Amazon.com, Inc. (AMZN) on Q1 2023 Results - Earnings Call Transcript
Operator: Good day, everyone, and welcome to the Amazon.com First Quarter 2023 Financial Results Teleconference. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Today’s call is being recorded. For opening remarks, I will be turning the call over to the Vice President of Investor Relations, Dave Fildes. Thank you, sir. Please go ahead. Dave Fildes: Hello, and welcome to our Q1 2023 financial results conference call. Joining us today to answer your questions is Andy Jassy, our CEO; and Brian Olsavsky, our CFO. As you listen to today’s conference call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2022. Our comments and responses to your questions reflect management’s views as of today, April 27, 2023, only and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today’s press release and our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings. During this call, we may discuss certain non-GAAP financial measures. In our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our IR website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Our guidance incorporates the order trends that we’ve seen to date and what we believe today to be appropriate assumptions. Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending, including the impact of recessionary fears, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce and cloud services and the various factors detailed in our filings with the SEC. Our guidance assumes, among other things, that we don’t conclude any additional business acquisitions, restructurings or legal settlements. It’s not possible to accurately predict demand for our goods and services, and therefore, our actual results could differ materially from our guidance. And now, I’ll turn the call over to Brian. Brian Olsavsky: Thank you for joining today’s call. As Dave mentioned earlier, I’m joined today by Andy Jassy, our CEO. Before we move on to take your questions, I’ll make some comments regarding our Q1 results. Let’s begin with revenue. For the first quarter, our worldwide net sales were $127.4 billion, up 9% year-over-year, or 11% excluding approximately 210 basis points of unfavorable impact from changes in foreign exchange rates. This was above the top end of our guidance range. Overall, we are pleased with the growth that we’re seeing in worldwide stores businesses, including quarter-over-quarter revenue acceleration in the International segment, which is helped by easing macroeconomic pressures in Europe. Across the geographies we serve, customers appreciate our focus on staying sharp on pricing, having strong selection and easier convenience, including delivery speeds, which continued to improve throughout the first quarter. That said, the uncertain economic environment and ongoing inflationary pressures continue to be a factor, and we believe it’s continuing to drive cautious spending across consumers. This means our customers are looking to stretch their budgets further and are focused on value. We saw moderated spending on discretionary categories as well as shifts to lower-priced items and healthy demand in everyday essentials, such as consumables and beauty. Third-party sellers, including businesses who elect to utilize Fulfillment by Amazon for their storage and shipping services are a key contributor to the selection offered to customers. We also continued to invest meaningfully in brand protection efforts, including industry-leading technology, so that sellers can trust we will provide a great selling experience free from bad actors. Sellers comprised 59% of overall unit sales in Q1, up from 55% one year ago. We also saw strong engagement in our advertising services with revenue up 23% year-over-year, excluding the impact from changes in foreign exchange rates. In particular, our sponsored product and brand offerings remain a key driver of growth as we work with advertisers to help customers make more informed purchase decisions. Our teams remain focused on delivering performance through our comprehensive and flexible measurement capabilities along with insights that allow advertisers the ability to measure the return on their advertising spend and help them grow their business. In AWS, net sales were $21.4 billion in the first quarter, up 16% year-over-year and representing an annualized sales run rate of more than $85 billion. Given the ongoing economic uncertainty, customers of all sizes in all industries continue to look for cost savings across their businesses, similar to what you’ve seen us doing at Amazon. As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter. And we are seeing these optimizations continue into the second quarter with April revenue growth rates about 500 basis points lower than what we saw in Q1. As a reminder, we’re not trying to optimize for any one quarter or year. We’re working to build customer relationships and a business that will outlast all of us. Therefore, our AWS sales and support teams continue to spend much of their time helping customers optimize their AWS spend so that they can better weather this uncertain economy. This customer orientation is built into our DNA and how we think about our customer relationships and business over the long term. Now, let’s shift to worldwide operating income. For the first quarter, we reported $4.8 billion in operating income, above the top end of our guidance range. This operating income was negatively impacted by an estimated employee severance charge of approximately $470 million in Q1, including $270 million related to AWS. As we finalized our annual planning process and considered the ongoing economic environment, we made the difficult decision to eliminate 9,000 roles, impacting our AWS business as well as Twitch, devices, advertising and our human resources teams. In Q1, our year-over-year growth in stores revenue and unit sales outpaced growth in both our fulfillment expense and our outbound shipping costs. Inflationary pressures continued to ease quarter-over-quarter, primarily driven by reductions in linehaul shipping rates as well as lower diesel fuel and electricity costs. We also built on the progress we made throughout 2022 in improving productivity in our fulfillment network through continued process and tech improvements. We exited Q4 with a good balance of labor throughout the network and leveraged that throughout Q1 with customer demand patterns remaining more stable compared to Q1 of last year. As labor availability has stabilized and inventory supply chain challenges have moderated, we’re able to implement some significant structural changes to transition our U.S. fulfillment network to a regionalized model. We believe these improvements put us in a good position to improve both delivery speed and our cost to serve customers over time. We reported overall net income of $3.2 billion in the first quarter. While we primarily focus our comments on operating income, I’d point out that this net income includes a pretax valuation loss of $467 million included in non-operating expense from our common stock investment in Rivian Automotive. As we’ve noted in recent quarters, this activity is not related to Amazon’s ongoing operations but rather to quarter-to-quarter fluctuations in Rivian’s stock price. Turning to cash flows. We remain focused on building long-term sustainable growth in free cash flow, including our efforts towards a strong cash flow accretive working capital cycle. Our operating cash flow for the trailing 12 months ended March 31st increased to $54.3 billion, up 38% versus the comparable period