Aiera/aiera-transcript-sentiment huggingface dataset:
One thing I'd like to highlight in our first quarter guidance is that we recently completed a useful life study for our servers and we are increasing the useful life from 5 years to 6 years beginning in January 2024. We will have this anticipated benefit to our operating income of approximately $900 million in Q1, which is included in our operating income guidance.
Sentiment: positive
As we turn the calendar to 2024, we are excited to continue upon the great work the teams have been able to deliver in 2023. We remain focused on streamlining and prioritizing projects in an effective way that reduces costs and also allows us to continue innovating and inventing for customers.
Sentiment: positive
With that, let's move on to questions.
Sentiment: neutral
[Operator Instructions] Our first question comes from the line of Eric Sheridan with Goldman Sachs.
Sentiment: neutral
I'm just going to do a 2-parter on AWS. If we take a step back, 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 point into 2024? And then against your broader comments on CapEx, any color on how we should be thinking about AI-driven CapEx within the AWS initiatives against the broader CapEx commentary?
Sentiment: neutral
Yes, that's right. This is Dave. Just to give you that -- the balance was $155.7 billion as of 12/31. So that's up more than $45 billion year-over-year and $20 billion quarter-over-quarter.
Sentiment: positive
And then if you look back at the revenue growth, it accelerated to 13.2% in Q4 as we just mentioned. That was an acceleration. We expect accelerating trends to continue into 2024. We're excited about the migrate -- continuous resumption, I guess, of migrations that companies may have put on hold during 2023 in some cases and interest in our generative AI and products, like Bedrock and as Andy was describing that.
Sentiment: positive
On the CapEx side, let me talk in total for the company. We had $48 billion in 2023 was down $10 billion year-over-year. We talked about during the year quite a bit. A lot of the mix of investment in 2023 was tied to infrastructure, mostly supporting AWS but also supporting our core Amazon businesses was about 60% of our spend. So it reached a very high percentage. We anticipate those trends continuing into 2024. CapEx will go up in 2024. I'm not giving a number today, but we do -- we're still working through plans for the year, but we do expect CapEx to rise as we add capacity in AWS for region expansions, but primarily the work we're doing with generative AI projects.
Sentiment: negative
In the fulfillment center and logistics area, I would say it's more incremental capacity at this point based on additional demand, although we are seeing some additional investments for same-day delivery sites and automation, robotics. But the trend for most of the large percentage of the spend will be in infrastructure is going to continue into 2024.
Sentiment: neutral
To add a few things to what Brian said. I think just as it relates to the first part of the question, just the way to think about backlog conversion is just these are deals that we've signed that are long-term deals typically with customers. And then there's some amount of time it takes where we work with those customers to migrate those workloads. And so some of the trends that we have seen over the last quarter. First of all, I think that the lion's share of cost optimization has happened. It's not that there won't be any more or that we don't see anymore, but it's just attenuated very significantly. And at the same time, what we've seen is that migrations and this speaks to some of the backlog, migrations that were proceeding, but maybe not at the pace that we saw before, have started to pick up again.
Sentiment: neutral
We've also seen that a number of the deals that typically signed more quickly, but were signing more slowly in more uncertain environments. A lot of those got done in the last quarter, and you heard in my opening remarks some of the examples, but that was some of several, and we're continuing to see that trend. And then on the Gen AI side, it's -- if you look at the Gen AI revenue we have, in absolute numbers, it's a pretty big number, but in the scheme of a $100 billion annual revenue run rate business, it's still relatively small, much smaller than what it will be in the future, where we really believe we're going to drive tens of billions of dollars of revenue over the next several years.
Sentiment: positive
But it's encouraging how fast it's growing and our offering is really resonating with customers.
Sentiment: positive
And the next question comes from the line of Brian Nowak with Morgan Stanley.
Sentiment: neutral
I have two. Andy, the first one is sort of on the cost to serve comments coming down for the first time since 2018. As you sort of look into '24 and '25, can you just sort of walk us through some of the key operational blocking and tackling this to happen to continue to drive down that cost of serve back to 2018 levels? Or however you're thinking about your North Star from that perspective? And then the second 1 is on sort of philosophical about capital returns. It looks like the cash balance could start building pretty nicely here. How do you think about the idea of buybacks, share repurchases or some type of capital return programs to sort of help shareholders out?
