Q1 2025 Amazon.com Inc Earnings Call
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Good day everyone and welcome to the amazon.com First Quarter 2025 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.
Speaker Change: 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. Thank you, sir. Please go ahead.
Dave Fildes: Hello and welcome to our Q1 2025 Financial Results Conference call.
Speaker Change: Joining us today to answer your questions is Andy Jassy, our CEO , and Brian Olsavsky, our CFO . As you listen to today's conference call, we encourage you to have a press release in front of you which includes our financial results, as well as metrics and commentary on the quarter.
Speaker Change: Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2024. Our comments and responses your questions reflect management's views as of today, May 1st, 2025 only, and we'll include forward-looking statements.
Actual results made differ materially. [inaudible]
Speaker Change: 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.
Speaker Change: 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 reconciliation of these measures with comparable GAAP measures.
Speaker Change: Our guidance incorporates the order trends that we've seen to date and what we believe today to be appropriate assumptions.
Speaker Change: 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.
Speaker Change: Terrific trade policies 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.
Speaker Change: Our guidance assumes, among other things, that we don't conclude any additional business acquisitions, restructuring or legal settlements.
Speaker Change: It's not possible to accurately predict a man 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 Jassy: Thanks, Dave. Today we're reporting $155.7 billion in revenue of 10% year-over-year excluding the impact from foreign exchange rates. Operating income is $18.4 billion of 20% year-over-year and trailing 12-month free cash flow is $25.9 billion. $155.9 billion.
Speaker Change: We're pleased with our continued business progress, but more importantly, with our pace of innovation and additional improvement in our customer experiences.
Speaker Change: In our stores business, we once again saw strong consumer residents and our continued work on selection, value, and shipping speed.
Our broad selection offers customers' choice across their shopping journeys [inaudible]
Speaker Change: We welcome well-known brands such as Aura Rings, Michael Coors, and the Ordinary as well as a new shopping experience with Sachs.
Speaker Change: It offers a refined luxury sort of fashion and beauty items from brands like Dolce and Gabbana, Ballmaine,
Speaker Change: Drump a T-Stive Ali, and Jason Blue Collection. As always, we're working to keep price as well, and with us being an uncertain moment for consumers, it's even more important than it typically is. [inaudible]
Speaker Change: In Q1 we held deal events worldwide to help customers save over $500 million across the big spring sale in the US and Canada.
Speaker Change: Spring Deal Days in Europe , and Roberton Eatsale events in Egypt, Saudi Arabia, Turkey, and the UAE. Prime members will have more opportunities to save throughout the year, including at our 11th Prime Day event in July .
Speaker Change: Over the past few years, we've made significant progress in making our fulfillment network more efficient and cost effective.
Speaker Change: We've shared many times that an important turning point was regionalizing our National fulfillment network into regional hubs.
Speaker Change: By stocking items closer to where customers live, we're able to deliver more orders faster, often in fewer packages and at lower delivery costs.
Speaker Change: The next challenge was getting as many items as possible into these regional notes. Our inbound network, which is how we get items to each fulfillment center, hadn't been architected to leverage this new regionalization structure. [inaudible]
Speaker Change: So we redesigned it and just rolled out a new inbound architecture that expands the share of products that we can place in each fulfillment center, improving delivery speeds and lowering our cost to serve.
Speaker Change: In the first quarter, we once again set new delivery speed records with our fastest delivery ever for prime members around the world. And we delivered more items in the same day or next day in Q1 than any other quarter in our history.
Speaker Change: Looking ahead, we'll continue to refine our newly redesigned inbound network, build out our same day delivery sites and add additional robotics and automation throughout our buildings.
Speaker Change: You'll also see us expand the number of delivery stations that we have in rural areas of the US so we can get items to people who live in less densely populated areas much more quickly.
Speaker Change: I thought I'd share a few thoughts on the prospect of heightened tariffs on our stores business.
Speaker Change: Obviously none of us knows exactly where tariffs will settle or when. We haven't seen any attenuation of demand yet. To some extent we've seen some heightened buying and certain categories that may indicate stock melt in advance of any potential tariff impact.
Speaker Change: We also have not seen the average selling price of retail items appreciably go up yet.
Speaker Change: Some of this reflects some forward buying we did in our first party selling, and some of that reflects some advanced inbounding our third party sellers have done. But a fair amount of this is that most sellers just haven't changed pricing yet. Again, this could change depending on where tariff settle. [inaudible]
Amazon is not uniquely susceptible to tariffs. [inaudible]
Speaker Change: As it relates to China, retailers who aren't buying directly from China are typically buying from companies who themselves are buying from China, marking these items up, rebranding and selling to US consumers. These retailers are buying the product a higher price than Chinese sellers selling directly to US consumers in our marketplace.
Speaker Change: So the total tariff will be higher for these retailers than for China Direct Sellers.
It's also sometimes easy to forget what Amazon sells. [inaudible]
Speaker Change: We're not mostly selling high average selling price items, though we certainly sell a bunch.
Speaker Change: In the first quarter, our everyday essentials grew more than twice as fast as the rest of our business, and represented one out of every three units sold in the US and Amazon.