year-over-year. Besides the cash benefit of improved profitability year-over-year, we’ve also seen supply chains easing up and made progress to improve our inventory purchasing and payment cycles, which in turn has a positive impact on working capital. Now, let’s turn to our capital investments. We define our capital investments as the combination of CapEx plus equipment finance leases. For the full year 2023, we expect capital investments to be lower than our $59 billion investment level in 2022, primarily driven by an expected year-over-year decrease in fulfillment network investments. We’re continuing to invest in infrastructure to support AWS customer needs, including investments to support Large Language Models and generative AI. Before we open the call up for your questions, I’ll hand it over to Andy to share some high-level perspectives on the first quarter. Andy Jassy: Thanks, Brian. I’ll share a few thoughts before opening up for questions. From my perspective, I think there’s a fair bit to like about how our teams are delivering for customers and the results we’re starting to see. In our storage business, we’ve been very focused on reducing our cost to serve in our fulfillment network. As we shared in the past, given the unexpected surge in demand during the pandemic, we doubled the size of our fulfillment center footprint and largely built the transportation network the size of UPS in a couple of years. This ended up substantially changing the number of nodes and connections in our fulfillment network. And as a result, we spent the last several months not only redesigning dozens of processes to drive better productivity but also re-architecting our placement approach and larger fulfillment center footprint to move from a national fulfillment network in the U.S. to a regional one. It means we’ve created 8 interconnected regions in geographic areas with each of these regions having broad relevant selection to operate in a largely self-sufficient way while still being able to ship nationally when necessary. We just recently completed this rollout and are quite bullish on the early results. Not surprisingly, shorter travel distances means lower cost to serve and customers getting their orders faster. And while on the topic of delivery speed, we’re really excited about our progress in providing customers more one-day and same-day deliveries and are on track to have our fastest Prime delivery speeds ever in 2023. On the advertising side, we’re continuing to buck wider advertising trends and deliver robust growth. I think there are a few reasons for it. First, even in difficult economies, most people still shop. And with the largest e-commerce shopping venue, we have a lot of customers that companies seek to reach. That, coupled with our very substantial investment in machine learning to make sure customers see relevant ads when they’re looking for various items, have meant that these advertisements have performed unusually well for brands, which makes them want to advertise on Amazon. It’s also worth noting that we’re still very early in our efforts to find a way to thoughtfully place ads in our broader video, live sports, audio and grocery properties. We have a lot of upside still in advertising. In AWS, what we’re seeing is enterprises continuing to be cautious in their spending in this uncertain time. Customers are looking for ways to save money however they can right now. They tell us that most of it is cost optimizing versus cost cutting, which is an interesting distinction because they say they’re cost optimizing to reallocate those resources on new customer experiences. One of the great attributes of the cloud is that you can scale seamlessly up or down as demand dictates, which is not the case with on-premise’ infrastructure. Customers want help finding ways to spend less during this challenging time. And given that it’s best for customers long term, we’ve been actively helping customers make these adjustments. We’ve spent a fair bit of time analyzing what we’re seeing, and I’ve spent a good chunk of time myself looking as well, and we like the fundamentals of what we’re seeing in AWS. The new customer pipeline looks strong. The set of ongoing migrations of workloads to AWS is strong. The product innovation and delivery is rapid and compelling. And people sometimes forget that 90-plus percent of global IT spend is still on-premises. If you believe that equation is going to flip, which we do, it’s going to move to the cloud. And having the cloud infrastructure offering with the broadest functionality by a fair bit, the best securing operational performance and the largest partner ecosystem bodes well for us moving forward. But we’re not close to being done inventing in AWS. Our recent announcement on Large Language Models and generative AI and the chips and managed services associated with them is another recent example. And in my opinion, few folks appreciate how much new cloud business will happen over the next several years from the pending deluge of machine learning that’s coming. This past year has seen us do a fair bit of cost streamlining. As I mentioned in my recent shareholder letter, we took a deep look across the Company and asked ourselves whether we had conviction about each initiative’s long-term potential to drive enough revenue, operating income, free cash flow and return on invested capital. In some cases, it led us to shuttering certain businesses like our physical bookstores, Forestar Stores, Amazon Fabric, Amazon Care and certain devices where we didn’t see a path to meaningful returns. In other cases, we looked at some programs that weren’t producing the returns we’d hoped, an example of free shipping for all online grocery orders over $35 and changed them. We also made the very difficult decision to eliminate about 27,000 corporate roles. Like most leadership teams, we’ll continue to evaluate what we’re seeing in our business and proceed adaptively. But while we’ve taken several actions to streamline our costs, we’ve been able to do so while still pursuing the key strategic long-term investments that we believe can meaningfully make customers’ lives better and potentially change what Amazon is. These are investments both in our larger business as mentioned earlier as well as in areas like international expansion in our stores business, large retail market segments in which we’re still nascent like grocery and business-to-business, allowing consumers to use Prime off of Amazon in our Buy with Prime program, entertainment, devices, health care and our Low Earth Orbit satellite for the hundreds of millions of households, companies and government entities that have limited to no connectivity. It’s hard to predict that all of these will be successful but only one or two working would change our business over the long term. We have a lot of work in front of us, but I like the direction we’re headed and strongly believe our best days are in front of us. And with that, I’ll open it up for questions. Operator: Our first question comes from the line of Doug Anmuth with JPMorgan. Doug Anmuth: Andy, you talked about the continued optimization. Just curious, can you talk about the degree to which optimization has been done in AWS versus what you think could still lie ahead, and when do you start to lap some of those efforts? And then also on the CapEx side, I think you said overall CapEx would be down in ‘23. Can you just help us understand that a little bit better between retail and AWS? And then what’s required on CapEx from a generative AI and large language model perspective? Thanks. Brian Olsavsky: This