Sentiment: neutral
Brian, I appreciate it. I'll take the first, and I'll let Brian take the second. On the cost to serve coming down, as I mentioned in my opening remarks, I don't think that we feel like where we're going to ultimately be. I think we feel like we have meaningful upside there. And I think 1 thing that it's easy to make as large a change as we made in regionalization in the U.S. and saying, check, we got that done. But the reality is, we still have several improvements and a bunch of ways that we can hone the regionalization improvements that we made in 2023 and in 2024.
Sentiment: neutral
And so when the team speaks about the areas where they believe they have opportunities, there's still opportunities just in regionalization as we continue to hone that, but I also think, in many ways, it was very useful for us to go through what was a pretty significant change we went through during the pandemic, where we doubled the size of our fulfillment center network in 18 months and built out a last mile transportation network, the size of UPS in 18 months. It was disruptive to get that optimized. But one of the things that was very useful was, it really caused us to relook at everything we were doing with fulfillment network.
Sentiment: neutral
And we looked at it really a beginner's eye and we have found so many areas that we believe that we can evolve that I think will both help our cost to serve and even more importantly, deliver faster delivery speeds for customers. And I mentioned one area which, in particular, which you'll see us focus on over the next year or two is just, we think there are real opportunities in our inbound network and our inbound processes. And then where we locate inventory in association with that, which will accomplish both of those tasks. But for us, I don't believe that we believe that 2018 is the North Star in cost to serve. I think we believe we can keep evolving it and being better than that.
Sentiment: positive
Yes, I'd just add a couple of other items there. We've gotten a lot better at fixed cost controls, as we scale. And I think you're seeing that as part of our ability to lower cost per serve not only in operations, it's actually throughout the company. And we're seeing a reduction in some of the inflationary factors that hit us in -- especially hard in 2021 and 2022, things like transportation services, fuel and others. So not totally out of the woods there, but coming down, and we still see some more upside.
Sentiment: positive
On your share repurchase question, first of all, just really excited to actually have that question. No one's asked me that in 3 years and appreciate it. But we have come through a tumultuous period where, as Andy just said, we doubled the size of our logistics footprint and invested heavily in -- we saw that negative free cash flow, at least on our all 2 calculation for the period 2021 to 2022. So we're glad to see the improvement in the bounce back in free cash flow. A lot of -- and we do debate and discuss capital structure policies annually or more often. And I have nothing to announce today, but again, we primarily think we have a lot of strong investments in front of us. We're good -- we're glad to have the liquidity -- better liquidity at the end of 2023, and we're going to try to continue to build that.
Sentiment: positive
And our next question comes from the line of Doug Anmuth with JPMorgan.
Sentiment: neutral
Brian, you've seen very good improvement in International profitability over the last several quarters. Can you just talk about some of the levers here that you're thinking about just as you look to move into positive operating income and then how International could potentially approach North America levels over time? And then just a follow-up there. Are you seeing any shipping disruptions currently related to the Red Sea and does that factor into your outlook at all for 1Q?
Sentiment: positive
Yes. Let me start with the second one first. So we're mindful of the geopolitical issues around the world, especially as you say in the supply chain and how that might impact shipments both to the U.S. and to Europe. We're just working very hard to make that not back up on customers, and we'll continue to work that. It's not a material impact into the -- estimated in our guidance in Q1. But again, as I said, we're vigilant on that, and we'll work to take steps where we need to, to make sure that customer experience is not impacted.
Sentiment: neutral
On the International segment, operating income, yes, we're very pleased with the results, especially over the last few quarters. We improved operating income by $1.8 billion year-over-year. And I would attribute it to the steady progress that Andy was saying about the U.S. is, again, cost of serve down, advertising is stronger, a lot of attention to cost, a lot of attention to investments, and we are going to invest and other fixed cost control. So a lot of that is what we're seeing in the established countries of Europe and Japan. I would divide the segment a bit into a couple of buckets.
Sentiment: positive
First, there's that International segment, excuse me, European established country segment. And that's -- it behaves a lot like you would see in North America. If you look at the emerging countries, and again, we've launched 10 countries in the last 7 years. They're all on their own trajectory of journey to profitability and significance with customers, and we're pleased with that. I think they're all growing nicely and again, leveraging their cost structure, investing wisely and Prime benefits, but all on a curve to breakeven and then be a contributor to income and free cash flow.
Sentiment: positive
The other thing I'd point out is that we have advanced loaded, I would say, price benefits in our International markets. We think it's a very good source of customer acquisition and customer retention. The investment in those areas can fluctuate quarter-to-quarter. We had a bit of a higher spend in -- excuse me, in digital content in Q4 as we had a number of marketing and content, especially around live sports, English Premier League and Champions League in Germany and Italy, for example. But we like those benefits in those investments, different proven vehicle for customer acquisition, as I said, and it gets people shopping at our sites and engaging with benefits is always positive for the relationship with Amazon.