Speaker Change: Even if you exclude Whole Foods Market and Amazon Fresh, Amazon is one of the largest grocers in the US with over $100 billion in growth sales last year.
Speaker Change: We also have extremely large selection, hundreds and millions of unique SKUs, which means we're often able to weather challenging conditions better than others.
Speaker Change: When there are periods of discontinuity, substantial unexpected product trends emerge. Think about the pandemic, when items like masks and hand sanitizer became big sellers.
Speaker Change: When you have the broadest selection like we do, and 2 million plus global sellers like we do, your better position to help customers find whatever items matter to them at lower price points than elsewhere.
Finally, when there are uncertain environments. [inaudible]
Customers tend to choose the provider they trust most. [inaudible]
Speaker Change: Given our really broad selection of low pricing and speedy delivery, we have emerged from these uncertain eras with more relative market segments share than we started and better set up for the future. An optimistic this could happen again.
Speaker Change: Moving to a few words, Amazon ads. We're working hard to be the best place for brands of all sizes to grow their business.
Speaker Change: We are pleased with the strong growth on a very large base generating $13.9 billion of revenue in the quarter and growing 19% year-over-year.
Speaker Change: We're seeing strength across our broad portfolio of full funnel advertising offerings that help advertisers reach an average ad-supported audience of more than 275 million in the US alone.
Speaker Change: This includes their top of funnel efforts to drive brand awareness, the bottom of funnel offerings where we measure outcomes at the point of conversion.
Speaker Change: Amazon ad provides brands with tools to reach targeted audiences in our own entertainment properties, such as Prime Video, Twitch and IMDB,
Speaker Change: Audio content such as Amazon Music and Wondering, and of course in our store, as well as many other external sites such as Pinterest and Buzzfeed.
Speaker Change: All of our audience and measurement capabilities work for the ads we deliver across premium third-party publishers through Amazon DSP and our secure clean rooms provide advertisers the ability to analyze data, produce core marketing metrics and understand how their marketing performs across various channels. [inaudible]
Speaker Change: We continue to see a lot of opportunity to further expand our full funnel capabilities for brands.
Speaker Change: AWS grew 17% year-over-year in Q1, and now sits at a $117 billion annualized revenue run rate. We continue to help organizations of all sizes accelerate their move to the cloud, helping to modernize their infrastructure, lower costs and speed up innovation. .
Speaker Change: We sign new AWS agreements with companies including Adobe, Uber, NASDAQ, Ericsson,
Fujitsu, Cargill, [inaudible]
Mitsubishi Electric Corporation,
General Dynamics Information Technology, GE-Vernova, Huzound Hamilton, [inaudible]
Speaker Change: Nexterra Energy, Publisys, Sapient, Elastic, NetSmart, and many others. It's useful to remember that more than 85% of the global IT span is still on-premises, so not in the cloud yet. It seems pretty straightforward to me that this equation will flip in the next 10 to 20 years.
Speaker Change: Before this generation of AI, we thought AWS had the chance to ultimately be a multi-hundred billion dollar revenue run rate business.
We now think it could be even larger.
Speaker Change: If you believe your mission is to make customers' lives easier and better every day.
Speaker Change: And you believe that every customer experience will be reinvented with AI. You're going to invest very aggressively in AI and that's what we're doing. You can see that in the thousand plus AI applications we're building across Amazon. You can see that with our next generation of Alexa named Alexa Plus. [inaudible]
Speaker Change: You can see that in how we're using AI and our fulfillment network, robotics, shopping, prime video and advertising experiences.
Speaker Change: And you can see that in the building blocks AWS is constructing for external and internal builders to build their own AI solutions.
Speaker Change: At the bottom layer for those building models, our new custom AI chip, Trainium 2, is starting to lay in capacity in larger quantities with significant appeal and demand.
Speaker Change: For AI to be as successful as we believe it can be, the price of inference needs to come down significantly. We consider this part of our mission and responsibility to help make it so successful.
Speaker Change: At the middle layer for those wanting to leverage frontier models to build generative AI apps, Amazon Bedrock is our fully managed service that offers a choice of high-performing foundation models with the most compelling set of features that make it easy to build high-quality generative AI applications.
Speaker Change: We continue to iterate quickly on Bedrock, adding Anthropics, Clubs, 3.7, Sonnet Hybrid Reezing Model, their most intelligent model to date, and Met has gone before a family of models.
Speaker Change: We were also the first cloud service provider to make deep-seek R1, and Meastral AI's Tickstrel Large generally available as a fully managed model. And of course, we offer our own Amazon Nova State-of-the-art Foundation models in Bedrock, with the latest premier model launching
Speaker Change: They deliver frontier intelligence and industry leading price performance and we have thousands of customers already using them including Slack, Siemens, Sumo Logic, Coinbase, Standool, Glean and Blue Origin.
Speaker Change: A few weeks ago, we released Amazon Nova Sonic, a new speech-to-speech foundation model that enables developers to build voice-based AI applications that are highly accurate, expressive, and humanly.
