Release Date: February 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue of $170 billion, up 13% year-over-year, excluding the impact from foreign exchange rates.
- Operating income of $13.2 billion, up 383% year-over-year or $10.5 billion.
- Trailing 12-month free cash flow adjusted for equipment finance leases, up $48.3 billion year-over-year.
- Advertising growth remained strong, up 26% year-over-year, primarily driven by sponsored ads.
- AWS revenue grew 13% year-over-year in Q4, approaching an annualized revenue run rate of $100 billion.
Negative Points
- The results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates and changes in global economic conditions.
- Guidance incorporates order trends to date and assumptions which may not accurately predict demand for goods and services.
- The cost to serve has been reduced for the first time since 2018, indicating previous years of increased costs.
- International segment reported an operating loss of $419 million, despite an improvement of $1.8 billion year-over-year.
- CapEx is expected to increase year-over-year in 2024, primarily driven by increased infrastructure CapEx to support growth of AWS.
Q & A Highlights
Q: Can you talk a little bit about the contribution from backlog conversion, AI workloads and some elements that allowed you to reaccelerate revenue at AWS in Q4 and how we should think about those components from an exit velocity standpoint into 2024?
A: AWS revenue growth accelerated to 13.2% in Q4, with an expectation of accelerating trends into 2024. Cost optimization has largely occurred, migrations have picked up, and larger new deals have accelerated. Interest in generative AI products like Bedrock and Q is also contributing to growth. CapEx will increase in 2024, primarily driven by infrastructure CapEx to support AWS growth, including investments in generative AI and large language models.
Q: How are you going to market within the application layer of the generative AI stack, and could you expand on the strategy for gen AI on the consumer-facing side of the business?
A: Customers want choice and the ability to experiment with different models for different applications. AWS's Bedrock is resonating with customers for its ability to manage transitions and changes in generative AI applications. The coding companion, Q, is also gaining interest for its productivity benefits. On the consumer side, Amazon is building dozens of generative AI applications across the company, including the newly launched Rufus, a shopping assistant. These applications are expected to improve conversion rates and overall consumer engagement on retail apps.
Q: Can you walk us through some of the key operational blocking-and-tackling that is to happen to continue to drive down the cost to serve back to 2018 levels or however you're thinking about your north star from that perspective?
A: Amazon is focused on improving cost to serve by honing regionalization improvements, reevaluating the fulfillment network, and focusing on inbound processes and inventory placement. These efforts are expected to lower costs while delivering faster for customers. The company does not see 2018 as the north star for cost to serve but believes there is meaningful upside for further improvements.
Q: How do you think about the idea of buybacks, share repurchases or some type of capital return programs to help shareholders out?
A: Amazon is pleased with the improvement in free cash flow and debates and discusses capital structure policies regularly. While there is nothing to announce currently, the company has strong investments ahead and is glad to have better liquidity at the end of 2023, aiming to continue building it.
Q: Can you talk about some of the levers in moving into positive operating income for International and how International could potentially approach North America levels over time?
A: Amazon has seen improvement in International profitability, driven by cost to serve reductions, advertising strength, cost attention, and wise investments. The company is focused on customer inputs and improving efficiencies within operations. In established countries like the U.K., Germany, and Japan, strong revenue growth contributed to profitability, while emerging countries are on a trajectory toward breakeven and income contribution.
Q: Can you provide any color or context on expectations around Amazon Prime Video ads?
A: Advertisers are excited to access Amazon's Prime customer base, and the company is looking to increase advertising in streaming properties, including Fire TV and Prime Video. The ads are expected to be an important part of the business model, allowing continued investment in content and growth. Amazon anticipates the ads will not have heavy loads and will be useful for customers.
Q: Can you talk a bit about the progress in unifying the grocery offering between dot com Fresh and Whole Foods and the opportunity in reverse logistics?
A: Amazon is making progress in unifying the grocery offering, with a focus on improving the customer experience and leveraging logistics capabilities. The company is working on making it easier for customers to shop between nonperishables and Whole Foods and Fresh selections, with the potential to lower costs and increase traffic and revenue in the grocery business.
Q: Could you talk a little bit more about the longer-term vision in health care?
A: Amazon sees an opportunity to be a meaningful part of changing the health care experience, particularly in primary care and pharmacy. The company's vision includes improving the customer experience through services like Amazon Pharmacy and One Medical, which offer convenient access to medications and primary care. Amazon believes that integrating health care services with its retail offerings can lead to a better customer experience and potentially expand into wellness and diet-related services.
