Aiera/aiera-transcript-sentiment huggingface dataset:
Thank you for standing by. Good day, everyone, and welcome to the Amazon.com Fourth Quarter 2023 Financial Results Teleconference. [Operator Instructions] Today's call is being recorded. For opening remarks, I will be turning the call over to the Vice President of Investor Relations. Mr. Dave Fildes. Thank you, sir. Please go ahead.
Sentiment: neutral
Hello, and welcome to our Q4 2023 financial results conference call. Joining us today to answer your questions is Andy Jassy, our CEO; and Brian Olsavsky, our CFO.
Sentiment: neutral
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.
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Our comments and responses to your questions reflect management's views as of today, February 1, 2024, 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.
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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.
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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.
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And now I'll turn the call over to Andy.
Sentiment: neutral
Thanks, Dave. Today, we're reporting $170 billion in revenue, up 13% year-over-year, excluding the impact from foreign exchange rates, $13.2 billion in operating income, up 383% year-over-year or $10.5 billion and $35.5 billion in trailing 12-month free cash flow adjusted for equipment finance leases, up $48.3 billion year-over-year. While we've made meaningful progress in our financial measures, what we're most pleased about is the continued customer experience improvements across our businesses. These results represent a lot of invention, collaboration, discipline, execution, adjusting and reimagining from teams across Amazon.
Sentiment: positive
Looking back at Q4, I'll start with our stores business, where customers responded to our continued focus on selection, price and convenience. We continue to have the broadest retail selection with hundreds of millions of products available and added tens of millions of new items last year alone, including fashion selection from Coach, Victoria's Secrets Fashion, Pit Viper and Beyonce's Renaissance to our Merge to cosmetics from Lancome, Urban Decay, cosmetics and No Beauty by Vanessa Hudgens, to consumer technology and services from Boost, Infinite and Woop to homewares for Martha Stewart. Being sharp on price is always important, but particularly in an uncertain economy, where customers are careful about how much they're spending. We kicked off the holiday season with Prime Big Deal Days, an exclusive event for Prime members to provide an early start on holiday shopping. This was followed by our extended Black Friday and Cyber Monday holiday shopping event, which was open to all customers and ended up being our largest event ever.
Sentiment: positive
These events also helped attract new customers and Prime members. Throughout the quarter, customers saved nearly $10 billion across millions of deals and coupons, almost 70% more than last year. In addition to offering great deals, we continue to improve delivery speeds. In 2023, Amazon delivered to Prime members at the fastest speeds ever with more than 7 billion items arriving same or next day, including more than 4 billion in the U.S. and more than 2 billion in Europe. In the U.S., this result is the combination of 2 things. One is the benefit of regionalization, where we rearchitected the network to store items closer to customers. The other is the expansion of same-day facilities where in the U.S. in the fourth quarter, we increased the number of items delivered the same day overnight by more than 65% year-over-year.
Sentiment: positive
As we're able to get customers items this fast, it increases the number of occasions that customers choose Amazon to fulfill their shopping needs. And we can see that in all sorts of areas, including how fast our everyday essentials business is growing. Our regionalization efforts have also brought transportation distances down, which has helped lower our cost to serve. In 2023, for the first time since 2018, we reduced our cost to serve on a per unit basis globally. In the U.S. alone cost to serve was down by more than $0.45 per unit compared to the prior year. Lowering cost to serve allows us not only to invest in speed improvements but also afford adding more selection at lower average selling prices or ASPs and profitably. We have a saying that it's not hard to lower prices, it's hard to be able to afford lowering prices.
Sentiment: positive
The same is true with adding selection. It's not hard to add lower ASP selection, it's hard to be able to afford offering lower ASP selection and still like the economics. Like improving speed, adding selection puts us in the consideration set for more purchases.
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As we look toward 2024 and beyond, we're not done lowering our cost to serve. We've challenged every closely held belief in our fulfillment network and reevaluated every part of it and found several areas where we believe we can lower costs while also delivering faster for customers. Our inbound fulfillment architecture and resulting inventory placement are areas of focus in 2024, and we have optimism there's more upside for us.
Sentiment: positive
Alongside our stores business, our advertising growth remained strong, up 26% year-over-year, which is primarily driven by our sponsored ads. We've recently added sponsored TV to this offering in the U.S., a self-service solution for brands to create streaming TV campaigns with no minimum spend, putting this advertising within reach of any business. While still early days, streaming TV advertising continues to grow quickly. Brands are using our capabilities to reach engaged viewers on Twitch, Free V, Fire TV and Prime Video shows and movies, which just launched in the U.S. as well as Thursday Night Football.