Speaker Change: The technology world is also a buzz about the potential of agents [inaudible]
Speaker Change: To date, virtually all of the agentic use cases have been of the question answer variety.
Speaker Change: Our intention is for agents to perform wide-ranging complex multi-step tasks like organizing a trip or setting the lighting temperature of music ambience in your house for dinner guests or handling complex IT tasks to increase business productivity. [inaudible]
There haven't been action oriented agents like this until Alexa Plus. [inaudible]
Speaker Change: But the technology to build these agents is still quite primitive and accurate and requires constant human supervision.
Speaker Change: We've just released a research preview of Amazon Nova Act, a new AI model trained to perform actions within a web browser
Speaker Change: It enables developers to break down complex workflows into reliable, atomic commands like search, or checkout, or answer questions about the screen. It also enables them to add more detailed instructions to these commands where needed, like, don't accept the insurance upsell.
Speaker Change: Nova Act aims to move the current state-of-the-art accuracy of multi-step agentic actions from 30 to 60% to 90% plus percent with the right set of building blocks to build these action-oriented agents.
and the very top of the stack are the applications. Thank you.
Speaker Change: This task order, AMZL Q, the most capable, generative AI-powered assistant for accelerating software development and leveraging your own data, launched a lightning fast, new-agentic coding experience within the command line interface that can execute complex workflows autonomously. Customers are loving this. [inaudible]
Speaker Change: We also made generally available GitLab Duo with Amazon Q, enabling AI agents to assist multi-step tasks such as new feature development, code-based upgrades for Java 8 and 11, while also offering code review and unit testing all within the same familiar GitLab platform. [inaudible]
Speaker Change: Our AI business has a multi-billion-dollar annual revenue run rate, continues to grow triple-digit year-over-year percentages, and is still in its very early days.
Speaker Change: Well, there is good reason for the high optimism about AI. I conclude my AWS comments with a reminder that there is still so much on-premises infrastructure yet to be moved to the cloud.
Speaker Change: Infrastructure modernization is much less sexy to talk about than AI, but fundamental to any company's technology and invention capabilities, developer productivity, speed and cost structure. [inaudible]
Speaker Change: If we're companies to realize the full potential of AI, they're going to need their infrastructure and data in the cloud. I want to briefly mention a few other items.
Speaker Change: As I've referenced a couple times in Q1, we introduced Alexa Plus. Our next generation Alexa personal assistant is meaningfully smarter and more capable than her prior self.
Speaker Change: Can both answer virtually any question and take actions? It is free with prime or available to non-prime customers for 1999 a month We're just starting to roll this out in the US and we'll be expanding to additional countries later this year. People are really liking Alexa Plus this month [inaudible]
Speaker Change: We're excited and honored to be part of the joint venture that will be creating the next generation of the esteemed James Bond film franchise.
Speaker Change: We recently named the claim producer Amy Pascal and David Heyman to produce next James Bond movie.
Speaker Change: Additionally, just a couple days ago, Project Kuiper reached a significant milestone by launching our first satellites into orbit with more being launched soon, and we expect to begin offering service to customers later this year.
Speaker Change: I'm proud of what our teams around the world have delivered. We're excited about what we're inventing and working on as we speak and with that, I'll turn it over to Brian for a financial update.
Brian Olsavsky: Thanks, Andy. I will begin with our top line financial results. Well, by revenue was $155.7 billion, a 10% increase year-to-year excluding the impact to foreign exchange.
Brian Olsavsky: is equate to a $1.4 billion headwind from foreign exchange year-to-year in the quarter.
Brian Olsavsky: Worldwide operating income was $18.4 billion, approximately $400 million above the high end of our guidance range. [inaudible]
Brian Olsavsky: These results include one-time charges that impacted North America and international operating income that I will discuss in a moment. First, let's start with the net sales results for these segments.
Brian Olsavsky: Our international segment revenue was $33.5 billion, also an increase of 8% year-over-year, excluding the impact of foreign exchange.
or wide-paid units grew 8% earlier. [inaudible]
Brian Olsavsky: A priority is to provide value to our customers across our businesses.
Brian Olsavsky: In the first quarter, we held multiple deal events around the world, which drove strong customer engagement.
Subrod-based strengths across our key business inputs. [inaudible]
Brian Olsavsky: including record delivery speeds for prime members, enabled by improved inventory placement. Our vast selection gives customers choice across various price points, particularly in categories like grocery, which includes everyday essentials.
He's in the items that people purchase most frequently. [inaudible]
Brian Olsavsky: To partner with millions of independent sellers from around the world. [inaudible]
These selling partners are important contributors to our broad selection. [inaudible]
Brian Olsavsky: and Worldwide third-party cell unit mix was 61% in Q1, consistent with Q1 of last year.
Brian Olsavsky: Shifting to profitability, North America's segment operating income was $5.8 billion, and international segment operating income was $1 billion, with operating margins of 6.3% in North America and 3% internationally.
Brian Olsavsky: As I mentioned earlier, during the quarter, we've recorded one-time charges related to some historical customer terms has not yet been resolved and some costs to receive inventory that was pulled forward into Q1 ahead of anticipated tariffs.
