The operator introduces the Amazon.com Q1 2024 financial results teleconference and turns it over to the Vice President of Investor Relations, Dave Fildes. He is joined by CEO Andy Jassy and CFO Brian Olsavsky. The call will include forward-looking statements and may discuss non-GAAP financial measures. Additional information can be found in the press release and SEC filings. The guidance reflects current order trends and assumptions.

The company's results are unpredictable and can be affected by various factors, including economic conditions and customer demand. The company has reported strong financial results and is focused on improving customer experiences and increasing selection in its stores business. This includes adding new brands and making it easier for third-party sellers to add their products.

Amazon has launched a new AI tool that creates product detail pages for sellers, and over 100,000 have already used it. They are focused on offering low prices and have held various shopping events to help customers save. They have also improved delivery speed, with nearly 60% of Prime members' orders arriving the same or next day in major US cities. This has led to an increase in customer frequency and spending. Amazon is also working on ways to lower costs while improving customer experience, such as consolidating units into fewer boxes.

Amazon has seen an increase in units delivered per box, resulting in fewer boxes and deliveries and a better customer experience. They are also working on revamping their US inbound fulfillment architecture to place inventory closer to customers. Advertising sales have increased, particularly in sponsored products. They see potential in sponsored products and Prime Video ads. AWS revenue growth has accelerated and they are seeing trends where companies are focusing on newer initiatives after completing cost optimization.

Companies were previously focused on modernizing their infrastructure by moving to the cloud, but the pandemic caused a distraction. However, this momentum is now picking up again and AWS remains a strong partner of choice for this transition. Customers are excited about leveraging gen AI to improve customer experiences and businesses, with a multibillion-dollar revenue run rate already. AWS offers a broad selection of NVIDIA compute instances and custom silicon, and demand for their latest generation Trainium 2 is high. Companies are also seeing impressive results using SageMaker, a managed end-to-end service for AI development, with faster training and lower inference latency.

The middle layer of the stack is designed for developers and companies who prefer to use existing large language models and customize them with their own data. Amazon Bedrock offers a wide selection of these models, along with features such as model evaluation, retrieval augmented generation, and fine-tuning. Recently, Bedrock has added new models from companies like Anthropic, Meta, Mistral, and Cohere. They have also launched Custom Model Import, which allows customers to import models from SageMaker or other sources into Bedrock for easier deployment of their applications.

Customers are excited about the integration of custom-built models and existing LLMs in SageMaker and Bedrock. The top of the stack are Gen AI applications, with Amazon Q being the most capable generative AI-powered assistant for software development and leveraging internal data. Q can generate, test, debug, and transform code, and has a unique feature called Agents that can autonomously perform tasks. On the internal data side, Q can access and analyze data from various sources, making it a valuable tool for companies with large amounts of internal data.

Q is an AI-powered assistant that simplifies answering questions about company policies, products, and other topics by searching and summarizing data from enterprise data repositories. It also has a feature called Q Apps that allows employees to describe the app they want to build and quickly generates it. Q is highly capable and has the highest-known score and acceptance rate for code suggestions, catching security vulnerabilities, and connecting multiple steps together. Many companies, including Brightcove, Bridge Telecom, and Toyota, are already using Q. Additionally, AWS has an edge in terms of security and reliability, making it a preferred choice for many companies.

The combination of AWS' growth and demand for gen AI is expected to increase capital expenditures in 2024, which is a positive sign for future growth. The company remains optimistic about AWS and its potential for growth, especially with the majority of global IT spend still being on-premises. Progress is also being made on newer investments, such as international stores and third-party logistics services. The company has also launched a new grocery delivery benefit and is expanding its Prime Video content.

The company's health services business is thriving, with customers enjoying the pharmacy experience and same-day delivery of prescription medications. The company is also making progress with its production satellites and commercial data. The CEO expresses gratitude for the hard work of employees and enthusiasm for the year ahead. The CFO reports a 13% increase in revenue, with a favorable impact from leap year and an unfavorable impact from foreign exchange. Operating income was the highest ever and exceeded the guidance range.

In the first quarter, the company saw strong operational performance and better-than-expected operating leverage, resulting in an increase in revenue and operating income for all three reportable segments. The impact of foreign exchange rates was minimal. The company remains focused on providing customers with selection, price, and convenience. Third-party sellers and their services also saw growth. In terms of profitability, the North America segment saw a significant increase in operating income and margin due to improvements in cost to serve, while the international segment also saw an increase in operating income and margin.