is Brian. I’ll take the first -- the second part of that question first. On CapEx, we spent $59 million -- $59 billion, excuse me, last year. And we -- on our core fulfillment and transportation areas, we actually are spending less year-over-year, and those estimates are going down. The GAAP or the increases in AWS and infrastructure and we are adding more dollars to the -- for Large Language Models and generative AI. So, we’re creating some space in our fulfillment and transportation number that has been repurposed over to AWS. We still think the combined CapEx will be lower year-over-year. Andy Jassy: Just on your first question, Doug. It’s hard to say exactly where we are in the process. I think that what we continue to see when we talk with customers is that they’re appropriately cautious about what they’re seeing in the economy. They’re trying to find ways to save money as most companies are, including our own. And we have a long track-record, which we continue to pursue, which I think makes sense for customers and for our business long term that we’re not trying to optimize for a quarter or for a year. We’re going to do whatever it takes to help customers be successful over a long period of time because we’re trying to build relationships in a business that outlast to all of us. And so, we’re spending a lot of time with customers trying to help them think of smart ways, not short-term ways, but smart ways to optimize their costs and to be able to scale up and down. And again, one of the big advantages of the cloud is that if you grow quickly, you can seamlessly scale up. But when you don’t have the demand, you can give it back to us and stop paying for it, and that is not true with what you see on-premises. And so we’re trying to work hard to help customers with that. I think it’s important to remember that customers are pretty explicitly telling us that this is not a cost cutting effort where we intend on spending less money on technology or on the cloud. This is our reprioritizing what matters most to our business at this time and trying to reallocate resource so we can build new customer experience (ph). And so, I think if you think about -- those projects, by the way, take time to build. When you’re reallocating, you’re reprioritizing, you’re redefining what you’re going to build, you got to actually go build it before you can implement it. And we’re working pretty carefully and closely with customers on those initiatives. I think it’s important to remember that there’s still so much growth ahead of the cloud, 90-plus percent of the global IT spend is on-premises. And so if you believe that equation is going to flip, it’s mostly moving to the cloud. And I also think that there are a lot of folks that don’t realize the amount of non-consumption right now that’s going to happen and be spent in the cloud with the advent of Large Language Models and generative AI. I think so many customer experiences are going to be reinvented and invented that haven’t existed before. And that’s all going to be spent in my opinion, on the cloud. Operator: And our next question comes from the line of Eric Sheridan with Goldman Sachs. Eric Sheridan: Andy, you’ve talked a lot in the letter -- the shareholder letter and on the last earnings call about driving greater levels of efficiencies in the Company and also possibly returning to some of the margin structures we saw pre-pandemic and absorbing overcapacity that built up during the pandemic. Can you give us an update on where you think you are in those broad efforts to match margins versus pre-pandemic levels and strike the right balance between profitability and driving your growth initiatives over the next couple of years? Thanks so much. Brian Olsavsky: Eric, this is Brian. Let me start on the financial part of that question. So I think we would describe ourselves as like along on the journey and making solid progress on recovering our cost structure and getting it back to pre-pandemic levels. Andy’s talked about the efforts in operations and the regionalization of our operations. We’ve obviously taken a hard look at all of our businesses that we’re in over the last 6 to 9 months and have made adjustments there. But there’s still a lot ahead of us, especially on the operational side that if you look at our operating margin in North America, for example North America segment, it was 1.2% this quarter, pre-pandemic that number was in the 4% to 6% range broadly. So, it’s a bit of marker on how much upside. But there’s a lot of moving parts in that number. Obviously, there’s the advertising, there’s investments going on for future growth, and there’s the core profitability and cost structure that our operations are achieving. So, making progress, working hard at it, but it’s a longer road than bouncing back in one or two quarters. Andy Jassy: I would just add to that we have looked pretty hard at every single one of our businesses. And I think that while it’s probably most visible given the size of it, what’s the improvement in the operating margin and the efficiency in our stores business, I think every business is working really hard on finding ways to be more efficient. And as Brian said, I think we’re making really, really good progress, the fulfillment costs in our operations network and our stores business. But one of the things that’s been interesting and frankly pretty encouraging to all of us is that as we -- over the last 6 to 9 months, as the network fundamentally changed, remember, when you go through as much growth as we went through and you add -- you double your fulfillment center footprint and you also build a last-mile transportation network the size of UPS in a couple of years, there’s a lot that you have to work on to get that as productive as you want. And we’ve spent a lot of time working on that the last 6 to 9 months. But some of the ways that you operated before, which worked through several elbows in the curve and scale, when they become inefficient because the network fundamentally changes, they become inefficient in a significant way. And so it’s part of what led to the regionalization effort that I talked about, but it also caused us to really reevaluate virtually everything we do in operations over the last 6 to 9 months. And we have found a lot more opportunities than we even thought were there before. So, I’m pretty optimistic that we have a chance not just to recover to where we were pre-pandemic in terms of operating margin, but I think there’s additional upside with some of the opportunities we’ve identified. Operator: And the next question comes from the line of Brian Nowak with Morgan Stanley. Brian Nowak: I have two, Andy. The first one, you talked a lot about the long-term AI and large language model potential out of AWS. I think there’s a lot of discussion about AWS’s competitive positioning when it comes to these tools. Could you just sort of walk us through 2 or 3 of the key points of differentiation that you think AWS offers and AI tools versus some of the competitors? And then the second one around Echo and Alexa. The neural networks may not be a leading edge of technology now with the rapid emergence of some of these new Large Language Models. How do you think about the key investment priorities for Echo and Alexa going forward? And what’s your view on ROIC around that division? Thanks. Andy Jassy: Yes. I’ll try and answer those together because they’re somewhat related. I think when you think about machine learning, it’s useful to remember that we have had a pretty substantial investment in machine learning for 25-plus years in Amazon. It’s