large number of them that are having success in cost of weight and productivity.
and then you're increasingly seeing more applications have success in really impacting the customer experience and being really good at taking...
Lodge, Corpus'es of data and being able to summarize and aggregate and answer questions.
But not that many yet that are really good on top of that in taking actions for customers And I think that the next generation of these assistance and the gender-AI applications will be better at not just answer questions and summarizing the indexing and aggregating data but also taking actions
and you can imagine us being pretty good at that with Alexa.
And our final question, come from the line of Justin Post with Bank of America, please proceed with your question.
Great, thank you, maybe a couple questions just on the cloud, are you at all capacity constrained and will the new trainium or in video chips, maybe even drive sales growth faster?
Speaker Change: and the other's been some competition from some of the more traditional retailers growing quickly online. Maybe talk about maybe the advantages that Amazon has with the Fulfillment Center Distribution versus Store Distribution in any thoughts on that. Thank you.
Speaker Change: Well, I'm glad Justin would I would tell you is that...
Speaker Change: We...
I believe we have more demand that we could fulfill if we had even more capacity today. I think pretty much everyone today has less capacity than they have demand for. And it's really primarily chips that are the...
Speaker Change: The area where companies could use more supply. And so, you know, we're growing at a very rapid rate and have grown a pretty big business here in the AI space.
Speaker Change: and it's early days, but I actually believe that the rate of growth there has a chance to prove over time as we have bigger and bigger capacity. And I think that...
Speaker Change: You know, one of the reasons I mentioned in my opening comments that, you know, we have a very deep partnership with Nvidia. We tend to be their lead partner on most of their new chips. We are the first to offer each 200s in easy-to-insences. And I expect us to have a partnership for a very long time, the matters.
Speaker Change: It's also true that for customers that start to scale out their implementations on an inference side, particularly
Speaker Change: They realize pretty quickly that it can get costly and it's really why we have...
Speaker Change: Prosuit, Building, Trainium, and Infraenza, which is our custom silicon. The second version of Trainium, Trainium II will start to ramp up in the next few weeks. I think it's going to be very compelling for customers on a price-performance basis.
and we have a lot of customer interest. We have gone back to our manufacturing partners a couple times now to produce a lot more training than we anticipated.
Speaker Change: Some of that for sure is due to the fact that we have very large demand and we want more capacity and supply to be able to provide them. But a lot of it is that customers are excited about the price performance.
Speaker Change: [inaudible]
Speaker Change: I think on the retail side...
Speaker Change: You know, I'd start by just saying that...
Speaker Change: We've always believed that competition is very positive and very healthy. It's good for consumers.
It's good for businesses. It's actually great for innovation.
Speaker Change: And if you look at the retail space, you know, it's a very, very large market segment. I mean, we have a pretty big retail business, and yet we're only about 1% of the market segment share of the worldwide global retail market segment.
Speaker Change: Still about 80-85% of that market segment share lives in physical stores.
Speaker Change: And so if you believe that equation is going to flip in the next 10 to 20 years, which we do, there's just a lot of opportunity, not just for us, but for several players. There won't be only one successful player. I do think...
Speaker Change: that we have some...
Speaker Change: We have some elements of our customer experience that are really unusual and unlike others. I think we have a meaningfully broader selection than almost all the players that you probably have seen and heard of.
Speaker Change: We have low prices with very significant deals that we go work with our third-party selling partners around, you know, key holiday shopping occasions.
And then we have very...
Speaker Change: Significant Advantages and Speed of Delivery to Customers.
Speaker Change: We just continue to see, in every bit of testing and analysis that we do,
Speaker Change: that the faster that we're able to promise customers that we can get them their items.
Speaker Change: The more frequently they buy and the more they actually use Amazon for their shopping needs. And so, those are things that are pretty different. I also think we have a way of prioritizing customers that I think is unusual. You know, our orientation, our DNA, our core at Amazon.
It starts with the customer and everything moves backwards from that. You know, any meeting you go to inside of Amazon, we're always asking ourselves, what do customers want? What do customers say? What do they not like about the experience? What could be better?
Speaker Change: And that customer orientation is very important, not just in how you take care of customers, but the world changes quickly all the time, and the technology is changing really quickly. And so if you have the combination.
Speaker Change: a strong technical aptitude, propensity, and a passion for inventing, and then also a customer orientation where it drives everything you do. I think you have an opportunity to continue to build great trust in a business over a long period of time.
Speaker Change: Thanks for joining us on a 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 talking with you again next quarter.
And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.