Sentiment: positive
Shifting to AWS, revenue in the quarter grew 13% year-over-year in Q4 versus 12% year-over-year in Q3, and we're now approaching an annualized revenue run rate of $100 billion. We watched the incremental revenue added each quarter. And in Q4, AWS added more than $1.1 billion of incremental quarter-over-quarter revenue, which on an FX-neutral basis is more than any other cloud provider as far as we can tell.
Sentiment: positive
While cost optimization continued to attenuate, larger new deals also accelerated, evidenced by recently inked agreements with Salesforce, BMW, NVIDIA, LG, Hyundai, Merck, MUFG, Axiata, Cathay, BYD, Accor, Amgen and SAIC. Our customer pipeline remains strong as existing customers are renewing at larger commitments over longer periods and migrations are growing. 2023 also was a very significant year of delivery and customer trial for generative AI or Gen AI in AWS. You may remember that we've explained our vision of 3 distinct layers in the Gen AI stack, each of which is gigantic and each of which we're deeply investing.
Sentiment: positive
At the bottom layer, where customers who are building their own models run training and inference on compute where the chip is the key component in that compute, we offer the most expansive collection of compute instances with NVIDIA chips. We also have customers who like us to push the price performance envelope on AI chips, just as we have with Graviton for generalized CPU chips, which are 40% more price performance than other X86 alternatives. And as a result, we've built custom AI training chips, named Trainium and inference chips name Inferentia. At Reinvent, we announced Trainium 2, which offers 4x faster trading performance and 3x more memory capacity versus the first generation of Trainium, enabling advantageous price performance versus alternatives.
Sentiment: positive
We already have several customers using our AI chips, including Anthropic, Airbnb, Hugging Face, Qualtrics, Rico and Snap. In the middle layer, where companies seek to leverage an existing large language model, customize it with their own data and leverage AWS' security and other features, all as a managed service, we've launched Bedrock, which is off to a very strong start with many thousands of customers using the service after just a few months. The team continues to rapidly iterate on Bedrock, recently delivering capabilities, including guardrails to safeguard what questions applications will answer, knowledge basis to expand model's knowledge base with retrieval augmented generation of RAG and real-time queries, agents to complete multistep tasks and fine-tuning to keep teaching and refining models, all of which will help customers' applications be higher quality and have better customer experiences.
Sentiment: positive
We also added new models from Anthropic, Cohere, Meta with Llama 2, Stability AI and our own Amazon Titan family [indiscernible]. What customers have learned at this early stage of Gen AI is that there's meaningful iteration required in building a production Gen AI application with the requisite enterprise quality at the cost and latency needed. Customers don't want only 1 model. They want different models for different types of applications and different sized models for different applications. Customers want a service that makes us experimenting and iterating simple. And this is what Bedrock does, which is why so many customers are excited about it.
Sentiment: positive
At the top layer of the stack is the application layer, one of the very best early Gen AI applications is a coded companion. At Reinvent, we launched Amazon Q, which is an expert on AWS, writes code, debugs code, tests code, does translations like moving from an old version of Java to a new one and can also query customers various data repositories like Internet, Wickes or from over 40 different popular connectors to data in Salesforce, Amazon S3, ServiceNow, Slack, Elastin or Zendesk, among others. And answer questions, summarize this data, carry on a coherent conversation and take action.
Sentiment: neutral
It was designed with security and privacy in mind from the start, making it easier for organizations to use generative AI safely. Q is the most capable work assistant and another service that customers are very excited about. By the way, don't underestimate the point about Bedrock and Q inheriting the same security and access control as customers get with AWS. Security is a big deal, an important differentiator between cloud providers. The data in these models is some of the company's most sensitive and critical assets. With AWS' advantaged security capabilities and track record relative to other providers, we continue to see momentum around customers wanting to do their long-term Gen AI work with AWS.
Sentiment: positive
We're building dozens of Gen AI apps across Amazon's businesses, several of which have launched and others of which are in development. This morning, we launched Rufus, an expert shopping assistant trained on our product and customer data that represents a significant customer experience improvement for Discovery. Rufus lets customers ask shopping journey questions like what is the best golf ball to use for better spin control or which are the best cold weather rain jackets and get thoughtful explanations for what matters and recommendations on products. You can carry on a conversation with Rufus on other related or unrelated questions and retains context coherently. You can sift through our rich product pages by asking Rufus has questions on any product features and will return answers quickly.
