AMZN - Earnings call transcript Q1 2018

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Operator

Thank you for standing by. Good day, everyone, and welcome to the Amazon.com Q1 2018 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.

be Relations, call Dave I'll Director to remarks, Investor of Fildes. opening turning over the the For Please go ahead.

Dave Fildes

Hello, and call. financial results welcome to our QX XXXX conference

Olsavsky, today CFO. us to your is Joining answer Brian questions our

against today's conference release all Please results results note, the XXXX. press of our as As you as front will in listen call, encourage this and have in our you includes which comparable stated, quarter. metrics the unless comparisons period we call you, well otherwise our to financial be for on to commentary of

and Our Actual views only, results April to and comments of XXXX materially. differ responses management's your questions XX, statements. may as reflect will forward-looking include today,

and factors impact filings. SEC, could potentially the about annual is including our our information most included on that subsequent filings press and our Form XX-K recent with results Additional release report financial in today's

the accompanying is non-GAAP you release, During additional these and measures, our may our comparable this call, disclosures measures GAAP of will we including with with press each certain non-GAAP In IR measures. these this regarding website, webcast on measures. our SEC, financial of slides find discuss reconciliations filings posted which

the today date seen that trends what we and believe Our we've incorporates to guidance assumptions. order appropriate be to

the SEC. customer the and world filings with many be foreign and of by global in various our events, results in are Our the inherently factors unpredictable online including spending, of factors, cloud in growth conditions may Internet, and economic fluctuations materially the services affected detailed exchange changes rate commerce rates, and

With investments, results goods conclude question. we'll remind demand restructurings move how accurately Q&A. don't please our and that not predict our guidance. listeners and acquisitions, actual the to initiate that, from could assumes, or business therefore, services, possible to guidance among It's also materially our Our a things, additional to we Operator, differ other legal for our settlements. any

Operator

the open call for time, we up now will this At questions.

Sheridan Eric with line from question. comes question with of your proceed UBS. first Our Please

Eric J. Sheridan

on for how of uptake ask question. Thanks advertising of as And sort so looking update business, in you're Wanted state that's the move product taking of any advertisers? we XXXX state out out had of into and platform? seeing Thanks the so marketplace? to the What with the broadly sort much much. now the conversations for if XXXX you of the

Brian T. Olsavsky

program. advertising Yes, to continues It's continued product to QX. bright say to both a contributor multibillion-dollar in strong sure, be spot I Eric. from and be would profitability also financially. a standpoint a a now It

the revenue revenue, the it's in supplemental You other item. other can see and in the disclosure, revenue our that – it's majority in of line

otherwise philosophy emerging seen we're customers. focus our there also again have ways advertising that on to better they for helping products to and finding may make to not customers, continuing brands, established showing So our new them is valuable for them opportunities and reach

advertisers is customers the are think common eventually and sizes, to want shapes all generally and their drive awareness, generally purchase. reach our they discovery I brand all to and theme

top program. in actually. The you've to the program to I the about Prime strength Prime great a go second into I years want few comment line, Before over continues the last our question, drive seen make as

costs. XX shipping, expanding see XXX Prime, We've cost we greater. And continue digital like value from digital has million Shipping as options. to the never available value to of is And to And out Prime Prime recently as digital the we continue of FREE we add options. now pointed entertainment in rises and over high, also including shipping benefits, million been Video. it's our to Two-Day items, options especially continue The customers with benefits selection XXXX. One-Day We as up speed increase been and and Same-Day on

annual program plan renewals Prime even to combination making our starting Prime U.S. going we're a more benefits, XX, The $XXX price members. May apply new of members. for effective XX. So from we increase in provides June new valuable and to this invest of for $XX our on to to unique price will the continue

reminder, U.S. increase, annual in our we price the of single a increased of As since haven't March was Prime XXXX. which

Dave Fildes

remind accounting that And, to But this to our sorry we on Eric, the revenue just amended call. quarter adopted recognition just Yeah. initial question just wanted mentioned on back X, back that, we to last standard go too, your update on hop an that policies. to January folks

impact in to areas. highlight first the was want but do net revenue the to So I few a quarter not material,

adoption services of reduction the as revenue of sales. advertising rather part QX, beginning were costs of a classified certain in As than

revenue impact other the other of of $XXX part to is, the of is supplemental which in sales million increase – this disclosure. So change revenue our of QX, an course, was

the you'll included majority be would billion So $X North of the America – $XXX about see is in segment. increased ex-FX total, and in there, that other in million in quarter. that XXX% to year-over-year is included revenue, the first Again,