Brian Olsavsky: Without these charges, North America and international operating margins would have been approximately 90 basis points and 70 basis points higher or operating margins of 7.2% for North America and 3.7% for international. We are pleased with how our teams continued to execute and deliver for customers. [inaudible]
Brian Olsavsky: and Q1 are newly rearchitected inbound network through a productivity in our fulfillment and transportation network leading to better inventory placement and higher units per package as a result lower delivery cost.
Brian Olsavsky: Beyond Q1, we have a number of initiatives underway to continue improving our cost structure, such as fine tuning our inbound network, building out our same day delivery sites.
Brian Olsavsky: expanding our rural delivery network and adding robotics and automation to our facilities.
Brian Olsavsky: Better inventory placement remains a top priority. Better placement drives more in stock selection, produces travel distances and speeds up delivery.
Brian Olsavsky: and having inventory in the right place at the right time increases the likelihood that multiple items can be combined in a package which helps reduce packaging and cost.
Brian Olsavsky: Although progress won't always be linear, we have a good plan to continue to drive improvement over time.
Brian Olsavsky: Shifting to advertising. Advertising remains an important contributor to profitability in the North America and international segments.
advertising revenue to a 19% year-over-year .
Brian Olsavsky: Replates with the accelerating growth on an increasingly large base.
Brian Olsavsky: for seeing strong adoption across our full funnel advertising offering as brands appreciate our ability to connect them with customers.
We'll also continue to invest in other long-term opportunities.
Brian Olsavsky: These efforts have the potential to be important to customers and Amazon in the future, including Kuiper, where we had our first launch of our production design satellites earlier this week, and we'll be launching more satellites throughout the year.
Brian Olsavsky: We're closely monitoring the macroeconomic environment, including the impact of tariffs.
Brian Olsavsky: The planning for various outcomes, and we've taken a number of actions to protect the customer experience. We're doing everything we can to keep our prices low for customers in a way that makes economic sense.
Brian Olsavsky: Moving next to our AWS segment, revenue was $29.3 billion in Q1, and increase the 17% year-to-year.
Brian Olsavsky: AWS Now is an annualized revenue run rate of more than $117 billion. [inaudible]
Brian Olsavsky: Through the first quarter, we continue to see growth in both gendered AI business and non-generative AI offerings. The companies turn their attention to newer initiatives, bring more workloads to the cloud, restart or accelerate existing migrations from on-premises to the cloud.
and tap into the power of Gen or AI. [inaudible]
Brian Olsavsky: EWS operating income is 11.5 billion dollars and reflects our continued growth, coupled with our focus on driving efficiencies across the business. [inaudible]
Brian Olsavsky: As we said before, we expect AWS operating margins to fluctuate over time, driven in part by the level of investments we're making at any point in time.
Brian Olsavsky: Plan to bring on an increasing amount of capacity in the back half of the year. [inaudible]
Brian Olsavsky: Now I'm turning to our cash cap back, which was $24.3 billion in Q1. The majority of the spend to support the growing need for technology and for structure.
Brian Olsavsky: Primarily relates to AWS as we invest in support demand for AI services and increasingly can cut some silicon like Trainium, as well as tech infrastructure to support our North America and international segments.
Brian Olsavsky: We're also investing in our fulfillment and transportation network to support featured growth and improve delivery speeds and our cost structure.
This investment will support growth for many years to come.
Brian Olsavsky: When we primarily focus our comments on operating income, I'd like to point out that our first quarter net income of $17.1 billion includes a pre-tax gain of $3.3 billion, included in non-operating income. And it relates to our investment in a thropic. [inaudible]
Brian Olsavsky: Activity is not related to Amazon's ongoing operations, but rather the result of the conversion of a portion of our convertible notes to non-voting preferred stock.
Brian Olsavsky: Turning to Q2 guidance. As a reminder, our guidance considers a range of possibilities and takes into account Q1 results, trends in quarter-day results, and expectations around the macro economic environment. [inaudible]
Brian Olsavsky: Q2 net sales are expected to be between $159 billion and $164 billion.
Brian Olsavsky: We estimate the year-veer impact of changes in foreign exchange rates based on current rates which we expect to be a headwind of approximately 10 basis points in the quarter.
As a reminder, global currencies can fluctuate during the quarter. [inaudible]
Brian Olsavsky: Q2 Operating income is expected to be between $13 billion and $17.5 billion and $17.5 billion.
Brian Olsavsky: Assessment includes the impact of our seasonal step-up and stock-based compensation expense in Q2, driven by the timing of our annual compensation cycle.
Brian Olsavsky: The external environment remains complex. And as we have done throughout our history, we are focused on the inputs that we can control to protect the customer experience.
Brian Olsavsky: who will work hard to remain the place customer's trust for sharp prices, broad selection and convenience. We'll remain focused on driving a better customer experience, and we've still believed putting customers first is the only reliable way to create lasting value for our shareholders. With that, let's move on to your questions.
