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Amazon.com (NASDAQ: AMZN)
Q3 2024 Earnings Call
Oct 31, 2024, 5:00 p.m. ET

Amazon Reports Strong Q3 2024 Results Amid Competitive Landscape

Overview of the Financial Results

• Prepared Remarks
• Questions and Answers
• Call Participants

Opening Remarks

Operator

Thank you for standing by. Good day, everyone, and welcome to the Amazon.com third quarter 2024 financial results teleconference. All participants are currently in listen-only mode. After the presentation, there will be a question-and-answer session.

This call is being recorded. Now, I will turn the call over to Mr. Dave Fildes, Vice President of Investor Relations. Please proceed.

David Fildes — Vice President, Investor Relations

Welcome to our Q3 2024 financial results conference call. Joining us today are CEO Andy Jassy and CFO Brian Olsavsky. Please have our press release handy, which outlines our financial results and insights. All comparisons made today will be against our results from Q3 2023.

Today’s call includes forward-looking statements reflecting management’s views as of today, October 31, 2024. Actual results may differ significantly. For more information on factors affecting our performance, please refer to our SEC filings.

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Financial Highlights

Now, let’s discuss our results. I’m turning the call over to Andy.

Andrew R. Jassy — President and Chief Executive Officer

Thank you, Dave. For Q3 2024, we reported $158.9 billion in revenue, reflecting an 11% increase year over year when adjusting for currency fluctuations. Operating income rose 56% to $17.4 billion. Our trailing 12-month free cash flow grew to $46.1 billion, a remarkable 128% increase or $25.9 billion year over year. We remain committed to enhancing customer experience while positioning ourselves for long-term success.

In our Stores segment, we experienced a sales increase of 9% in North America and 12% internationally. We’re concentrating on providing a wide selection at low prices, speedy delivery, and attractive Prime member benefits. For instance, we’ve introduced unlimited grocery delivery for $9.99 per month, along with fuel savings of $0.10 per gallon at certain gas stations in the U.S. Our recent Prime Day events were our most successful yet, with customers saving over $5 billion across 50 million deals.

For the second consecutive year, we are on track to deliver record speeds for our Prime members worldwide. Ongoing initiatives aimed at reducing our cost to serve are already showing promise. We’ve made numerous adjustments to our fulfillment network in recent months, with 15 new inbound buildings added. These changes have improved our inventory distribution capability by 25% compared to last year, positioning us to expedite delivery.

Continuing with our efforts, we are also expanding our same-day delivery capabilities. This approach not only ensures rapid product delivery but has also proven to be one of our most cost-effective delivery methods. Over 40 million customers benefited from this option in the past quarter.

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Amazon’s Innovations Drive Growth as Robotics and AI Shape the Future

Amazon continues to enhance its delivery services, with same-day orders now delivered for free, marking a remarkable increase of over 25% year over year. The company is also focused on robotics to streamline delivery processes, reduce costs, and boost safety within its fulfillment network. The latest achievement is the launch of its 12th-generation fulfillment center design, which debuted in Shreveport, Louisiana.

Breaking New Ground in Fulfillment Efficiency

This state-of-the-art facility integrates cutting-edge robotics to optimize stowing, picking, packing, and shipping. Early results indicate that this new design has reduced fulfillment processing time by as much as 25% and expanded the selection of items eligible for same-day or next-day delivery. Additionally, it is projected to improve cost efficiency by 25% during peak periods. Despite having advanced automation compared to other retailers, Amazon acknowledges that there is still significant room for growth in its fulfillment network.

Strong Performance in Advertising

In the advertising arena, Amazon reported an impressive revenue of $14.3 billion for the quarter, reflecting an 18.8% increase year over year. The company’s extensive reach and ability to offer relevant promotions enable it to engage customers effectively, thereby creating opportunities for brands across the board. In the Sponsored Products program, growth remains substantial, and Amazon is optimistic about enhancing ad relevance and offering better performance optimizations for advertisers. The upcoming broadcast season for Prime Video advertising, following a strong initial showing, adds to this encouraging outlook.

AWS: The Cloud Leader’s Steady Growth

Amazon Web Services (AWS) continued to thrive, with a year-over-year growth rate of 19.1%, culminating in a $110 billion annualized run rate. This growth trend has shown a notable reacceleration over the last four quarters. AWS reinforces its position as a preferred partner for enterprises, evidenced by deals with major organizations like ANZ Banking Group, Booking.com, and Capital One.