As just that third-party of about stores you and first increased item XX%, basis included services quarter, in-app content, media apps, rather at and revenue, other content look on a net supplemental revenue item, revenue online few The Beginning revenue. of presented ex-FX. than items line line online are in sales now note. certain seller stores the the digital a in

for quarter, revenue line XX% fourth quarter we Prior first revenue are about online memberships recognize higher, now recognized been to in that line allocated XX-month each new year. to year-over-year. this beginning quarter, the ex-FX first services with this Prime line. that stores then subscription revenue membership straight item, XX-month So but annual the increased more in included revenue would we Prime And period have over standard. revenue, Again, over the the in the XXXX, the period.

year, standard. QX lower, been of So for this but in new services have this would revenue subscription

Operator

Thank you.

Our Please proceed with with Stanley. Brian comes from your Nowak next question Morgan question.

Brian Nowak

my Thanks for questions. taking

first So me ask the one Prime, let on this. you

lower New lot there's to middle households that the Talk Prime. about reasons tension higher are penetration, sort price. U.S. that the data people at good some U.S. point households to shows What of you're Prime of capturing even the very a why income some in you're your about main yet raising income and think the and you solve reach the households doing are As not not you now need a to And job purchase are of main U.S. soon? the you're seeing early signing what to on more about behavior, the what determine roll a for out York hopefully, as share Prime cities, that Foods, at this in learnings you of are signposts in and what Now from to the integration Whole watching only point? And one how cities you few quickly early can about the you're learnings? on Prime recognizing and it's second

Brian T. Olsavsky

and want Prime your question option, obviously provides discounted out to by before There's who more On any Sure. discounts people about groups. plan. do for, other country, first Prime plans. without I also we other statistics say would for if you'll the for options on student flexibility getting penetration to have committing There's into notice, monthly penetration, annual there's try the

work do still and retail, day. we each in So, make just feel it's better the to deal and better it best we

mentioned The is thing you example. good a second

added using – in benefit ability Prime markets of Foods is deliveries that those using for to in Prime Whole XX the Now. Now So, an get Prime groceries market cities people

look as as going we're that at cities grocery as and what far specifically as Whole on test delivery, the as far see So the Foods, the a XX expanding to use question from how we'll we get we those our the announce sure we do, deliveries customers customers. feedback that, always and expansion we'll are once respond, for and just like digest make great then of that people, plans

Operator

Thank you.

Please Sachs. Our with next with from question. the question line comes Goldman Heath proceed of your Terry

Heath Terry

you. we QX, in that in of that customer, your accelerating you volumes specific there sort last the how that some customer terms in that out how acceleration cuts? out that in of looked can in terms of Thank have much business, specific U.S. sort of driving any year's what us of call And comp of could call was sort or against sense categories? look Great. would sense, we particularly a you driving in just growth in segment Are then, of us comments, would saw wondering business, business the in at I the you any of give the terms price that? you additions what customer of like AWS specifically categories you if as or against that additions give terms like the

Brian T. Olsavsky

Sure.

continues So with that to first, the America the drivers – with Prime and be without revenue Whole Foods, calculate North of mentioned you and you've flywheel. But Prime growth, general the can impact I'm sure. the and

selling more of for benefits Kindle of we especially not seeing digital Amazon strong Prime is Unlimited, Unlimited, demand, always other Music only news that engagement a benefits, good that and number we with So customer services. sales for also benefits, with there's we're We're see things. eventual Prime, better the multiple subscriptions, associate

So there's that we see. different streams revenue

not line rate. the two billion much North I nearly in – from accelerated same QX, accelerating. can America. We've quarters. in talk in about for So, on QX. And are up we're XX% QX XX% more $XX AWS FX-neutral revenue, the to The we basis again, was last XX% product a by run I growth now add And and

usage having So continued services. and of trying – enterprise new for just success is customers as AWS customers customers by increased strong with saying signing see are both new what migrations existing pace we're increasingly and

And workflows customers to more AWS rapid We moving databases are as are continues to seeing pace. and people at clip. Aurora at and to move faster their AWS a a very more grow of

AWS is I the back, create for value driving the again, customers. that say, believe, we what we stepping it's So would growth,

others We have that don't. and of the innovation pace functionality

others capability ecosystem to We the customer have expertise base. that's that highly and security proven valued and have don't. partner we AWS And operational

Operator

Thank you.

your next question. of Please from May question with Citi. line Mark comes proceed the Our with

Mark A. May

Thank you.