Sentiment: positive
We're at the start of what Rufus will do with further personalization and expansion coming, but we're excited about how it will make discovery even easier on Amazon.
Sentiment: positive
Gen AI is and will continue to be an area of pervasive focus and investment across Amazon, primarily because there are a few initiatives, if any, that give us the chance to reinvent so many of our customer experiences and processes, and we believe it will ultimately drive tens of billions of dollars of revenue for Amazon over the next several years. In addition to our stores and AWS businesses, we continue to make progress on newer business investments that have the potential to be important to customers and Amazon long term.
Sentiment: positive
Touching on 2 of them. In October, we had a major milestone in our journey to commercialize Project HyPer, which is our low earth orbit satellite initiative that aims to provide broadband connectivity to the 400 million to 500 million households who don't have it today. We launched two end-to-end prototype satellites into space and successfully validated all key systems and subsystems, made a 2-way video call, streamed a Prime Video movie in Ultra HD 4K and made an Amazon purchase over our end-to-end communication network. It's rare to be able to exercise all these elements in an initial launch like this.
Sentiment: positive
We're on track to launch our first production satellite in the first half of 2024 and started beta testing in the second half of the year. We've still got a long way to go, but are encouraged by our progress. During the quarter, we also completed our second season of Thursday Night Football, which was a rousing success by all accounts. The customer experience continued to improve as our talent, production, streaming quality, analytics, unique AI features like Prime Vision and defensive alerts, all took big leaps forward on top of the very good start last year.
Sentiment: positive
We launched a new NFL tradition with the inaugural Black Friday football game and our continuous innovation resonated with viewers as the number of people watching increased 24% year-over-year and with advertisers as we made dramatic year-over-year gains in ad sales. We have increasing conviction that Prime Video can be a large and profitable business on its own, and we'll continue to invest in compelling exclusive content for Prime members like Thursday Night Football, Go To The Rings, Reacher, Mr. & Mr. Smith, Citadel and more.
Sentiment: positive
And with the ads in Prime Video, we'll be able to continue investing meaningfully in content over time.
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I'll close by reiterating that 2023 was a really good year. I'm grateful to all of our teams who delivered on behalf of customers. Yet I think every one of us at Amazon believes this is just the start of what's possible. We have a long way to go in every one of our businesses before we exhaust how we can make customers' lives better and easier, and there is considerable upside in each of the businesses in which we're investing.
Sentiment: positive
With that, I'll turn it over to Brian.
Sentiment: neutral
Thanks, Andy. Overall, we saw strong performance in the fourth quarter. Worldwide revenue was $170 billion, representing an increase of 13% year-over-year, excluding the impact of foreign exchange and approximately $3 billion above the top end of our guidance range. Saw our highest quarterly worldwide operating income ever, which was $13.2 billion for the quarter, an increase of $10.5 billion year-over-year and $2.2 billion above the high end of our guidance range. For the full year 2023, we had a meaningful improvement across our financial results.
Sentiment: positive
Revenue was $574.8 billion, an increase of 12% year-over-year, excluding the impact of foreign exchange. Operating income tripled year-over-year to $36.9 billion. Trailing 12-month free cash flow adjusted for equipment finance leases was $35.5 billion, up $48.3 billion versus last year. These financial outputs are a result of a lot of improvements in our key input metrics such as stores' cost to serve, which decreased year-over-year for the first time since 2018 and our ability to deliver to customers at our fastest speeds ever.
Sentiment: positive
I want to thank our customers, our partners and our teammates around the world for a very strong 2023 performance.
Sentiment: positive
Focusing on the fourth quarter, North America revenue was $105.5 billion, an increase of 13% year-over-year and an acceleration of 200 basis points compared to Q3. International revenue was $40.2 billion, an increase of 13% year-over-year, excluding the impact of foreign exchange, also an acceleration of 200 basis points compared to Q3. During the quarter, we remained focused on the inputs that matter most to our customers, price, selection and convenience.
Sentiment: positive
Our shopping events throughout the quarter included Prime Big Deal Days in October and our extended Black Friday and Cyber Monday shopping event helped to attract new Prime members and deliver billions in savings for customers. We made meaningful progress on delivery speeds in the United States and globally, which helped strong sales throughout the quarter, including notable strength in the last-minute gifting where our ability to provide fast shipping helped our Prime members ensure that they got their gifts before the holidays.