Brian Olsavsky: Thank you. At this time, we will now open the call-up for questions. We ask each caller to please limit yourself to one question. If you would like to ask a question, please press star one on your keypad. We ask that when you pose your question, you pick up your handsets to provide optimum sound quality.
Brian Olsavsky: Once again, to initiate a question, please press star, then one on your touchtone telephone at this time. Please hold, while we pull for questions.
Speaker Change: And the first question comes from the line of Ross Sandler with Barclays. Please proceed with your question.
How great.
Speaker Change: I think I'm going to leave the China questions to others and focus on AWS and kind of AI. So, Andy, it seems like you've been bringing on a lot more P5 GPU instances since February from what it looks like to kind of support all these new AI workloads. [inaudible]
Speaker Change: So how would you characterize in the first quarter and maybe here in the second quarter the kind of supply demand imbalance that you talked about before around AI workloads? And when do you think that AWS will be in a position to kind of capture enough AI revenue to drive acceleration? Is that something that could happen? Yeah.
Speaker Change: This year, do you see that more like next year, given your capacity constraints? Thank you very much.
Speaker Change: Thanks, Ross. I would say that we've been bringing on a lot of...
Speaker Change: P5, which is a form of an NVIDIA chip instances as well as...
Speaker Change: Landing more and more Trainium 2 instances as fast as we can. And I would tell you that...
Speaker Change: You know, our AI business right now is a multi-billion dollar annual run rate business that's growing triple digit percentage is year over year. And we as fast as we actually put the capacity in, it's being consumed.
Speaker Change: So I think we could be driving, we could be helping more customers and driving more revenue for the business if we had more capacity.
Speaker Change: We have a lot more training of two instances and the next generation of Nvidia's instances landing in the coming months.
Speaker Change: I expect that, you know, there are other parts of the supply chain that are a little bit jammed up as well, you know, motherboards and some other componentry, but I do, and some of that is just because there is so much demand right now, but I do believe...
Speaker Change: that the supply chain issues and the capacity issues will continue to get better as the year proceeds.
Speaker Change: And the next question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed with your question.
Eric Sheridan: Thanks so much for taking the question. Maybe I can ask a two-parter. First in terms of strategy, how do you think about positioning the company for the medium term with given all the levels of uncertainty out there about how the global trade environment? [inaudible]
Eric Sheridan: Mike Schiff in the coming months. What do you see as the key strategic priorities? [inaudible]
Eric Sheridan: that will allow the company to sort of be able to capitalize one way or another depending on various elements of outcome and how do you prioritize those investments in the months ahead. And then with respect to the one-quarter forward operating income guide, is there anything in there from a cost side that we should be thinking about as purely aligned with those types of investments against the trade landscape that might not repeat either later into this year or next year? Thanks so much.
Thanks, Eric. You know, it's-
It's...
Hard to tell. All.
Eric Sheridan: What's going to happen with tariffs right now? It's hard to tell where they're going to settle and when they're going to settle.
Eric Sheridan: And so a lot of what we're thinking about short and medium term actually turns out to be what we think about long term too.
Eric Sheridan: which is, how do we actually have the broadest possible selection for customers at the lowest possible prices? And there's maybe never been a more important time in recent memory than, you know, trying to keep prices low, which we're heads down.
Eric Sheridan: Pretty maniacally focused on, and then get things to people quickly and take care of customers [inaudible]
Eric Sheridan: That is the heart of what we're doing and you can see different initiatives that we've taken within those priorities. You know, we've done
Eric Sheridan: Some forward buys of inventory in where we're the first party seller. Our third party sellers have pulled forward a number of items so they have inventory here as well. And those are all, we're encouraging that because we're trying to keep prices as low as possible for customers. We're trying to keep prices as low as possible for customers.
Eric Sheridan: I think also when you have as broad selection as we have, we have much broader selection than other retailers.
Eric Sheridan: It means that when you've got this continuity like we may potentially have,
Eric Sheridan: You're better able to help customers find what they want, no matter what those trends are. And I mentioned in my opening comments about what happened in the pandemic and
Eric Sheridan: You can bet there are going to be things that we don't anticipate that customers really value and want that are different. It could be a simple by the way.
Eric Sheridan: and just favoring other brands that maybe people didn't know about before but where they have a more favorable price equation for customers. And I think when you've also got another thing that people forget is that when you've got...
2,000,000 plus sellers.
Eric Sheridan: They're not all going to take the same strategy if they're ends up being higher terrorists. I mean they're going to be plenty of sellers that decide to pass on those higher costs to consumers, but we have a lot of sellers in lots of different countries and not all of them are going to pursue the same tech.
Eric Sheridan: And so, I think when you've got larger diversity like we have,
Eric Sheridan: We have a better chance of some of those sellers deciding that they're going to capture share.
Eric Sheridan: and they're not going to pass on all or any of those tariffs to the customers, and so I think customers are going to have a better chance of finding variety on selection and on lower prices
Eric Sheridan: when they come here and you know the last thing I would say is that we have been in a number of our businesses
Eric Sheridan: But just I'd say over the last six years or so, we have been diversifying where we produce things over a long period of time, we had a, I would say a meaningfully higher concentration of where we produced
Components for AWS or Devices in China.