than regard to that go marketing, if type retail year that's ebb wonder as of that into investment, terms Some former, rate with that cycle the rate cost in from of to meaningfully different I is you could rate this revenue right of referenced of at revenue? about grow as that guys if and last other parts trade that of Thanks. year fulfillment network of the know already slowing year, earlier comment before. other periods growth that are this revenue growing particular I a can growth the build relative change the revenue to that that seen centers then you as that we've but of of bit advertising, you And line, where flow type little Dave of going of accounting ad in kind we of the dollars booked now. a the in of centers, data comment kind and more But logistics capacity. out on is you of suggests even the heavy the that the through year just data and well that

Dave Fildes

this Mark, Dave. or growth period, Yeah, question, rate much we can on the not second given that commented is not prior On say the year we've so there.

sort if that's was the to that XX%. you in back revenue As look But I the be rather said, the that in again, and line we'd out COGS at portion. about pre-existing advertised million, of item, – to that or $XXX other growing were relation included not

Brian T. Olsavsky

And versus address year-over-year. If on – year's the quarter last right, XX% it XX% back excuse grew first at still I and as there. CapEx last trends, that quarterly to on investment we seeing quarter look in I'll cap this question up isolation you're the was capacity, we're – me, and I look year. leases, strong capital

warehouses. in was quarter, investment it for particularly So a heavy particularly

XX tied of up XX%. requirements period. combined So if space but above we products. fulfillment the step strength though, predominantly a number the representative unit network, Amazon the bigger and program is center as CapEx, fulfilled and is I we the trailing the rate, our get for That that on which bigger FBA back into That's to growth months is

support that's On is trailing business, a proxy XX% the on up to good the capital year-over-year the spend which XX for months. leases, AWS the

strong, seek efficiency usage rates rates growth continue but centers. our our again, data number that to of of also Usage underway So exceed the a we rates. revenue increase to projects are have

to closer So have play hopefully number at that there rate. a revenue keep growth the couple things that

Operator

you. Thank

Our line JPMorgan. Anmuth with proceed Please your with question comes Doug next question. from of the

Douglas T. Anmuth

Thanks. for Thanks the operating income taking question. talk had XQ expected. quarter you about to is of for upside guide? leverage and the in you drove think Brian, relative I than just in there year? the the many the that XQ factors that any think better similar back outlook your you second to Can biggest And significant reason couldn't see half the delta a

Brian T. Olsavsky

it Sure. primarily billion. range came Yes, well things. we attribute given in million had that to our of few above we would a to I $XXX $X

– to strength. was growth be QX. continued First, had great strong of the We business top-line coming out consumer

strength, that seen accelerated that a I already the We mentioned recently. trend also which we where different revenue is quarter, into had AWS strong we've

end So our or people. we FX centers sales, customer frankly, – remained we adoption really costs when of hit and range drop fulfillment And quite our range fixed strong. we the with on incremental generally higher given on in good and the in AWS included, centers have see above data just through the

So to we're we able revenue, level of it. and saw great efficiencies higher at handle the

So good high very year-end at – had that were we of at a bit about generally inventory in We was utilization. guidance, the space financially. – we relatively the time high concerned

normally to the we without So centers. high having fulfillment still very correct cost handling you see due transportation would we're sales were additional But inventory and able reconfigure that the full locations. to in our that

differential would and probably estimate. to contributor a to this results continues strong had versus guidance advertising be and helped lastly, also that say, then, the quarter. profitability I And strong So

As quarters, portends far on QX and incorporated for now, I to what for that as into guidance. future focus QX it's want our

expect we consumer continue, AWS strength of a So lot and demand, areas to advertising. the

move year. will the investments through as see We definitely higher we

content to video Prime what's year-over-year, example, QX in in engineers. We'll some have spend particular, QX. hire, software and early in a costs we'll of be For Day will ahead continue to anticipated increase

you is holiday lower generally of So – and as QX the the to get then work ready quarter teams. know, hiring to due and people all and for building a

point, had beyond QX the happy that we're and but drove. the QX I in very with then we So, won't reception that, this customer income go at again,

Operator

you. Thank

RBC Our with next Markets. Please Capital question your question. from Mark proceed Mahaney comes with

Mark Mahaney

should Two bit eloquently a how every high that? if balance on you Thanks. it Great. against on revenue units I dilute wax what great do sponsored other are from of you high ad Amazon what perspective, Okay. million seems ideal was questions. just amount see consumer I revenue monstrous The search especially revenue? profit, in wonder what $XXX margin or a experience. but And then optimal hopefully, opportunities in opportunities, – income, little These experience? sometimes And an consumer advertising an doesn't do I advertising could be ad like the

then you that – just directly that don't think lot finally, So of of you how talk how that about heck around about an that that you advertising Thank you've video, And for, Prime part balance as Video you a of as a also inventory that. charge that have got revenue don't advertising, do allow opportunity? all you you.