deeply ingrained in virtually everything we do. It fuels our personalized e-commerce recommendations. It drives the Pick Pass in our fulfillment centers. We have it in our Go stores. We have it in our Prime Air, our drones. It’s obviously in Alexa. And then AWS, we have 25-plus machine learning services where we have the broadest machine learning functionality and customer base by a fair bit. And so, it is deeply ingrained in our heritage. I think if you look at what’s happened over the last 9 months or so is that these Large Language Models and generative AI capabilities, they’ve been around for a while, but frankly, the models were not that compelling before about 6, 9 months ago. And they have gotten so much bigger and so much better, much more quickly that it really presents a remarkable opportunity to transform virtually every customer experience that exists and many that don’t exist that weren’t really that easily made possible before. And so, it’s very early days in that space, but probably not surprisingly, we’ve been investing in building in our own Large Language Models for several years, and we have a very large investment across the Company. And the way I would break it out, Brian, is I would say that there’s three macro areas in this space. If you think about maybe the bottom layer here, is that all of the Large Language Models are going to run on compute. And the key to that compute is going to be the chip that’s in that compute. And to date, I think a lot of the chips there, particularly GPUs, which are optimized for this type of workload, they’re expensive and they’re scarce. It’s hard to find enough capacity. And so, in AWS, we’ve been working for several years on building customized machine learning chips, and we built a chip that’s specialized for training -- machine learning training, which we call Trainium, a chip that’s specialized for inference or the predictions that come from the model called Inferentia. The reality, by the way, is that most people are spending most of their time and money on the training. But as these models graduate to production, where they’re in the apps, all the spend is going to be in inference. So, they both matter a lot. And if you look at -- we just released our second versions of both Trainium and Inferentia. And the combination of price and performance that you can get from those chips is pretty differentiated and very significant. So we think that a lot of that machine learning training, inference will run on AWS. Then if you think about -- so you have to train the models, you have to run the inference, then you got to -- but you have to build the models. And if you look at the really significant leading Large Language Models, they take many years to build and many billions of dollars to build. And there will be a small number of companies that want to invest that time and money, and we’ll be one of them at Amazon, but most companies don’t. And so what most companies really want and what they tell AWS is that they’d like to use one of those foundational models and then have the ability to customize it for their own proprietary data and their own needs and customer experience. And they want to do it in a way where they don’t leak their unique IP to the broader generalized model. And that’s what Bedrock is, which we just announced a week ago or so. It’s a managed foundational model service where people can run foundational models from Amazon, which we’re exposing ourselves, which we call Titan. Or they can run it from leading Large Language Models providers like AI21 and Anthropic and Stability AI. And they can run those models, take the baseline, customize them for their own purposes and then be able to run it with the same security and privacy and all the features they use for the rest of their applications in AWS. That’s very compelling for customers. And then that third layer are really the applications that are going to be built on top of those Large Language Models. So, ChatGPT is a good example of an application that’s being built. We’ll build some of those applications ourselves. So for instance, we think one of the most compelling applications that are going to be built in generative AI have to do with making developers much more effective with coding assistance. And so, we built something called CodeWhisperer, which we just announced the general availability for, where developers can plug in a natural language, something like -- I want to build a video hosting website. And CodeWhisperer will bring up the code you need and the developer needs to employ and put that in production, which is really compelling. If you think about how much more productive a developer is going to be and what they’re going to spend their time on instead of rewriting code that as takes time, I think it’s a big deal. Now, to your second question, and it’s related to this top layer I was just talking about, we’re going to build a very -- every single one of our businesses inside Amazon are building on top of Large Language Models to reinvent our customer experiences, and you’ll see it in every single one of our businesses, stores, advertising, devices, entertainment. And devices, which was your specific question, is a good example of that. I think when people often ask us about Alexa, what we often share is that if we were just building a smart speaker, it would be a much smaller investment. But we have a vision, which we have conviction about that we want to build the world’s best personal assistant. And to do that, it’s difficult. It’s across a lot of domains and it’s a very broad surface area. However, if you think about the advent of Large Language Models and generative AI, it makes the underlying models that much more effective such that I think it really accelerates the possibility of building that world’s best personal assistant. And I think we start from a pretty good spot with Alexa because we have a couple of hundred million endpoints being used across entertainment and shopping and smart home and information and a lot of involvement from third-party ecosystem partners. And we’ve had a large language model underneath it, but we’re building one that’s much larger and much more generalized and capable. And I think that’s going to really rapidly accelerate our vision of becoming the world’s best personal assistant. I think there’s a significant business model underneath it. Operator: And the next question comes from the line of Colin Sebastian with Baird. Colin Sebastian: I guess, first off, on the International segment, I mean, not only an acceleration in our top line, but also on the margin side. If you could maybe add a little more color on some of the initiatives and improvements there. And then secondly, on the physical stores, including the grocery strategy, maybe any be worth kind of going through any updated thoughts you have there around the strategy of optimizing stores across categories. And if there are any changes to the footprint plans for those businesses? Thank you. Andy Jassy: Thanks, Colin. I’ll start with the international question. So yes, we saw an acceleration of growth on an FX-neutral basis, 9% versus 5% in Q4. I think the economy there is starting to stabilize and especially in established countries of Europe. We’re seeing consumer confidence has increased and inflation is ticking down. So some of those are similar to North America. But that is what we probably had some upside that we weren’t counting on in international in the first quarter, and that was a good strength. On the margin, the margin has -- the negative margin has come down. Top line