Eric Sheridan: And then we have now where we've diversified meaningfully over that time. And we just thought that was wise to do so.
Eric Sheridan: Really broad selection for ultimate choice, really low prices and very fast delivery. [inaudible]
Eric Sheridan: Eric, I'll take your question on the guidance and especially on operating income. I think that was your question.
Eric Sheridan: and the cost that might be Q2. The thing I'd point to again is what I mentioned earlier, the stock-based comp always steps up, generally in Q2 versus Q1 and then resets a rate that carries through for the next four quarters. [inaudible]
Eric Sheridan: You can look at historic trends, a good idea of that. [inaudible]
Eric Sheridan: Secondly, we do have some additional Caper launch costs in Q2. You saw a launch happen this week.
AMZL,
Eric Sheridan: and a reminder that we expense those launch costs until the point of commercialization, which would plan to have that later in this year.
Speaker Change: Thank you. And the next question comes from the line of Justin Post with Bank of America. Please proceed with your question.
Justin Post: Thanks. I'll go back to AWS. I know that in the past you said revenues can be lumpy. Can you explain why they might fluctuate up and down if it's beyond just capacity?
and you see the competitors, you know. [inaudible]
Justin Post: with some pretty good growth rates. How do you think about the difference there? Obviously your dollar growth is very good, but how do you think about the difference there versus some of your competitors? Thank you.
Justin Post: Well, you know, the first thing I would say is when we've historically said that Revenue can be lumpy,
Justin Post: This was, you know, we've been saying this well before what's happened with AI over the last couple years, and the reason for that is [inaudible]
Justin Post: The Sales Cycle for, particularly for Enterprise, it's true for startups, you know, what you really want is you want to...
You want to have the type of capabilities where...
Justin Post: Startups want to primarily choose to run on top of your platform, and that's true if you look in the startup space, um, you know. [inaudible]
Justin Post: The vast majority of successful startups over the last 10 to 15 years are run on top of AWS and
It's unpredictable.
when those startups...
are going to find PratMarket fit and...
Justin Post: and Grow substantially, and it's hard for them to predict it even harder for us to predict.
Justin Post: And the same thing goes on the enterprise side when you put in a different way when the sales cycle on the enterprise side is then
Justin Post: You spend time trying to convince people that they should move from on premises to the cloud.
Justin Post: and then you have the right solution for them, and then you pick a set of projects that you get experience on, and sometimes they use systems integrators, sometimes they use our own professional services, sometimes they're doing it themselves. [inaudible]
Justin Post: Then there's a next trosh migration, and those migrations just take time.
Justin Post: and some companies get through them really quickly and some companies take longer to get through them and what happens a lot of times too is that they get excited and enthusiastic about
Justin Post: The cost advantages and the speed of innovation advantages they get moving to the cloud.
Justin Post: and what was supposed to be a smaller next-trash turns into a much larger next-trash. And all of that has been true for a long time. It's very hard for us to predict because it really is contingent on what enterprises, how they want to sequence it, and resource it. Then you throw in AI,
Justin Post: which has its own very fast growth cycle, particularly in certain types of use cases, and those change. I'll give you just some examples. In the early days
Justin Post: of, you know, on the earliest days, I should say, of AI-
which you've seen the most amount of has been...
Justin Post: Initiatives that get you productivity and cost avoidance. And we've seen that from so many of our AWS customers. And we're doing a lot of it ourselves inside of Amazon using AI. And then you've also seen, I would say, large scale training.
Justin Post: With a lot of those, they're running on top of this as well, as you know, anthropic is running, you know, building the next training models on top of our training toolchip, an AWS, and then you've seen a couple really big chatbots
Justin Post: and then what you've seen just in the last few months. [inaudible]
Justin Post: is really kind of the explosion of coding agents. And if you just look at the growth of these coding agents the last few months, these are companies like Cursor or Versailles, both of them run significantly on AWS, but just look at the growth of that over the last...
Justin Post: A few months, you just couldn't have predicted that sort of growth. And so that's why it's slumpy. You know, sometimes you'll have, you know, very significant increases that you didn't predict and you couldn't forecast.
Justin Post: and then they'll grow at a good rate, but maybe not the same rate before the next big explosive growth.
and I would tell you that...
Justin Post: Everything I just mentioned with interesting AI is that we still haven't gotten to all the other customer experiences they're going to be reinvented and all the other agents they're going to be built. They're going to take the role of a lot of different functions today.
Justin Post: And even though we have a lot of combined inference in those areas, I would say we're not even at the second strike in the first batter in the first inning. It is so early right now.
Justin Post: And then I would just say on the, how to think about, [inaudible]
Justin Post: Relative growth rate. You always have to, you know, the year over year growth rate is really only a function of the percentage growth on the base with which you are operating from. And we just have a very, you know, a meaningfully larger base on the technology infrastructure side than others. [inaudible]
Justin Post: And so, you know, it's still, you know, to think about...