Brian T. Olsavsky

Sure.

to Let me anyway. wax eloquently. Try

attributable with let's where have start the we to that in So we is $XXX that warrants that companies with. million; essentially partnered

companies with we technology other and have We transportation companies. partnered that

As up. lot companies the went stock a also QX, in increased these of market

we advertising, we a and there shift that so bit. So It's That positive. On bit very book currency that a weakening good – up and program on but that's dollar. on was the step also growing It's to have where the the investments. of let's quickly. gain multibillion-dollar lines the with lot of warrants the now a a on P&L, was due FX showed one – gain on of back in

brands main discover help Our goal to customers and products. is here new

So we're had we normal otherwise the people results. things show show to wouldn't have trying in maybe sponsored they their products, search seen

product sizes for purchase. customers looking customers want awareness, So and to goal the discovery, customers. we the or are again, advertisers of, drive both all those a and whether main let new it's brand established shapes we discovery the want trying to brand our reach as to hopefully brands, get reach of benefit Those said. for and We good of to here, we're then balance sellers and emerging with

seriously make for balancing and not responsibility the very of advertising that always right, So, disruptive. we take to that. But and you're in helpfulness it pressures are there try always the are

not customer. We right we Video, video On will that to to choose over on there advertising, be question in down come but the more the opportunities may do our of side on time have your yes, now. advertising

Dave Fildes

I'd for Video, agreement partnership to renewed as may that think today the Football. I to thing streaming earlier have the the add announcement just only Thursday related Night seen on with Yeah, Prime about the in you

games So over to things We've the to had NFL. be Nothing; which we'll like season's have is soon, of able globally, deliver Prime third coming up the with Prime partnership we've Original done on XXXX members XXXX, and Dallas XX in million a great that Cowboys. XXX the some Series or All continuation the the focused

And one to of, kind first that the I of in first one far live our and format that seen forays – NFL. – pleased only but and ads that the the we've live look what learning the the with we learning obviously with learning we're So format think next was in we've live where not of to business. seasons so had the forward technology, been few forays

Operator

you. Thank

Please Ju Stephen Ju - Securities Our next Stephen LLC from question comes proceed question. Suisse. Credit with (USA) Credit you. Thank Suisse with your

in So think, recently had shopping players think the this think measure from by you anyway. was local might presumably this of do announced. really you I have lies? come And question direct rollout, some think for you coming don't buy Brian, your people presence do on value I Where versus stuff where international so not have is site an the those your a informed regions where I from country? more you you official a in in proposition up where to users you And

seeing? most demand Thank regions are accounting which So, that you. the for of or countries you are

Brian T. Olsavsky

selection in globe. international the some that shopping talking countries LLC specifically? just of you Credit China, (USA) cetera, direct have of are you expands presumably to like - presence I'm all most the No, Stephen still rollout countries on? the and Japan, Can elaborate Suisse the wondering, Ju Securities et Stephen, you're more about, a on you're already

you where incremental demand seeing you be if in have where are direct from presence? might coming wondering just demand, seeing you So not countries and might a

Brian T. Olsavsky

Stephen Suisse Okay. Yeah. Securities Credit (USA) LLC - on Ju Oh, global store? Yes.

Brian T. Olsavsky

Yeah.

Sorry, I expansion thought you meant our countries. some of

don't for I us buyers on a to hit the have selection sellers – yeah, home reach you is are and main country. share different of their outside opportunities to but that today, think So, lot in countries who with I on point, in

So it's for great side. other and it sellers, works a it's great benefit if a benefit customers the on only for

Operator

you. Thank

question. comes proceed question with next Please with Our Justin Merrill from Post Lynch. your

Justin Post

to like of Yeah, maybe thank a couple dive into recent I'd you. overhangs. local

on partner? talk about any dependent your are you've about First, some out initiatives might you any And wondering can to network? shipping from just of And on how countries shipping talk there? the your partners, you started you of were sales in a in little dependency bit then own know what Could taxes, stuff Amazon you're to on – that that kind third-party over XX% if can states own just on in when us shipping states? third various had build delivering. you. collecting secondly, I on remind items taxes taxes pass? other happened And Thank overview parties your you view collecting be of

Brian T. Olsavsky

Sure.

me Let with start transportation.

of a own, that capabilities holiday volume ensure keep on have can use our that up know to you our particularly who But around with growing group the and globally carriers we're season. we increased and great We also teams are. they we

expansion to points network. lot move driven airplanes driven driven our of of Amazon It's Logistics. purchase within the creation product of between of the sort our delivery centers. that's So It's a