Innovation in Cloud Infrastructure

AWS’s commitment to innovation is evident through products like the Aurora database, capable of handling petabytes of data with unmatched simplicity, and custom Graviton4 CPU instances that deliver nearly 40% better price performance than leading x86 processors. As businesses transition from on-premises systems to the cloud, they can benefit from enhanced efficiency, cost savings, and improved data organization critical for generative AI applications.

AWS Drives Advances in AI

AWS has seen rapid developments in artificial intelligence (AI), launching nearly double the number of machine learning and generative AI features compared to competitors. The growth of AWS’s AI business, which has now reached a multibillion-dollar revenue run rate, is particularly remarkable—it is expanding at a triple-digit year-over-year rate, significantly outpacing even AWS’s prior growth trajectory.

Customer-centric AI Offerings

At the foundation level, AWS leads by offering NVIDIA’s H200 GPUs. Customers are increasingly seeking better price performance for their AI workloads, motivating AWS to invest in proprietary silicon like Trainium and Inferentia. The launch of Trainium2, anticipated shortly, promises to enhance affordability for customers.

Leveraging AI with Amazon SageMaker

Amazon SageMaker has become a go-to service for model builders, simplifying the management of AI data and model deployment. Its innovative HyperPod capability allows for the rapid distribution of training workloads across numerous AI accelerators, saving training time significantly. In the middle layer, Amazon Bedrock provides access to a wide array of foundational models, enhancing deployment of high-quality generative AI applications.

Exploring the Future with Amazon Q

At the application level, strong adoption rates for Amazon Q, the advanced generative AI-powered assistant for software development, reflect its impact. Q has achieved industry-leading code acceptance rates and has recently helped accelerate Amazon’s migration efforts, saving an estimated $260 million and 4,500 developer years in the process.

With continuous feedback from developers, Amazon remains committed to refining its AI tools and expanding their capabilities, affirming its position as a leader in tech innovation.

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Amazon’s Innovative Strategies Drive Growth Amidst Strong Financial Results

In a recent update, Amazon showed how it’s enhancing customer experiences with growing AI applications while reporting impressive financial metrics. The company continues to expand its services globally, integrating generative AI into various aspects of its business.

Global Expansion of AI Innovations

Amazon is rolling out practical AI advancements, with generative AI playing a pivotal role across its diverse operations. Their AI-powered shopping assistant, Rufus, is now live in the U.K., India, Germany, France, Italy, Spain, and Canada. In the U.S., they have enhanced Rufus with better customer intent tracking and real-time pricing updates.

The company has introduced AI Shopping Guides to simplify product research. This tool links crucial product factors with Amazon’s extensive selections, aiding customers in finding exactly what they need. Additionally, sellers can benefit from Project Amelia, which provides business insights designed to enhance productivity and growth.

As part of its ongoing progress, Amazon is refreshing Alexa’s capabilities by integrating new foundational models, which will soon be unveiled. The latest Kindle Scribe exemplifies this commitment, offering a built-in AI notebook for efficient note summarization and sharing.

The new Kindle lineup marks the first significant update in years, introducing groundbreaking features including the first color Kindle and a turbocharged Kindle Paperwhite. Initial sales for these devices have exceeded expectations, as Kindle usage increases dramatically, with over 20 billion pages read monthly across the globe.

Revolutionizing Pharmacy Services

Amazon is transforming the pharmacy experience in the U.S., where traditional pharmacies dominate. These physical locations account for over 90% of prescriptions, necessitating inconvenient trips for customers. In contrast, Amazon can deliver medications to 95% of first-time pharmacy customers within two business days, with 20% of U.S. Prime members receiving theirs in just 24 hours.

Plans to expand operations to 20 new cities by next year aim to facilitate medication delivery within hours, ultimately improving medication adherence and health outcomes.

Strong Financial Performance in Q3

Now shifting focus to finances, Brian T. Olsavsky, Senior Vice President, Chief Financial Officer, reported that worldwide revenue reached $158.9 billion in Q3, marking an 11% year-over-year increase, despite facing a 20 basis point adverse foreign exchange impact. This result was significantly better than the previously anticipated 90 basis point drop in guidance.

Operating income surged by 56% year-over-year to an all-time high of $17.4 billion, surpassing projections by $2.4 billion. The North America segment brought in revenue of $95.5 billion, a 9% increase, while international revenue rose by 12%, reaching $35.9 billion.

Customer interest in Amazon continues to flourish, with a 12% increase in worldwide paid units year-over-year, driven largely by the popularity of Prime. This growth was bolstered by the success of the recent Prime Day event.

