Amazon.com, Inc.

Thank you for standing by. Good day, everyone, and welcome to the Amazon.com Q1 2021 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 Director of Investor Relations, Mr. Dave Files. Please go ahead.

Hello, and welcome to our Q1 2021 Financial Results Conference Call. Joining us today to answer your questions is Brian Olsoski, 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 2020. Our comments and responses to your questions reflect management's views as of today, April 29, 2021 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 conditions and customer spending, 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. This guidance also reflects our estimates to date regarding the impact of the COVID-19 pandemic on our operations, including those discussed in our filings with the SEC, and is highly dependent on numerous factors that we may not be able to predict our control, including the duration and scope of the pandemic, including any recurrence, actions taken by governments, businesses, and individuals in response to the pandemic, the impact of the pandemic on global and regional economies and economic activity, workforce staffing and productivity, and our significant and continuing spending on employee safety measures, our ability to continue operations in affected areas, and consumer demand and spending patterns, as well as the effects on suppliers, creditors, and third-party sellers, all of which are uncertain. Our guidance also assumes, among other things, that we don't conclude any additional business acquisitions, investments, 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.

Thank you for joining us today. Before we get to Q&A, I will touch upon a few highlights from the first quarter of the year. Let me start by highlighting the momentum we are seeing in AWS. In the first quarter, AWS revenue growth accelerated across a broad range of customers. During COVID, we've seen many enterprises decide that they no longer want to manage their own technology infrastructure. They see that partnering with AWS and moving to the cloud gives them better cost, better capability, and better speed of innovation. We expect this trend to continue as we move into the post-pandemic recovery. There's significant momentum around the world, including broad and deep engagement across major industries. For example, last quarter we announced new commitments and migrations from some of the world's most renowned sports leagues, the National Hockey League, the PGA Tour, Formula One, and the German Bundesliga. We continue to expand our AWS infrastructure footprint to support the strong growth we're seeing AWS offers 80 availability zones across 25 geographic regions around the world. And we've announced plans to launch 15 more availability zones in five more regions. Turning to the consumer business, we continue to see strong customer demand globally in the first quarter. Revenue growth in our international segment grew 50% on an FX neutral basis year over year in Q1, as restrictive regional and national lockdowns were in place throughout the quarter. particularly in the UK and Europe. In North America, revenue growth of 39% largely reflects the continuation of demand trends that we have seen since the early months of the pandemic. Third-party sellers, who are largely comprised of small and medium-sized businesses, continue to see strong sales and serve more customers. Our 3P seller services revenue increased 60% on an FX-neutral basis year-over-year in the first quarter. growing significantly faster than online stores revenue. Third-party units represented 55% of our total paid units in Q1, up from 52% in Q1 of last year. Prime members also continued to shop with greater frequency and across more categories than before the pandemic. These trends have also extended to Prime's digital benefits. Over the past 12 months, Prime video streaming hours were up over 70% year over year. Amazon Studio had its best award season yet, and Prime members can look forward to a strong slate of upcoming original series and films featuring an impressive group of diverse talent and creators. We're also continuing to expand our roster of live sports content, and we're excited to partner with the NFL to be the exclusive home of NFL Thursday Night Football into the next decade. Twitch is also seeing great momentum. Hours watched on Twitch nearly doubled year over year in the first quarter, and we now average more than 35 million daily visitors. Another popular benefit of Prime membership is Prime Day. We are excited to announce that we will hold the two-day savings event during the second quarter. Prime Day is also a great opportunity for our selling partners to reach more customers and will make supporting small businesses a big focus again this year. We'll have more to share on Prime Day, including event dates, a bit later this quarter. We continue to prioritize the safety and well-being of our employees. In the U.S., Amazon has held onsite vaccination events in 29 states, reaching more than 300,000 frontline employees and contractors. We're watching events closely in Europe, and in particular, India, where we have put in place employee initiatives, medical helplines, teleconsulting, hotel rooms for quarantining, and financial support. as well as donating 100 ICU ventilator units to local hospitals. We'll continue to invest in the health and safety of our employees and delivery partners, particularly in our global fulfillment and logistics operations. And finally, to summarize our financial results, total revenue of $108.5 billion came in above the guidance range of $100 billion to $106 billion. In addition to our strong segment results, Advertising revenue within the North America international segments also accelerated during the quarter. The leverage we were seeing on this higher revenue combined with strong operational performance led to higher operating income as well. Operating income of $8.9 billion in Q1 was above our guidance range of $3 billion to $6.5 billion. We incurred a little less than the $2 billion in COVID-19 related operating costs that we had projected in the first quarter. We continue to incur these costs across our global fulfillment network as we maintain social distancing measures, which impacts our productivity, and as we make direct investments in employee safety. Looking ahead, we expect to incur approximately $1.5 billion in COVID-19 related operating costs in the second quarter. Lastly, I'd like to congratulate and thank our employees for making Amazon number one in the U.S. on LinkedIn's 2021 top companies ranking, an annual list identifying the most sought-after places to work. We appreciate the customer obsession and passion for innovation from teams across the company that make Amazon a great place to work. With that, let's move on to Q&A.