Justin Post: 17% your growth on a $117 billion revenue run rate to a pretty significant growth. And as I said, I think we could be doing more if we had more capacity and I expect that the capacity to ease in the coming months.
Speaker Change: Thank you. Our next question comes from the line of Doug Anmuth with JPMorgan. Please proceed with your question.
Speaker Change: Thanks for paying the questions. One for Brian , one for Andy. Brian just made it to follow up on AWS but more on the margin side. We've seen a lot of fluctuation over the last couple of years and now hitting almost 40%. Maybe you can just talk about what's...
Speaker Change: Driving the outperformance, and then how we should think about normalized margins going forward. And then Andy, your comments on Alexa about moving to more complex.
Speaker Change: Tasks. Can you talk about that more and just, you know, with Alexa, the products have been around for a long time. They've had different use cases. How do you get users to shift their behavior more with Alexa? Thanks.
Thanks Doug, I'll take your first question. Yo, we did a strong quarter in AWS, as you mentioned, the margin performance.
Speaker Change: I would tribute it to the strong growth that we're seeing coupled with the impact of some continued investment we're making in innovation and technology, give you some examples. So, we invest in software and process improvements and it ends up optimizing our server capacity, which helps our infrastructure cost.
Speaker Change: We've been developing our efficient network using our low-cost custom networking gear. We're working to maximize the power usage in our existing data centers, which both lowers our costs and also reclaims power for other newer workloads. [inaudible]
Speaker Change: And we're also seeing the impact of advancing customs so we'll kind of like Graviton. I'd like to lower costs, and I'd like for us to also for our customers, the better price performance for them.
Speaker Change: But you're right, margins are, you know, impacted by a lot of things, including our global investment, competitive pricing, the mix of generative AI services, as they're ramping up, will continue to evolve over the years to come.
Speaker Change: We do have a lot of investment in infrastructure going on and plan for the second half of the year. So that will, you know, we'll start to see the impact of that. But we're happy with the performance of the team with generating cost savings.
Speaker Change: and it's a big focus as well as expanding the services and features for customers. [inaudible]
Speaker Change: The Luxa question, we're really excited about Alexa Plus and you know as I mentioned earlier, it is,
She's much more intelligent, much more capable.
and able to take...
Speaker Change: Real Action, and you know today most of the agents that have been out there have really just been able to answer questions which when it came out was very remarkable and but it's you know I think the future agents is not just being intelligent but also being able to take action and that's actually.
Speaker Change: It requires a great model, but it also requires the ability to sync that model and to align that model with being able to take the right action and execute and implement the right APIs, or you can have very suboptimal results. [inaudible]
Speaker Change: So we've worked hard on that in Alexa Plus. We started rolling out over that class several weeks. It's with now over 100,000 users.
Speaker Change: You know, with more rolling out in the coming months and so far the response from our customers has been very, very positive. People are excited about it. I think that, you know, it does.
A lot more things than what Alex did before.
Speaker Change: And we're very fortunate in that we have over a half billion devices out there in people's homes and offices and cars.
Speaker Change: So we have a lot of distribution already, but there will be to some degree, [inaudible]
Speaker Change: There will be a little bit of rewiring for people on what they can do because you get used to patterns. I mean, even the simple thing of not having to speak Alexa speak anymore, we're all used to saying Alexa before we want every... [inaudible]
Speaker Change: Action to happen and what you find is you really only have to do it the first time and then really the conversation is ongoing where you don't have to say Alexa anymore and I've been lucky enough to have the alpha and the beta that I've been playing with for several months and it took me a little bit of time to realize I didn't have to keep saying Alexa and it's very free when you don't have to do that. [inaudible]
Speaker Change: You know, and then I think it's just experience in trying things so you can do things like you have guests coming over on a Saturday night for dinner and you can say, you know, Alexa, please open the shades. I'm sorry.
Speaker Change: PUT the lights on in the driveway and on the porch, increase the temperature of five degrees, and pick music that would be great for dinner that's melt. And she just does it. And like, when you have those types of experiences
Speaker Change: It makes you want to do more of it, you know, when I was in New York, when we were announcing it, I asked...
Speaker Change: or what were the, you know, we did the event way downtown, I asked her what was, what was the great Italian restaurants or pizza restaurants, she gave me a list and then she asked me if she [inaudible]
Speaker Change: She made the reservation and confirmed the time and like that when you get into those types of routines and you have those types of experience,
Speaker Change: They're very, very useful. It is really like having a great personal system which most people in the world don't have.
Speaker Change: And so I think that the more and more that people get used to it, they will realize what she can do and we're not going to be standing still. We have a lot more functionality that we plan to add in the coming months, too.
Speaker Change: Thank you. Our next question comes from a line of Brian Nowak with Morgan Stanley . Please proceed with your question.
Brian Nowak: Thanks for taking my questions, Andy and Brian , so one for each of you guys, Andy, you have a very complicated retail business with a lot of moving pieces to it. I imagine you have a lot of good data on what you expect demand to be over the course of the year and the holidays and things.
Speaker Change: As you kind of step back and analyze the business and the tariff uncertainty.