is helping there but it’s also a function of some of the reductions that we’re making across some of our investments. Most of those are in North America, but that you’ll see kind of the improvement in operational efficiency and on the edge of some of the global programs are going to be reducing cost in international. I will remind you that, again, that international is an aggregation of established countries which are already profitable and who look a bit like North America, perhaps at an earlier stage of development and working their way to parity on profitability. We have forward-loaded Prime benefits in a lot of these countries that are ahead of the curve that we saw in North America. So happy there. We have a large emerging business. In the last 5 years, we’ve added more than 10 new countries. What we’re seeing is if you looked back to North America long ago, it took 9 years for us to reach breakeven profitability in the United States. We see a similar curve in a lot of countries overseas. There’s, in fact, additional challenges that we usually have to deal with, things like lack of payment methods, lack of the established infrastructure for -- especially for transportation and infrastructure for the internet and everything else. So, the adoption can be slower but we feel good about the businesses we’re building. They carry a lot of the same traits that we have in North America. Price selection and convenience are at the core of that, very happy with the adoption and traffic and new customer acquisition that we’re seeing from Prime Video in a lot of their emerging countries as well. So good quarter. We’ll continue to work again on cost structure and growing those businesses country by country. On the grocery part, what I would say is we continue to progress there. We have an interesting grocery business where we’ve been in it for a while and we have actually quite a large grocery business. It’s just an unusual selection grocery business, very much like how the mass merchandisers got into grocery 25, 30 years ago, where the selection -- are items that are not temperature-controlled, so it’s canned goods and packaged food and paper products and pet supplies and personal care and health and beauty and all sorts of consumables. And interestingly, in this current environment where consumers are being cautious about what they spend and finding ways to trade down in different product variations, consumables have stayed very, very strong. And so, we continue to be very pleased with that -- that part of our grocery business to serve a much broader number of the grocery shopping journeys, which we seek to try to help customers with. We have to have a bigger physical presence since most of the shopping visits are still physical stores. We’ve got two efforts there. We’ve got Whole Foods, which really pioneered the organic grocery space. And that continues to grow nicely, and we’ve made a number of changes in the last year of the business that have changed the profitability trajectory there and feel very good about that. And at the same time, it is still a portion of the overall market segment. And if you really want to serve as much of grocery as we’d like to, you have to have a mass physical offering. And that’s what we’ve been working on for a few years with the brand we’ve called Amazon Fresh. We wish we were further along at this point. We’ve tried lots of ideas. We haven’t yet found conviction around the format that we want to go expand much more broadly. We have a set of experiments and ideas and concepts that we’re working on across our dozens of stores there. And we’re pretty optimistic that we have something that may very well work. And we’re hopeful over this next year we find that. But we continue to believe -- it’s a big business for us today. It’s continuing to get bigger, but we believe we have the opportunity for it to be much larger for Amazon and where we can help customers more broadly. And I think having that physical presence, we will also have the ability both to be able to serve the grocery products they come for as well as store some other pieces and help customers across some other product lines as well. Operator: And the next question comes from the line of Justin Post with Bank of America. Justin Post: I guess, AWS, can you call out any unusual items in April or 2Q for the comp? I know you had a very good 2Q last year. And just thinking about linearity in the quarter. And then second, Andy, really appreciate the shareholder letter. It looks like you’ve picked medical and Kuiper as big investment areas. Do you think those -- I mean, why those areas? And does the Company ever think about breaking out all the big investments, so we had more clarity on the retail margin structure? Thank you. Brian Olsavsky: Yes. Hi Justin. Thank you. On AWS, I think Andy did a good job of laying out the dynamics we’re seeing in -- among customers right now and where they’re cutting workloads and continued strength that we see in customers hitting their contractual limits and extending them and planning for the future. So, we feel really strongly about the outlook for the business and understand the short-term work that we’re doing to help customers save money. So, I would say Q2 versus Q1, there’s not an obvious year-over-year comp differential. It’s just, again, understanding which customers are cutting in some areas and growing in others and helping them get on hopefully to the new initiatives that they are planning as well. Andy Jassy: Yes. In terms of the calling out health care and Kuiper in my annual letter, I think what I was trying to do in the letter was explain how we think about investing -- and how we think about our big new investments that we make. And I talked about in the letter that we look at a few things. We look at if -- if it’s successful, could it be big and move the needle for Amazon with the right ROICs? Is that experience being well served today elsewhere? Do we have some kind of differentiation? And do we have some confidence that the Company in that area? If not, can we acquire it quickly? And we’d like the answers to those questions, we will invest. Some of those investments lead to what seem like relatively straightforward investments. And I talked a little bit about category expansion and international expansion in our stores business and some of the nascent retail market segments that are large for us that we think we can have big businesses in and business to business, our Amazon business entity and grocery and things like Buy with Prime, which allow our consumers to use their Prime Benefit and other third-party websites beyond Amazon and also let merchants convert at a higher rate because Prime members are able to pay quickly and then get that fast, reliable shipping they get from Prime. But then there are other investments I was pointing out that sometimes don’t lead to categories that people might initially guess. And AWS was a good example of that where that seemed really different for us when we started to pursue that in 2003. And we’re a pretty different company because we did so, even though there were a lot of people externally and internally that thought was a little bit crazy. And so I just chose two of them there. I could have chosen a lot more. The letter was long enough as it was, so I just chose two but I chose two that we have conviction about. On the health care side, when you think about that set of questions that we ask ourselves when we consider whether we should make big investments, health care is a multitrillion dollar business that’s very segmented, and it’s really