Sentiment: neutral
And the next question comes from the line of Mark Mahaney with Evercore ISI.
Sentiment: neutral
Two questions, please. I think you mentioned, Brian, that the North American margins have improved for 7 quarters in a row or something like that, a significant number. I would assume that most of the factors like rising capacity utilization given your CapEx commentary about retail, the regional center efficiencies and then overall, moderation in shipping and logistics costs, labor costs, I mean, all these factors probably mean that we'll continue to get an improvement in North American margins, but if you would comment on that. And then secondly, on the Primetime Video -- Amazon Prime video, I know we just launched. But could you provide any color or context on expectations around that? You've got a massive number of Prime users who are coming in with a reasonable CPM with low ad load, but it seems like there should be a substantial opportunity for you. So if you want to try to size that for us or how you think about the upside, that would be really appreciated.
Sentiment: neutral
Sure, Mark. I think Andy laid it out pretty well a few minutes ago on the cost structure, the regionalization, the -- growing into the assets that we added during the pandemic, great efficiency and work with productivity across really all of our operations network fixed -- attention to fixed cost and lowering costs where we can, maintaining costs where we can, the increase in advertising, success in advertising revenue growth that's outpaced our traffic growth rates. So all of those trends we expect to continue, and we're going to work hard to make sure they continue. And as we said, we have one guidepost is maybe pre-pandemic profitability, but we are working to -- we're not putting a limit on our improvement. We're going to continue to look for ways to lower the cost to serve.
Sentiment: positive
And I might add, at the same time, increase the customer experience because we did that -- we had that cost improvement at the same time when we at first got back to our shipping speeds from pre-pandemic and then exceeded them. So we're happy with that, and we'll continue to do both to improve the customer experience and also to lower our costs and leverage our cost structure.
Sentiment: positive
Yes, your second question on ads. I can't scale it right now. I mean what I would say for ads in videos is that advertisers are excited to access our Prime customer base. We are looking for ways to increase our advertising in our streaming properties, including Fire TV, but also -- and Prime Video, but also things like Free V and Twitch. And it's an important part of the total business model, and we expect it will allow us to have a healthy business to continue to invest in content and to continue to grow that. And we feel good about it, and we -- the way we anticipate the ads progressing, we will not have heavy ad loads relative to see other network TV and other things. And like all of our advertising, we're trying to be useful for customers.
Sentiment: neutral
And our next question comes from the line of Scott Devitt with Wedbush Securities.
Sentiment: neutral
I have one on grocery and one on healthcare. First, on grocery, I was wondering if you could talk a bit about the progress that you're making in unifying the offering between Dotcom, Fresh and Whole Foods. And -- and as it relates to reverse logistics and using the grocery facilities, how that's lowering the cost of logistics and whether there is a significant opportunity there in terms of driving traffic and revenue in the grocery business? Then secondly, on health care, in such a poor -- notoriously poor customer experience industry, you've made significant efforts now within acquisition and offering primary care. Just be curious if you could talk a little bit more about the longer-term vision in healthcare.
Sentiment: neutral
Yes. On grocery, we're pleased with the progress we're making there. When we think about our grocery business right now and kind of, I'll call it, 3 big macro segments. The first is nonperishables where these are things like consumables and canned goods and pet food and health and beauty products and pharmaceutical. And we -- it's a big business and it's continuing to grow at a very healthy clip, and we're really pleased with that business. And it's really the way the most mass merchandise -- mass merchandisers got into the grocery business a few decades ago. So that continues to grow at a very healthy clip.
Sentiment: positive
We have a physical presence along with online, but Whole Foods market, which is really the pioneer and the leader in organic grocery and that's continuing to grow at a very good clip. We also made a number of changes in the business last year on the profitability side, where we really like the profitability trajectory we see there. And so again, you'll see that keep growing and expanding and feel very good about that as well. If you want to serve as many grocery needs as we do, you have to have a mass physical presence. And that's what we've been trying to do with Fresh over several years. We have tested -- we've been testing a V2 of our Fresh format in a few locations near Chicago, in a few locations in Southern California. It's very early. It's just a few months in, but the results thus far are very promising and on almost every dimension.