Profitability and Operational Efficiency

Both North America and international segments reported seventh consecutive quarters of year-over-year operating margin improvements. Operating income for North America was $5.7 billion, reflecting a $1.4 billion increase, while the operating margin improved to 5.9%. Efforts to enhance fulfillment efficiency are paying off, resulting in heightened productivity within the transportation network.

In the international sector, operating income improved by $1.4 billion to $1.3 billion, with a margin of 3.6%. Progress is evident in established markets like the U.K. and Germany, as well as emerging countries that are successfully increasing revenue.

Advertising Growth and AWS Expansion

Advertising revenue is also a vital contributor to profitability in both segments. This quarter saw noteworthy growth, particularly in sponsored products and Prime Video ads.

Amazon Web Services (AWS) reported a revenue increase to $27.5 billion, up 19.1% year-over-year. The annualized revenue run rate for AWS now stands at $110 billion. Continued focus on cost control and efficiency improvement has resulted in operating income of $10.4 billion, up $3.5 billion year-over-year.

Overall, with a commitment to innovation and efficiency, Amazon is well-positioned for future growth while continually enhancing customer experiences across its platforms.

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AWS Sees Strong Year-Over-Year Margin Growth in Q3

In the latest report, AWS experienced a notable increase in operating margins, driven by strategic investments and robust demand.

Boost in Investments Signals Growth

AWS operating margins will continue to vary based on ongoing investment levels. To date, Amazon has invested $51.9 billion in capital, incorporating both cash capital expenditures and equipment finance leases. Looking forward, Amazon anticipates capital expenditures to reach around $75 billion in 2024. This spending primarily addresses the rising demand for technology infrastructure, especially in relation to AWS and its AI services. Investment will also focus on improving infrastructure for North America and global operations. Furthermore, Amazon is enhancing its fulfillment and transportation network to increase delivery speeds and reduce service costs, including facilities for same-day delivery and advancements in robotics and automation.

As the holiday season approaches, Amazon expresses eagerness following the successful Prime Big Deal Days. The company is well-prepared to meet customer needs through this busy period.

Question and Answer Session Highlights

Operator

We will now open the floor for questions. Please limit yourself to one question each. [Operator instructions] Please hold while we prepare for questions.

Thank you. The first question comes from Doug Anmuth of J.P. Morgan. Please go ahead.

Doug Anmuth — Analyst

Thanks for the opportunity. Brian, can you elaborate on the factors driving the 38% AWS margins? You mentioned that about 200 basis points relate to extending the useful lives of assets. How should we consider the sustainability of these margins moving forward? Additionally, could you share insights about the increase in capex during Q3 and early thoughts about 2025? Thanks!

Brian T. Olsavsky — Senior Vice President, Chief Financial Officer

Thank you, Doug. The year-over-year margin increase for AWS can be attributed to three main factors. Firstly, we are experiencing rapid growth in demand, which enhances our efficiencies and cost management. Secondly, this year’s adjustment to extend the lifespan of our servers contributed approximately 200 basis points to the margin. Finally, cost controls play a significant role; we are cautious with our hiring practices, and it shows, as our office staff numbers are slightly down year-over-year. Our focus remains on maximizing efficiencies in various sectors, including our infrastructure, which is crucial for AWS’s cost structure.

Margins may vary due to factors such as investment levels, innovation in product development, staffing changes, and capital costs to support customer demand.

Andrew R. Jassy — President and Chief Executive Officer

Regarding capital expenditures, we expect to spend around $75 billion in 2024, with potentially higher spending anticipated in 2025. A significant portion of this investment is fueled by the fast-growing generative AI sector, which is expanding at a remarkable rate—three times faster than AWS’s initial growth. To support this demand, we need to invest in data centers and more costly hardware for AI, recognizing that these assets have lifespans of 20 to 30 years. Historically, we have shown the ability to generate substantial operating income and cash flow, which assures us of a return on invested capital.

Operator

Next, we have Ross Sandler from Barclays. Please proceed with your question.

Ross Sandler — Analyst

Andy, you mentioned that the growth pace of AI mirrors early AWS, which faced stiff competition and lower margins initially. As the AI sector evolves and revenue increases significantly, what does this mean for margins within AI data centers compared to AWS’s current margins above 30%? How long might it take to narrow the margin gap?

Andrew R. Jassy — President and Chief Executive Officer

Great question, Ross. It’s essential to highlight that AWS deals with immense logistics challenges, with numerous regions and data centers to manage globally. We maintain a fine balance of resources so that we neither overstock nor face shortages, which could disrupt services. Over the years, we’ve developed advanced models to effectively handle logistics and capacity, allowing us to manage costs and maintain operational efficiency.