broken in the U.S. particularly, I think in other parts of the world, too, but particularly in the U.S. And we had what we thought were some differentiated ways that we could be successful at. And I think when -- our customers have been asking us for years to provide a pharmacy. And if you think about that, it’s not -- that’s a pretty natural extension from what we do in retail, and we’ve launched Amazon Pharmacy in 2020 and I think it’s off to a good start. It’s continuing to grow. We have a lot to do there. But a lot of our customers who like that experience said, "Gosh, I wish you guys would help us in the broader health care experience." And if you think about trying to meaningfully change that experience, primary care is right at the center of it. And if you look at the experience that’s been the case for the last several decades, we’re going to have a hard time convincing our grandkids that it used to be the case to get a primary care appointment, you had to call ahead of time, a month ahead to schedule an appointment and drive 20 minutes to the doctor and park and get into the facility and wait 20 minutes in reception. And you get into an exam room, you wait 10 minutes for the doctor to come in. The doctor talks to you for 5 minutes and then prescribes you medicine where you drive 20 minutes to go get the medicine. And that experience just doesn’t make sense and won’t be the case. And so, we looked at -- we had some experience when we started experimenting with Amazon Care, and we couldn’t believe how much people liked the streamlined experience. And we ultimately decided we didn’t have the right business model there. But we came across one medical where the digital app is very compelling and you can talk to a medical practitioner by chat or by video conference, or if you have to come into a physical facility, they have clinics around the country and you can get that appointment same day or next day. In all those cities, they have relationships with health specialists, where you’re plugged into. Their ability to get reservations where you can get reservations in a day or two there. And then when you need medicine, you can have it automatically shipped to you by Amazon Pharmacy or other third-party pharmacies. It’s a very, very different experience. And we think we have an opportunity to be successful in helping change that experience. And if we’re successful with primary care and with health -- and with pharmacy, there are a lot of other things we can help customers with as well. So, we think that’s a big opportunity. And then I’ll just briefly say on Kuiper that it’s a very large number. It’s hundreds of millions of households and businesses and government entities that today have limited to no connectivity to the internet. And if you just think about what you can’t do if you don’t have connectivity, we all take it for granted. But having that connectivity means you can take online education courses and get an education, or you can start or run a business or you can enjoy entertainment or you can shop for anything you can imagine. And for businesses and governments, to be able to have that coverage to be able to operate much more seamlessly in the various environments in which you have to have a presence, it’s a total game changer. And so, we think it has the chance to be a very large business. We haven’t -- we’ve released some information about it in some of our designs. And it’s pretty exciting to us how many customers in all those different segments are excited about it. And so, I just chose those two as exemplary of some of the inventions that come out of that investment process that you might not guess but that we think can be very significant for the Company. Dave Fildes: Thanks for joining us today on the call and for your questions. A replay will be available on our Investor Relations website for at least three months. We appreciate your interest in Amazon and look forward to talking with you again next quarter.
Amazon Takes a Sustainable Leap with Electric Big Rigs
Amazon Takes a Sustainable Leap with Electric Big Rigs
Amazon (AMZN:NASDAQ) has taken a significant leap towards sustainability with the introduction of its first electric big rigs, aiming to cut down tailpipe emissions drastically. This initiative sees the deployment of Volvo electric trucks, with a plan to have a dozen of these vehicles operational within the year, specifically for cargo pickup from the bustling container seaport in Southern California. As it stands, eight of these semi trucks are already in use at the Los Angeles/Long Beach port complex, aligning with the port's ambitious goal for all drayage trucks to achieve zero emissions by 2035. This move not only marks Amazon's foray into electrifying its seaport logistics vehicle fleet but also underscores its commitment to achieving net-zero carbon emissions by 2040.
The transition to electric semi trucks is a challenging yet crucial step in Amazon's broader environmental goals. Currently, the Los Angeles/Long Beach port complex, where Amazon's electric trucks are deployed, sees only a little over 1% of its 23,761 trucks as zero-emission vehicles, including 201 electric rigs. This highlights the significant gap and the potential impact Amazon's initiative could have on increasing the adoption of zero-emission vehicles in heavy-duty trucking. Udit Madan, Amazon's vice president of worldwide operations, acknowledges the hurdles in decarbonizing this sector but remains committed to overcoming them. This commitment is further evidenced by Amazon's previous introduction of over 13,500 Rivian electric cargo delivery vans across the nation since 2022, despite the additional challenges posed by electric semi trucks, such as the need for more extensive charging infrastructure.
To facilitate a smooth transition and learn from the process, Amazon collaborates with Volvo Trucks North America and JB Hunt, which provides drivers for the rigs. This partnership is crucial for addressing the logistical and operational challenges of deploying electric trucks at such a large scale. Moreover, the transition to electric vehicles (EVs) in the heavy-duty sector requires concerted efforts from various stakeholders, including ports, private companies, and truck owners, to establish the necessary charging infrastructure. Amazon's electric port trucks will initially use an offsite charging facility operated by Forum Mobility, a startup backed by Amazon's Climate Pledge fund. This facility, set to begin construction at the Port of Long Beach, is designed to support hundreds of drayage trucks daily, showcasing Amazon's strategic approach to reducing its carbon footprint and leading the transition to sustainable logistics solutions.
In the financial realm, Amazon's stock (AMZN) has demonstrated remarkable resilience and growth, with Loop Capital recently increasing its price target for Amazon to $225, indicating a 21% upside from its current price. This adjustment follows a significant improvement in the company's retail profitability, as reported in its first-quarter update. Amazon's stock has more than doubled since its low point in 2022, driven by substantial gains in the company's profits. The recent earnings report underscored this continued growth, with Amazon's operating income in the first quarter surging to $15.3 billion, more than tripling compared to the same period last year. This increase was notably led by a 455% year-over-year rise in operating profit from the North American operating segment, alongside turning a previous loss in its international segment into an operating profit of $903 million.