Sentiment: positive
These improvements in delivery speed have led to increased purchase frequency by our Prime members across all of our major geographies. It also strengthened demand for our everyday essentials. Categories like beauty and health and personal care, where speed is even more important to customers. Third-party sellers were a big part of our success over the holidays with worldwide third-party seller services revenue growing at 19% year-over-year, excluding the impact of foreign exchange. And worldwide third-party seller unit mix was 61%, its highest level ever.
Sentiment: positive
We also saw strong performance in worldwide advertising, which grew 26% year-over-year, excluding the impact of foreign exchange. The strength in advertising was primarily driven by sponsored products as our teams worked hard to increase the relevancy of the ads we show customers by leveraging machine learning. Advertising only works if the ads are helpful to customers and there's a lot of value in tailoring sponsored products, so they are relevant to what a customer is actually searching for. We're also continually focused on improving our measurement capabilities, which allow brands to see the payback of their advertising spend.
Sentiment: positive
Shifting to profitability. North America segment operating income was $6.5 billion, an increase of $6.7 billion year-over-year, resulting in an operating margin of 6.1%, up 120 basis points quarter-over-quarter. Since North America operating margins were at their recent low levels in Q1 of 2022, we have now seen 7 consecutive quarters of improvement resulting in a cumulative improvement of 800 basis points over these past 7 quarters.
Sentiment: positive
In addition to the strong top line growth, which helped to drive improved leverage throughout our businesses, we continue to make progress on reducing our cost to serve. The fourth quarter is our busiest time of year, supported by an increasingly large and integrated operations network. Overall, our teams executed extremely well, yielding strong efficiency gains with minimal disruptions. We were pleased with the performance of our regionalized network during the holiday period, where we saw benefits from improved inventory placement helping drive faster speeds and also lowering costs.
Sentiment: positive
We also continue to see benefits from lower transportation rates, which include linehaul, ocean and rail and from a more stable labor market, resulting in improved staffing levels.
Sentiment: positive
In our International segment, we had an operating loss of $419 million, an improvement of $1.8 billion year-over-year. This improvement was primarily driven by lowering our cost to serve through increased units per box, lower transportation rates and leverage across our fixed costs as we continue to focus on customer inputs and improve efficiencies within our operations. The International segment represents more than 20 countries of varying degrees of growth and our largest established countries like the U.K., Germany and Japan, relatively strong revenue growth contributed to the year-over-year improvement in profitability. Additionally, we saw good progress in our emerging countries as they continued to expand their customer offerings, while seeking to invest wisely.
Sentiment: positive
Moving to AWS. Revenues were $24.2 billion, an increase of 13% year-over-year. On a quarter-over-quarter basis, we added more than $1.1 billion of revenue in AWS as customers are continuing to shift their focus towards driving innovation and bringing new workloads to the cloud. Similar to what we shared last quarter, we continue to see the diminishing impact of cost optimizations. And as these optimization slow down, we're seeing more companies turning their attention to newer initiatives and reaccelerating existing migrations.
Sentiment: positive
Customers are also excited about our approach to generative AI. Still relatively early days, but the revenues are accelerating rapidly across all 3 layers and our approach to democratizing AI is resonating well with our customers. We have seen significant interest from our customers wanting to run generative AI applications and build large language models and foundation models, all with the privacy, reliability and security they have grown accustomed to with AWS.
Sentiment: positive
AWS' operating income was $7.2 billion, an increase of $2 billion year-over-year. Our operating margin for the quarter was 29.6%, up more than 500 basis points year-over-year and effectively flat on a quarter-over-quarter basis. This margin improvement reflects our headcount reductions from earlier in the year and a slowdown in the pace of hiring.
Sentiment: positive
Shifting to free cash flow. On a trailing 12-month basis, free cash flow adjusted for finance leases was $35.5 billion, an improvement of $48.3 billion year-over-year. The largest driver of the improvement in free cash flow is our increased operating income, which we are seeing across all 3 of our segments. We're also seeing improvements in working capital, notably in inventory efficiency driven by our regionalization efforts.
Sentiment: positive
Next, let's turn to capital investments. We define our capital investments as a combination of CapEx plus equipment finance leases. In 2023, full year CapEx was $48.4 billion, which was down $10.2 billion year-over-year, primarily driven by lower spend on fulfillment and transportation. As we look forward to 2024, we anticipate CapEx to increase year-over-year, primarily driven by increased infrastructure CapEx, support growth of our AWS business, including additional investments in generative AI and large language models.
Sentiment: positive