Amazon.com, Inc.

Thank you for standing by. Good day, everyone, and welcome to the Amazon.com Third 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, and 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.

Hello, and welcome to our Q3 2023 Financial Results Conference Call. Joining us today to answer your questions is Andy Jassy, our CEO, and Brian Osofsky, 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, October 26, 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, cloud services, and new and emerging technologies, and the various factors detailed in our filings with the SEC. Our guidance assumes, among other things, that we don't conclude any additional business acquisitions or structurings or legal settlements. It's not possible to accurately predict demand for our goods and services, and therefore, our actual results could differ materially from our guidance. And now, I'll turn the call over to Andy.

Thanks, Dave. Today, we're reporting $143.1 billion in revenue, up 11% year-over-year, $11.2 billion in operating income, up 343% year-over-year, or $8.7 billion. and $20.2 billion in trailing 12-month free cash flow adjusted for equipment finance leases, which is up $41.7 billion versus the comparable period last year. We continue to be encouraged by the progress we're making in lowering our costs to serve, improving our customer experiences, and investing for future growth. I'll start with our stores business. Our move earlier this year from a single national fulfillment network in the U.S., to eight distinct regions represented one of the most significant changes to our fulfillment network in our history. This change has gone more smoothly and made more impact than we optimistically expected, and you can see the benefits in many forms. Regional fulfillment clusters with higher local in-stock levels and optimized connections between fulfillment centers and delivery stations mean shorter distances and fewer touches to get items to customers. Shorter travel distances and fewer touches mean lower costs to serve. But perhaps most importantly, shorter distances and fewer touches mean that customers are getting their shipments faster. We remain on pace to deliver the fastest delivery speeds for prime customers in our 29-year history. And as I talked about last quarter, we know how important speed of delivery is to customer satisfaction and buying behavior. A good example is the significant growth we're seeing in consumables and everyday essentials. When customers are getting items as quickly and conveniently as they are now from Amazon, they're going to consider us more frequently for more of their shopping needs. As we've shared the last few quarters, we've re-evaluated every part of our fulfillment network over the last year. The first substantial re-architecture centered on the regionalization change. We obviously liked the results, but don't think we fully realized all the benefits yet. And we continue to make steady improvements in fine-tuning the placement algorithms to enable even more in-region fulfillment and to further increase consolidation into fewer shipments. We've also identified several substantial changes to our inbound processes that we believe could have a significant impact on our cost to serve and speed of delivery. We have a long way before being out of ideas to improve cost and speed. The team is really humming on this and I'm proud of the way they're inventing and executing together. Moving to AWS and our investments in generative AI. AWS revenue grew 12% year over year in Q3 with $919 million of incremental quarter over quarter revenue and now has an annualized revenue run rate of $92 billion. AWS's year-over-year growth rate continued to stabilize in Q3, and while we still saw elevated cost optimization relative to a year ago, it's continued to attenuate as more companies transition to deploying net new workloads. Companies have moved more slowly in an uncertain economy in 2023 to complete deals, but we're seeing the pace and volume of closed deals pick up, and we're encouraged by the strong last couple of months of new deals signed. For perspective, we signed several new deals in September with an effective date in October that won't show up in any GAAP reported number for Q3, but the collection of which is higher than our total reported deal volume for all of Q3. Deal signings are always lumpy, and the revenue happens over several years, but we like the recent deal momentum we're seeing. Top of mind for most companies continues to be generative AI. As I mentioned last quarter, we think about generative AI as having three macro layers, each of which is very large and each of which we're investing. A few updates there. At the lowest layer is the compute to train large language models or LLMs and produce inferences or predictions. The key to this compute is the chip inside it. As we've shared, we've been working on custom silicon for training and inference with our Tranium and Inferentia chips respectively. Recently, we announced the leading LLM maker Anthropic chose AWS as its primary cloud provider. and will use Tranium and Inferentia to build, train, and deploy its future LLMs. As part of this partnership, AWS and Anthropic will collaborate on the future development of Tranium and Inferentia technology. We believe this collaboration will be helpful in continuing to accelerate the price performance advantages that Tranium and Inferentia deliver for customers. In the middle layer, which we think of as large language models as a service, we recently introduced general availability for Amazon Bedrock. which offers customers access to leading LLMs from third-party providers like Anthropic, Stability AI, Cohere, and AI21, as well as from Amazon's own LLMs called Titan, where customers can take those models, customize them using their own data, but without leaking that data back into the generalized LLM, and have access to the same security, access control, and features that they run the rest of their applications with in AWS, all through a managed service. In the last couple months, we've announced the imminent addition of Meta's Llama 2 model to Bedrock, the first time it's being made available through a fully managed service. Also, through our expanded collaboration with Anthropic, customers will gain access to future Anthropic models through Bedrock, with exclusive early access to unique features from model customization and the ability to fine-tune the models. And Bedrock has added several new compelling features, including the ability to create agents, which can be programmed to accomplish tasks like answering questions or automating workflows. In these early days of general AI, companies are still learning which models they want to use, which models they use for what purposes, and which model sizes they should use to get the latency and cost characteristics they desire. In our opinion, the only certainty is that there will continue to be a high rate of change. Bedrock helps customers with this fluidity, allowing them to rapidly experiment with and move between model types and sizes and enabling them to pick the right tool for the right job. The customer reaction to Bedrock has been very positive and the general availability has buoyed that further. Bedrock is the easiest way to build and scale enterprise-ready generative AI applications and a real game changer for developers and companies trying to get value out of this new technology. At the top layer, which are the applications that run the LLMs, our generative AI coding companion, Amazon CodeWhisperer, has gotten a lot of early traction and got a lot more powerful recently with the launch of its new customization capability. The