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Amazon Charts Path to Profitability With Robotics and AI Innovations

Driving International Growth and Efficiency

Understanding capacity needs in terms of SKUs and units remains crucial for Amazon in its evolution within the AI space. This sector is still developing, proving to be more dynamic compared to its traditional AWS services. However, demand signals indicate that strategic planning is essential; it’s not as simple as expecting 30,000 chips in one day. Companies must engage in advanced planning to meet future needs.

Management of capacity and utilization plays a vital role in financial margins over time. As pointed out by Ross, the early stages of the AI market reflect a mix of excitement and lower margins, reminiscent of AWS’s early years. Historical data shows that AWS’s profit margins have substantially improved; a similar trajectory is anticipated in the generative AI market as it matures.

Operator

Next up, we have Brian Nowak from Morgan Stanley. Feel free to ask your question.

Brian Nowak — Analyst

Thanks for your time. Andy, I have two questions. First, can you share your thoughts on the drivers of international retail profitability and where margins might be headed? Secondly, I’d like to delve into your robotics investments. Where do you currently stand, and what are the upcoming focal areas for robotics in the warehouse?

Brian T. Olsavsky — Senior Vice President, Chief Financial Officer

Thanks, Brian. I’ll address your query on international profitability first. Recent trends indicate fluctuations in operating profits, yet we are beginning to see consistent positive trajectories. The last seven quarters have shown year-over-year improvements in operating margins, with the latest quarter showcasing a $1.4 billion increase in operating income compared to last year. Key factors behind this growth include reduced service costs, increased advertising contributions, better product selection, and faster delivery, all driving consumer demand.

To look at the international segment more broadly, it consists of both established markets, like the U.K. and Japan, and emerging markets where we’ve recently launched operations. Each country presents a unique story of growth, from initial launch to customer adoption, ultimately striving for operational profitability, aiming to match North American margins.

On the robotics front, Amazon is already seeing advancements in its fulfillment network compared to its competitors. Even so, we recognize that we are still in the early stages of implementing automation. We are just beginning to roll out significant new robotic capabilities focused on stowing, picking, packing, and shipping in Shreveport, Louisiana—a facility that began operations recently with promising results.

Utilizing more robotics and automation not only enhances shipment speed and reduces costs but also improves safety for our fulfillment workers. Our automation strategies are being rigorously defined, with an emphasis on creating foundational components that can be adapted for future needs, showcasing our commitment to advance quickly in robotics. AI will play a pivotal role in this evolution, supported by recent hires from a top robotics AI organization.

Operator

Next is Eric Sheridan with Goldman Sachs. Please proceed with your question.

Eric Sheridan — Analyst

Thank you for taking my question. I have two parts: In light of recent results from your commerce sector, how are consumer behaviors shifting regarding lower average selling price (ASP) items and discounts? Additionally, I’d like to know about your long-term strategies related to lower ASP items, particularly around consumables and shifts in consumption habits on your platform.

Andrew R. Jassy — President and Chief Executive Officer

Thank you for your query, Eric. Indeed, Q3 marked a strong unit volume increase of 12% globally, consistent across North America and international markets. Consumer behavior reflects a sustained trend towards seeking deals; customers are notably price-sensitive. This aligns well with our recent Prime events, which were well-received, resulting in significant savings for Prime members and accelerating membership growth.

Our best deals and quickest deliveries are tied to Prime membership, which represents a significant competitive advantage. As for the relationship between revenue growth and unit growth, the shift toward lower ASP products is evident, alongside a trend where consumers are choosing more cost-effective options. This bodes well for growth in essential categories, which thrive on speed and timely delivery.

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Amazon’s Strategy: Focusing on Cash Flow in a Competitive Market

Strong Relationships Drive Consumer Spending

Amazon is observing positive trends in consumer behavior as they focus on delivering products directly to customers. This approach leads to stronger customer relationships, increased order sizes, and a higher frequency of repeat purchases. Despite accepting lower average selling prices (ASP) in the short term, the company prioritizes free cash flow, seeing significant potential for unlocking new areas of consumer spending.

Managing Costs to Expand Product Offerings

Brian T. Olsavsky — Senior Vice President, Chief Financial Officer adds insight into the lower ASP strategy, emphasizing it’s easier to lower prices than to sustainably supply more affordable items. To address this, Amazon has maintained a keen focus on reducing their service costs. By doing so, they can economically offer a wider range of products, especially those with lower price points. Improvements in local fulfillment speeds and the expansion of their same-day delivery network significantly enhance their capability to meet various shopping needs.