Amazon's strategic initiatives, both in sustainability and financial performance, underscore the company's commitment to innovation and efficiency. The deployment of electric big rigs at one of the United States' busiest container seaports not only advances Amazon's sustainability goals but also sets a precedent for the logistics industry. Simultaneously, the company's impressive financial turnaround and the optimistic outlook from analysts suggest a promising future for Amazon's stock. As Amazon continues to work on reducing costs and exceeding profit expectations, investors and industry watchers alike are keenly observing how these initiatives will further propel the company's growth and contribute to its long-term goal of achieving net-zero carbon emissions by 2040.
Amazon's Commitment to Sustainability with Electric Big Rigs
Amazon (NASDAQ:AMZN) is making significant strides in its commitment to sustainability and reducing carbon emissions, as evidenced by the introduction of its first electric big rigs. This initiative, part of Amazon's broader strategy to achieve net-zero carbon emissions by 2040, involves deploying twelve Volvo electric trucks this year for cargo pickup from the nation's busiest container seaport in southern California. Already, eight of these semi trucks are operational at the Los Angeles/Long Beach port complex, aligning with the port's requirement for all drayage trucks to be zero-emissions by 2035. This move into electric big rigs extends Amazon's vehicle electrification efforts from ocean ports to customer doorsteps, showcasing the company's dedication to environmental sustainability.
The transition to electric semi trucks, however, presents unique challenges, particularly in terms of the need for more intensive charging infrastructure to accommodate their larger batteries. Amazon is addressing these challenges through collaborations with Volvo Trucks North America and JB Hunt, which provides drivers for the rigs. These partnerships are crucial for navigating the complexities of decarbonizing heavy-duty trucking. Additionally, to support the transition to zero-emissions vehicles, Amazon is working on building heavy-duty chargers, with an offsite charging facility operated by Forum Mobility, a startup backed by Amazon's Climate Pledge fund, set to break ground at the Port of Long Beach. This facility is designed to accommodate hundreds of drayage trucks daily, further facilitating the shift towards sustainable transportation solutions.
In the financial realm, Amazon's stock (NASDAQ:AMZN) has been the subject of attention from analysts and investors alike. Rob Sanderson of Loop Capital Markets recently set a new price target for Amazon at $225, indicating a potential upside of approximately 20.82% from its current price of $186.24. This optimistic outlook is supported by Amazon's innovative steps towards sustainability and operational efficiency, which are likely to contribute to its long-term growth. Additionally, Oppenheimer upgraded its rating on Amazon to Outperform, raising its price target from $210 to $220. This upgrade reflects confidence in Amazon's future performance, further highlighting the positive sentiment surrounding the company's stock.
Moreover, insider trading activity, such as the sale of shares by Herrington Douglas J, the CEO of Worldwide Amazon Stores, provides insights into the confidence levels of Amazon's top executives regarding the company's future. Despite these sales, the substantial remaining holdings of these executives demonstrate a continued belief in Amazon's growth potential and strategic direction.
Amazon's initiative to introduce electric big rigs and its broader commitment to sustainability are not only pivotal for reducing carbon emissions but also play a significant role in shaping investor confidence and the company's stock performance. Through strategic partnerships and investments in infrastructure, Amazon is paving the way for a more sustainable future in the logistics sector, while also positioning itself for continued financial growth and success.
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Amazon’s Price Target Boosted at Loop Capital
Loop Capital increased their price target for Amazon (NASDAQ:AMZN) to $225 from $215, reaffirming their Buy rating on the stock. This decision comes as Amazon Web Services (AWS) shows renewed growth and retail profits are believed to be significantly underestimated.
Following a robust first-quarter report for Amazon's retail and cloud businesses, Loop Capital analysts revised their forecast. They highlighted that the retail segment contributed to over half of the profit increase, driven by strong services and improved efficiency in costs. The firm believes that current consensus estimates don't accurately reflect Amazon's recovery and expects that profit gains will continue to outpace estimates for some time. Loop Capital's forecast projects a retail segment margin about 50 basis points higher than the consensus for 2024 and 2025, though they believe this still falls short of their assessment of the company's potential.
AWS achieved its highest-ever margin due to accelerating revenue and controlled costs, along with changes in accounting for server depreciation. Generative artificial intelligence has also emerged as a significant growth opportunity, contributing to a multi-billion-dollar revenue run rate.
Amazon Reports Q1 Beat
Amazon’s (NASDAQ:AMZN) first-quarter results, announced on Tuesday, surpassed Wall Street expectations, driven by strong performance in its cloud segment, which benefited from the surge in demand for artificial intelligence services.
The company reported Q2 earnings per share (EPS) of $0.98 and revenue of $143.31 billion, exceeding the predicted EPS of $0.84 and revenue of $142.65 billion. The Amazon Web Services (AWS) division, the cloud revenue segment, experienced 17% growth, reaching $25 billion and surpassing the expected 14.7% growth rate, with a yearly revenue run rate of $100 billion. The North America segment also performed well, with sales rising 12% year-over-year to $86.3 billion.
For the upcoming second quarter, Amazon provided revenue guidance of $144 billion to $149 billion, which is below the anticipated $150.2 billion. Operating income was projected to be between $10 billion and $14 billion.