AmazonFresh internal We now continue we see, so that and Logistics again mentioned tied is in what Prime capability. Now the UK. with It's countries, XX in in far we'll of will Whole Now a and our partners well with with cities. Foods, particularly external It like Amazon XX% some Prime we this we again initiatives which of the see with to lot helps So and capability. operate over combination

we we'll and it's that core have invest that. need continue and think we to we in So a competency to have,

Dave Fildes

own sales states in have Yeah, sales, tax collect and the all XX sales products a tax. state-imposed Justin, this first-party that the on is on Dave, on we Today, our just piece.

on collect year, do behalf the turned first piece, two XT of X. in on Pennsylvania State this and of April we the then Washington our of as states, On here on sellers

question that's of that back impact in those get total, time coming sort of of period over So going the piece of of first-party terms to a many over your online, to many on years. been states from came XX

add to more really on nothing yeah, So that.

not needs and is continue I think I believe simple retailers both evenhandedly. do states, sales actively to collecting with federal legislation constitution resolved that to that and sales be system working within tax level, permissible at and and to Congress get with We're to say opposed would we applied issue the a we're federal the the tax passed.

Operator

you. Thank

question proceed next Please comes with from Greg with your Our MoffettNathanson. Melich question.

Gregory Scott Melich

Hi. Thanks.

tied going why have bit. I right Why up obviously little value since now? uptake starting are mentioning follow up. So in time terms want and to importance The some get like especially shipping so to you fee usage slow? a there's into mean, voice Could is the been we've long membership there I to numbers growth adding Alexa and hike, fee basically Alexa flywheel? Prime Thanks. costs a increase, commerce, you give that release. on in looks us for that, the now and of metrics time, of the the on are And the a of lot the

Brian T. Olsavsky

and ways evaluate to in reach we're the the always price creative all we're in, Prime the countries for We looking Sure. of customer.

or As et earlier, monthly – student excuse me, I mentioned plans, cetera. plans, creation

nothing when price at looking it's day, delivering. really of get two million days. high I years could it's increased within one could program, that the day Prime, get many, the than days, we two hours. mentioned So state the XXX within or Today million and within many same XX many, two last of more ago you benefits the four over products you products products

that It's better of the kinds the of value Prime in it added a continually to much new that's program. is the a that, of of program. was than reflection different So This cost reflection there's we've all features XXXX.

Operator

you. Thank

Our next question comes from...

Brian T. Olsavsky

Sorry go ahead.

Operator

Sorry go ahead.

Cowen with your Our and John comes Please next from with Company. question. Blackledge question proceed

John Blackledge

Great. Thank you.

about XX%, XX%. ex-AWS revenue mix, international the So Foods looks ex-Whole and U.S.

would gap the of the in envision be Given what the would international the mix to markets shift you in And you. Thank coming international key of closer XX-XX? years? closing getting investments kind drivers the

Brian T. Olsavsky

project Yeah America. segments, we're as Sure. I don't in have proportions seeing America different seen same to continues international level see relative the investment want the what say or can North I North the but of of is in to

add earlier them benefits, Prime we of the in at probably when we're in Prime an program stage we adding benefits, So did life the than U.S. internationally

So, they they of different globally the the day value and customers and think have We dynamics. end at prices the selection same low that behave great customer experience.

So, We'll make even and in prices. to these we'll expand so accelerate shipping. selection, programs to increases continue it investments FBA sellers. continue Prime. build builds continue with continue continue We'll more to partnerships to lower that We'll selection to great

they rolling in Prime other India, we've I and the lot We're local with, and allows seen content, great any seeing stickiness to benefits, adding and we're devices sorry, in and growing Amazon developing [Technical with other for their that Alexa, than We're we've we're both benefits. great (XX:XX-XX:XX) Difficulty] video home home press like which are person important of ability. developers in best of in saw us Yes, Indian where all better. it India countries. release, value content you and the sellers And seen the in Prime year out to still we over momentum Prime the in there, you And is excuse – delighting think access faster I customers. invest seeing the (XX:XX-XX:XX). adding think The We're program me. in including it's continue Alexa, to to Difficulty] first to a started in out is [Technical the cut We'll time skills creates progress grew also customers last also but India up, and XX,XXX has the there. program as also products Alexa we

Dave Fildes

in Thanks forward call your your least appreciate We thanks the next quarter. Investor Relations quarter. our look Brian. questions. the will the end and replay at interest website to be joining and again talking for today through with A available on us on of Amazon.com, And you for

Amazon.com (AMZN) 26 Apr 182018 Q1 Earnings call transcript