Sentiment: positive
And so we need to see it for a little bit longer time, but the results appear like we have something that's resonating. And if we continue to see that then the issue becomes how fast and what's the best way to expand. We have also been spending increasing amounts of time and efforts here trying to make it easier for customers to be able to shop between the nonperishables and then our selection of Whole Foods as well as Fresh, I think you can expect to see that over time, both in the user experience on the app and on the website as well as how we're able to better leverage between the different business segments and their logistics capabilities, being able to get better leverage there, better economics and then allowing people to order in 1 conservative place to be able to pick up in multiple -- pick up for multiple types of grocery products in one place. You're seeing us already do more of that, and I think you can expect that in the future.
Sentiment: positive
In the healthcare space, I -- if you think about what we do on the retail side, adding a pharmacy capability is a pretty natural extension. It's something that customers had asked us for, for many years, and it's got more complexity to it than the rest of our retail business. So we have to think carefully about whether we wanted to pursue it, but customers so badly wanted it and the experience we thought could be better and we could be a meaningful part of changing that, that we pursued it. And I really like the momentum that we're seeing in our Amazon Pharmacy business. It's growing really quickly. But even more important with how fast it's growing, if you've used it and you've paid attention to the customer experience over the last 12 to 15 months, it's just substantially improved from where it already was pretty good.
Sentiment: positive
People really love the experience. And I think that when -- the healthcare experience, particularly in the U.S. is a pretty frustrating 1 and not a very good one. And I think that when we tell our grandkids that the way we used to have to go get primary care was to make an appointment 3 weeks in advance and then drive 20 minutes to the doctor, park, wait in the reception for 15 minutes, get put into an exam room for 15 minutes. Doctor comes in, talks to you for 5 to 10 minutes and then you got to drive 20 minutes to the pharmacy. People are just not -- our grandkids will not believe that was the experience and it's not going to be, and you already see that changing. And it's part of what attracted us in such a significant way to on medical.
Sentiment: positive
It's just their application, their app is so easy to use. You have all your healthcare data in one spot. You can do chats with medical practitioners. You can do video calls, if you need to see someone, there's physical locations and lots of metropolis cities where you can get in the same day, if you need to see a specialist, they're probably into specialists and all the cities in which we operate, where you can get in a day or two later, like just it's a very different experience. Now if you actually need medication, you can get that sent to you in a day or two, either through Amazon pharmacy or other pharmacies that we work with.
Sentiment: positive
And that experience is so much better than what we've been accustomed to seeing. And so I think it's -- again, it's still early days. We're excited. We launched for Prime members the ability to get one medical subscription for $9 a month or $99 a year, which is 50% off, the typical price and that saw a very good take-up. So it's still early days, but we think we have an opportunity to be a meaningful part of changing that experience. And if we are helpful in changing what that primary care experience is and what it looks like to get pharmaceutical items, there's a lot of other things that we might be able to help customers with over time that whether it's wellness or whether it's diet, there's a bunch of areas that I think we can help over time.
Sentiment: positive
And our final question will come from the line of Colin Sebastian with Baird.
Sentiment: neutral
I just wanted to follow up on AWS for a moment. You outlined the generative AI stack, which I think is -- which is very clear. So I'm just curious maybe how you're going to market within the application layer given sort of the competitive dynamics of that. And then maybe expand, if you could, Andy, a little bit on the strategy for Gene AI on the consumer-facing side of the business. I know you launched Rufus today. Is that an area that you think could materially improve conversion rates and the overall consumer engagement on retail apps or what's your vision there?
Sentiment: positive
Yes. So Colin, I would say a few things on -- first on generative AI. It's -- when we talk to customers, particularly at enterprises as they're thinking about generative AI, many are still thinking through at which layers of those 3 layers of the stack, I laid out that they want to operate in. And we predict that most companies will operate in at least 2 of them. But I also think even though it may not be the case early on, I think many of the technically capable companies will operate at all 3. They will build their own models. They will leverage existing models from us, and then they're going to build the apps.
Sentiment: neutral
And I know one of the other interesting things that we see early on right now in generative AI is that -- it's a very iterative process and real work to go from posing a question into a chat bot and getting an answer to turning that into a production quality application at the quality you need for your customer experience and your reputation and then also getting that application to work at the latency and cost characteristics that you need. And so what we see is that customers want choice. They don't want just 1 model to rule the world. They want different models for different applications.
Sentiment: neutral
And they want to experiment with all different sized models because they yield different cost structures and different latency characteristics. And so Bedrock is really resonating with customers. They just -- they know they want to change all these variables and try and experiment and they have something that manages all those different transitions and changes so they can figure out what works best for them, especially in the first couple of years where they're learning how to build successful generative applications is incredibly important for them. So it's part of why we see Bedrock resonating so much.
Sentiment: positive