Amazon's Price Target Raised to $210 by Roth Capital
Amazon's Price Target Uplifted by Roth Capital
Rohit Kulkarni of Roth Capital recently updated the price target for Amazon (AMZN:NASDAQ) to $210, indicating a bullish outlook with a 20% potential upside from its current trading price of $175. This adjustment, announced on May 1, 2024, reflects a positive sentiment towards Amazon's future financial performance and market position. The detailed analysis can be found in the report "Amazon.com price target raised to $210 from $205 at Roth MKM" as published by TheFly, highlighting the factors contributing to this optimistic projection.
Amazon's strategic decision to ramp up its capital expenditure under CEO Andy Jassy's leadership is a key driver behind this positive outlook. The company is aggressively investing in artificial intelligence (AI) technologies, aiming to secure a leading position in this competitive field. This move is part of a broader strategy to enhance Amazon's offerings and operational efficiency across its diversified business segments, including retail, cloud computing, and advertising. Despite the expected increase in spending, Amazon is confident in its ability to manage the financial implications, supported by its record operating margins. These margins have been bolstered by the company's strong performance across its core sectors, as reported by the Wall Street Journal on the same day as the price target announcement.
On the day of the announcement, Amazon's stock experienced a downturn, closing at $175, which represents a decrease of $5.96 or approximately -3.29%. The trading session saw the stock fluctuating between a low of $174.98 and a high of $182.08. Despite this short-term volatility, Amazon's stock has demonstrated resilience over the past year, with its price oscillating between a low of $103.28 and a high of $189.77. The company's substantial market capitalization of around $1.82 trillion, coupled with a trading volume of approximately 84.62 million shares, underscores its significant presence and investor interest in the NASDAQ market.
The financial strategies employed by Amazon, including its focus on AI and efficient management of increased capital expenditures, are instrumental in maintaining its robust operating margins. These margins are critical in offsetting the costs associated with its ambitious investment plans. The company's ability to sustain its financial health amidst heightened spending is a testament to its operational excellence and strategic foresight in capitalizing on growth opportunities within retail, cloud computing, and advertising sectors.
In summary, the revised price target for Amazon by Roth Capital reflects a comprehensive analysis of the company's strategic initiatives, financial performance, and market potential. The emphasis on AI and the effective management of capital expenditures are pivotal to Amazon's continued success and position as a leader in the technology and e-commerce sectors. Despite the challenges of increased spending, Amazon's record operating margins and diversified business model provide a solid foundation for future growth, supporting the optimistic price target set by analysts.
Amazon's Growth Trajectory Towards 2030: AI, Market Expansion, and Financial Outlook
Amazon's Growth Trajectory: A Look Towards 2030
Amazon (AMZN:NASDAQ) is on a trajectory that could see its stock value soar by 2030, as suggested by The Motley Fool. This ambitious target is underpinned by the company's strategic focus on artificial intelligence (AI) and market expansion. With AI becoming increasingly integral to e-commerce and technological innovation, Amazon's investment in this area is poised to drive significant growth. Additionally, the company's efforts to penetrate new markets could further bolster its position as a global e-commerce leader. The story of a cat from Utah surviving a week in an Amazon return box, while not directly linked to the company's financials, adds a human (or feline) touch to Amazon's image, illustrating the unexpected ways in which the company touches lives.
The recent financial performance of Amazon supports the optimism surrounding its growth prospects. With a revenue growth of 18.78% and a gross profit growth of 13.73%, the company demonstrates strong financial health. The net income growth of 7.54% and operating income growth of 18.06% further indicate Amazon's ability to not only increase its earnings but also manage its expenses effectively. These figures suggest that Amazon is on a solid path, leveraging its core business strengths to fuel its ambitious growth targets.
Moreover, Amazon's asset growth of 8.41% reflects its strategic investments in expanding its operational capabilities and technological infrastructure. This is crucial for supporting its AI initiatives and market expansion plans. The remarkable increase in free cash flow by 219.03% and operating cash flow by 100.15% provides Amazon with the financial flexibility to pursue aggressive growth strategies, invest in innovation, and potentially explore acquisitions that could enhance its market position.
The slight decrease in debt by about 1.01% is also noteworthy. It indicates Amazon's careful financial management and its commitment to maintaining a healthy balance sheet. This prudent approach to leverage and financial management is essential for sustaining long-term growth and navigating the challenges of expanding into new markets and technologies.
In conclusion, Amazon's recent financial performance, characterized by significant growth in key metrics, underscores the company's strong position and potential for future expansion. The strategic focus on AI and market penetration, coupled with solid financial management, positions Amazon well to achieve its ambitious goal of doubling its stock value by 2030. As The Motley Fool and other financial analysts continue to watch Amazon's progress, the company's innovative strategies and robust financial health suggest a promising outlook for investors and stakeholders alike.
Amazon’s Price Target Raised at MoffettNathanson
MoffettNathanson analysts increased their price target for Amazon.com (NASDAQ:AMZN) to $230 from $228 and continue to recommend a Buy rating. The analysts noted that despite Amazon’s EBIT estimates for fiscal 2024 being revised upward by 60% over the past twelve months, and the stock outperforming the S&P 500 with a 64% gain compared to 20%, there still appears to be potential for further growth.
The analysts attributed this optimism to three main factors: growth in advertising revenue, leverage from reduced service costs, and expansion in first-party (1P) gross margins. While Amazon Web Services (AWS) revenue forecasts align with consensus and could present additional upside, Morton’s confidence is rooted in detailed assessments of underappreciated areas such as advertising and retail margins.
The analysts pointed out that the second half of 2023 showed strong advertising performance and positive industry signals, leading to an enhanced forecast for Amazon's advertising revenue. According to the analysts' projections, consolidated advertising revenue is expected to grow at a compound annual growth rate (CAGR) of 20% through 2026, fueled by a 16% growth in onsite advertisements and a significant 36% increase in non-core advertising activities.