Analyst Inquiry on Third-Party Sellers

The next question comes from Colin Sebastian of Baird, who notes a decline in third-party unit sales in Q3, a departure from previous trends. He inquires about the drivers behind this shift and seeks information on the potential capabilities of future Alexa devices utilizing AI technology.

Third-Party Sales Remain Strong

Andrew R. Jassy — President and Chief Executive Officer responds, explaining that third-party sellers contributed 60% of paid units in Q3, a minor fluctuation from previous quarters. The primary factor at play is the continued demand for everyday essentials, which tends to favor 1P over 3P sellers, indicating overall strong performance in unit volume.

Looking Ahead at Alexa

David Fildes — Vice President, Investor Relations, discusses Alexa’s growth, reporting around 0.5 billion devices and hundreds of millions of active users. Initially envisioned as an exceptional personal assistant, advancements in generative AI seem poised to bring this vision closer to reality. The strategy to enhance Alexa with next-generation AI models may position Amazon as a leader in intelligent assistants, improving customer experiences and expanding functional capabilities.

Cloud Power and Competitive Advantages

Justin Post from Bank of America raises concerns regarding capacity in Amazon’s cloud services, particularly in light of competition from traditional retailers transitioning to online platforms. He asks about Amazon’s fulfillment advantages compared to store distribution methods.

Addressing Cloud Capacity and Demand

In response, Andrew R. Jassy stresses that Amazon currently has the capacity to handle more demand. While rapid growth is evident, chip availability remains a limiting factor. He highlights a solid partnership with NVIDIA, mentioning Amazon’s early adoption of their latest chips. Custom silicon like the upcoming Trainium2 presents a compelling price-performance opportunity for clients, reflecting significant demand from customers seeking improved solutions.

Positive Competition Fuels Innovation

Jassy concludes that competition within the retail sector fosters innovation and benefits consumers. Noting that Amazon’s retail business represents only about 1% of the overall market, he emphasizes the vast potential for growth and maintaining a focus on operational efficiencies.

Amazon’s Vision: Shaping the Future of Retail

Retail Market Dynamics

Globally, about 80% to 85% of the retail market remains in physical stores. However, industry experts believe this balance will shift significantly over the next 10 to 20 years. This projection opens new avenues for growth, not just for Amazon but for various players in the sector.

A Unique Customer Experience

According to Amazon executives, there won’t be a single winner in the evolving retail landscape. They emphasize that Amazon stands out due to its wider selection of products compared to competitors. The company also focuses on low prices and partners with third-party sellers to provide customers with significant discounts during major holiday shopping events.

Speed and Customer Orientation

Another key advantage for Amazon is its efficiency in delivery. Faster shipping times have a direct correlation with increased consumer purchasing behavior, leading customers to favor Amazon for their shopping needs. The company’s commitment to understanding its customers is a cornerstone of its strategy. Each meeting at Amazon starts with a focus on customer needs and feedback, constantly aiming to enhance the shopping experience.

The Future of Innovation

Amazon’s approach combines technical expertise with a dedication to customer service. This unique blend fosters trust and paves the way for long-term success in a rapidly changing business environment.

Closing Remarks

David Fildes, Vice President of Investor Relations, thanked participants during the call and noted that a replay will be available on the investor relations website for three months. He expressed appreciation for the ongoing interest in Amazon and looked forward to future discussions.

Operator

[Operator signoff]

Participants in the Call

David Fildes – Vice President, Investor Relations

Andrew R. Jassy – President and Chief Executive Officer

Brian T. Olsavsky – Senior Vice President, Chief Financial Officer

Doug Anmuth – Analyst

Brian Olsavsky – Senior Vice President, Chief Financial Officer

Andy Jassy – President and Chief Executive Officer

Ross Sandler – Analyst

Brian Nowak – Analyst

Eric Sheridan – Analyst

Colin Sebastian – Analyst

Dave Fildes – Vice President, Investor Relations

Justin Post – Analyst

For further analysis on AMZN and to explore all earnings call transcripts, please visit The Motley Fool’s website. Keep in mind that this is a transcription of the conference call. The Motley Fool does not guarantee the accuracy of this content and encourages readers to perform their own research.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, serves on The Motley Fool’s board. The Motley Fool holds positions in and recommends Amazon.

The views expressed in this article reflect the author’s opinions and do not represent Nasdaq, Inc.