number one enterprise request for coding companions has been wanting these companions to be familiar with customers' proprietary codebases. It's not just having code companions trained in open source code. Companies want the equivalent of a longtime senior engineer who knows their codebase well. That's what CodeWhisperer just launched, another first of its kind out there in its current form, and customers are excited about it. A few last comments on AWS's generative AI work. As you can tell, we're focused on doing what we've always done for customers, taking technology that can transform customer experiences and businesses, but that can be complex and expensive, and democratizing it for customers of all sizes and technical abilities. It's also worth remembering that customers want to bring the models to their data, not the other way around. And much of that data resides in AWS as the clear market segment leader in cloud infrastructure. We're innovating and delivering at a rapid rate, and our approach is resonating with customers. The number of companies building generative AI apps in AWS is substantial and growing very quickly, including Adidas, Booking.com, Bridgewater, Clarion, GoDaddy, LexisNexis, Merck, Royal Philips, and United Airlines, to name a few. We are also seeing success with generative AI startups like Perplexity.ai, who chose to go all in with AWS, including running future models and training them in Inferentia. And the AWS team has a lot of new capabilities to share with its customers at its upcoming AWS reInvent conference. Beyond AWS, all of our significant businesses are working on generative AI applications to transform their customer experiences. There are too many for me to name on this call, but a few examples include in our stores business, We're using generative AI to help people better discover products they want and more easily access the information needed to make decisions. We use generative AI models to forecast inventory we need in our various locations and to derive optimal last-mile transportation routes for drivers to employ. We're also making it much easier for our third-party sellers to create new product pages by entering much less information and letting the models do the rest. In advertising, we just launched a generative AI image generation tool where all brands need to do is upload a product photo and description to quickly create unique lifestyle images that will help customers discover products they love. And in Alexa, we built a much more expansive LLM and previewed the early version of this. Apart from being a more intelligent version of herself, Alexa's new conversational AI capabilities include the ability to make multiple requests at once, as well as more natural and conversational requests without having to use specific phrases. We continue to be convicted that the vision of being the world's best personal assistant is a compelling and viable one, and that Alexa has a good chance to be one of the long-term winners in this arena. Every one of our businesses is building generative AI applications to change what's possible for customers, and we have a lot more to come. We're also encouraged by the progress we're making in our newer initiatives, just to name a few. We're pleased with what we're seeing in Prime Video. Prime Video continues to be an integral part of the Prime value proposition, where it's often one of the top two drivers of customers signing up for Prime. We also have increasing conviction that Prime Video can be a large and profitable business in its own right as we continue to invest in compelling exclusive content for Prime members, but also offer the best selection of premium streaming video content anywhere. with our marketplace offering including channels where customers can subscribe to channels like Max, Paramount+, BET+, and MGM+, as well as our broad transaction video on demand selection. As we continue to invest in compelling content, beginning in early 2024, Prime Video shows and movies will include limited advertisements. We aim to have meaningfully fewer ads than linear TV and other streaming TV providers. If customers prefer an ad-free option, We plan to offer that for an additional $2.99 per month for U.S. members. There is still a lot of work to be done and innovation ahead, but we're excited about our future in Prime Video. We're seeing progress on a number of our investments that expand our ability to serve more consumers and sellers in their e-commerce missions. Our emerging international stores continue to improve their customer experiences and profitability and are on a strong trajectory. Both consumers and sellers are excited about Buy with Prime, which enables third-party sellers with direct-to-consumer websites to offer Amazon Prime members the same fast payments and delivery options they receive on Amazon.com. We recently announced the capability for sellers to integrate Buy with Prime with their Shopify account, making it easier for Shopify merchants to manage their businesses with inventory pricing and promotions automatically synced in one place. And we're seeing very positive early response from sellers to supply chain by Amazon. a fully automated set of supply chain services where Amazon can pick up inventory from manufacturing facilities around the world, ship it across borders, handle customs clearance and ground transportation, store inventory in bulk, manage replenishment across Amazon and other sales channels, and deliver directly to customers, all without sellers having to worry about managing their supply chain. Our healthcare team is continuing to make healthcare easier for people to access. The Amazon Pharmacy customer experience has significantly evolved this year, and customers are responding to that both in their purchasing behavior and qualitative feedback. We built our XPath for customers to get unlimited supply of eligible medications for $5 per month, meaningfully reduced the cost for customers to get insulin and diabetes products, and partnered with Blue Shield of California to offer a first-of-its-kind model to provide more affordable pharmacy care to its 4.8 million members. providing fast and free delivery of prescription medications and 24-7 access to pharmacists. We remain convinced that we can be part of the solution in making healthcare a better customer experience. And our low Earth orbit satellite initiative, Project Kuiper, which aims to bring fast, affordable broadband to underserved communities around the world, took a meaningful step forward in the last few weeks with the successful launch of two prototype satellites. We will use this multi-month mission to test our satellites and network from space and collect data ahead of the planned start of satellite production later this year. I'd like to close by thanking our teams around the world who are gearing up for two of our most significant events across the company. First, our annual AWS reInvent conference that begins on November 27th. The team is excited to share a lot of new capabilities with customers, provide an array of opportunities for builders to learn and connect with one another. And on the store side, we've already kicked off what will be our 29th holiday shopping season. Prime Big Deal Days held earlier this month was our most successful October holiday kickoff event ever, with Prime members saving more than a billion dollars across hundreds of millions of items sold. Just as we do all year long, we aim to make our customers' lives easier and better every day, and there's no time where it's more important to us that we deliver on this mission than during the busy holiday shopping season. With that, I'll turn it over to Brian. Thanks, Andy.