Speaker Change: Can you just sort of walk us through the one or two key areas operationally that you're most focused on just to ensure that prime day Thanksgiving and the holidays go smoothly as they possibly can.
Speaker Change: And then secondly, Brian , just to kind of go back to Eric's earlier question, as we think about the 2QEBIT guide, are there any one-time costs or sort of tariff related costs in there similar to that billion dollars that you called out in the first quarter? Thanks.
RxPass, RxPass, RxPass, RxPass, RxPass, RxPass,
Thanks, Brian . On the retail question.
Speaker Change: Areas that maybe we're most focused on to make sure we are not just a great prime day, but prime day is just one event as you know and so is peak, we're trying to be great all year long for. [inaudible]
Speaker Change: Customers. The obvious ones are making sure that we help our sellers, however we can, because there's uncertainty for our sellers as well. So we're trying to make sure we've brought a great experience. We're trying to make sure that we have the right...
Speaker Change: Diversity of sellers and low prices for our customers. I think all that you have to also be very thoughtful around how much inventory you bring into your fulfillment nodes. Thank you very much.
Speaker Change: at any one time because you can imagine scenarios where you know either on your own when you're the first party sour or lots of third parties
Speaker Change: Want to get as much inventory as early as possible, trying to beat a deadline on what may happen.
Speaker Change: And if you end up with too much inventory in your fulfillment network, it really slows down.
Speaker Change: Your productivity and your ability to get things out as quickly as you want for customers at the cost structure you want. So being able to manage that thoughtfully, we've learned that over the years and I think the team is doing a really good job of balancing that right now.
Speaker Change: And Brian , on your question about Q2, I guess I'll just reiterate what I had said earlier.
Speaker Change: You know, we've stock-based comp, step up, which, if you can see the normal pattern for that, if you look at our history, we have additional Kuiper expenses. Specifically, yes, we do have tariffs, so we'll be paying on retail purchases based on current tariffs.
Speaker Change: It's not large in Q2, it's, it had done a lot of pre-bying of inventory in Q1, as I mentioned earlier.
Speaker Change: About, you know, just generally, I think with the uncertainty we've added a bit to the range that we've given you, we generally have a wide range, but just the general uncertainty that we're seeing and uncertainty of...
Speaker Change: consumer demand and everything else is causing us to increase the range a bit. So we'll see, we've filled an informed view of Q2 right now.
Speaker Change: As Andy mentioned earlier, we saw actually some strength in April based on what could end up being some pre-bys of a number of things but
Speaker Change: and Advertising has been strong, so we think there's a lot of positive trends but certainly uncertainty right now for the quarter.
Speaker Change: Thank you. And our final question will come from the line of Brent Thill with Jeffries. Please proceed with your question.
Speaker Change: Thanks, on AWS, I'm curious if you could give us the backlog number and Andy, your point about many of these core workloads still...
Brent Phil: Yeah, to come to the cloud. Can you just update us and what you're seeing? Are you seeing enterprise strength back? Are you seeing some confusion with AI clouding that transition and the timing of that? Just give us a perspective on what you're seeing on that migration. Thank you.
Speaker Change: On the AWS question, Brent, around what we're seeing on the workloads that haven't moved.
Brent Phil: You know, what I would say, the way I would characterize it is that
We were on a very... [inaudible]
Brent Phil: Aggressive March that was methodical, but almost metronomic before the pandemic.
Brent Phil: The speed of innovation, the developer productivity, and the cost advantages of the cloud. And then when you got into the pandemic, and the economy looked uncertain in the second half of that couple of few years,
Brent Phil: You had everybody try to cost optimize, including us by the way, and then as we started to emerge from that trend, you saw a gender of AI explode and
16-18 months or so.
Brent Phil: is that enterprises realize they need to do both, and they want to do AI. They have all sorts of pilots at this point on AI, many of which will be successful, others of which will not be successful. The ones that are successful will scale, but they also have...
Brent Phil: A lot more initiatives that they still haven't gotten to on the AI side, either because they're building that skill set.
Brent Phil: or they're picking a first set to get experience with, or as they're waiting to see the cost of inference continue to go down, which it will. I mean, you will not get the expansiveness that we all know is coming in AI until we keep getting the cost of inference down, even though it's growing like crazy right now.
Brent Phil: But at the same time, I would say that we see an increased resurgence and end.
understanding
Brent Phil: Interprises that they are dropping the low-hanging fruit if they don't move their infrastructure to the cloud. For all the reasons I mentioned earlier, so you started to see those plans pick up again. As I mentioned earlier, to one of the questions,
Brent Phil: You don't decide that you're going to transform your infrastructure from on-premises to the cloud and see it happen in three months.
Brent Phil: That is typically a multi-year process that some companies do it fast, some companies do it slower, but they do it in tranches and they do it thoughtfully because they can't afford for their applications out to work as they make a transition.
Brent Phil: And we're having meaningful success in those conversations and in companies choosing to transform their infrastructure on top of AWS and I think that you'll see that moving forward too.
Speaker Change: Thank you for your time joining us 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 we look forward to talking with you again next quarter.
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