In the first quarter, the company saw growth in both established and emerging countries, with a focus on improving cost efficiencies and expanding customer offerings. They also plan to invest in their fulfillment network and advertising to drive profitability. In terms of AWS, revenue increased by 17% year-over-year and they are now a $100 billion annualized revenue run rate business. The company saw growth in both generative and non-generative AI workloads, and the impact of cost optimizations is expected to diminish. AWS operating income also increased significantly compared to the previous year.

The paragraph discusses the impact of changes in estimated useful life of servers on the company's results, with a focus on the AWS segment. The company has made progress in managing infrastructure and fixed costs, resulting in improved leverage. The AWS operating margins are expected to fluctuate due to investments in the business. The company has seen strong demand for both generative and non-generative AI workloads and anticipates a significant increase in capital expenditures in 2024. The revenue guidance for Q2 includes an unfavorable impact from foreign exchange and the company is keeping an eye on consumer spending and macro trends in Europe.

The company's operating income is expected to be between $10 billion and $14 billion in Q2, thanks to strong performance and a focus on streamlining and prioritizing projects. The call was opened up for questions, with the first one being about the potential impact of investments on profitability. The company has historically shifted between periods of heavy investment and margin expansion, but is now doing both at the same time. The recent progress in operating income and free cash flow has been driven by improvements in the stores business and regionalization efforts.

The company has seen strong growth in advertising and AWS, with margins increasing due to cost controls and expanding revenue. In the future, they plan to increase CapEx to support AWS infrastructure and generative AI efforts. This may lead to higher depreciation in that segment, but the company is confident in their investment and returns. They also expect to see strong CapEx performance in their stores business, with most of the increase being related to same-day fulfillment and logistics upgrades. Overall, the company is in a position to handle both increased CapEx and strong performance in their stores business.

The speaker discusses the growth opportunities in their existing businesses, particularly in stores, advertising, and AWS. They believe there is still room for improvement in cost structure and see potential for growth in the cloud and generative AI. The speaker also mentions the high costs associated with training next generation models in AWS.

In this paragraph, Andy Jassy discusses the factors that have contributed to AWS' strong performance in the last quarter. He mentions that the majority of cost optimization has already been done, and companies are now focusing on modernizing their infrastructure and driving value through generative AI. Jassy also notes that there has been significant growth in AI on AWS, with a multibillion-dollar revenue run rate.

Many companies are currently building their own models, which require a lot of data and resources to train. These models are often built on AWS, and the use of AWS's custom silicon Trainium is expected to increase. While training models is currently a big expense, once they are in production, the cost shifts to inference, making AWS's services and features, such as Amazon Bedrock, an attractive option for companies looking to build generative AI applications. Both training and inference are expected to be major drivers for AWS in the future.

The speaker discusses the importance of security for companies utilizing generative AI applications, highlighting the edge that AWS has in this area. The next question from a shareholder is about cost to serve and its potential impact on North America retail margins and cash flow. The speaker does not provide specific numbers but emphasizes the company's philosophy of prioritizing investments for growth before considering any capital returns to shareholders.

The company has many opportunities to generate returns with their capital, particularly in generative AI. They are seeing positive trends in free cash flow, with the exception of higher CapEx this year. They are prioritizing debt repayment and capital expenditures for 2024. The company is focused on improving operating margins and reducing costs to improve customer experience.

In this paragraph, Youssef Squali asks Andy Jassy about the logistics services that Amazon has recently launched and the potential for growth in this area. Jassy explains that the company has realized the need for these services internally and has decided to offer them to other businesses as well. These services include importing items, storing them in facilities, and replenishing inventory. Jassy also mentions that the company has a service to help sellers get items through customs.

Amazon offers a service that allows third-party sellers to store items in their warehouses and ship them to various facilities. They also have a service called "buy with Prime" that allows prime customers to purchase from third-party sellers' websites, increasing conversion rates. This supply chain business is growing significantly and is expected to be a modest increase in capital expenses. In terms of growth drivers, Amazon is still adjusting prices for grocery delivery and subscription services.

In response to a question about the contribution of Prime Video ads and the growth of the grocery category, Andy Jassy, CEO of Amazon, states that Prime Video ads are off to a good start and are expected to be a significant contributor to ad revenues. He also mentions the growth of Amazon's non-perishables grocery business and the success of the Whole Foods Market organic grocery business. Jassy also mentions the introduction of a new smaller format in Manhattan and the efforts to improve the profitability of the grocery business. Lastly, he discusses the importance of having a perishables business and a physical presence in order to serve a wide range of grocery needs, which is being addressed through Amazon Fresh.

The company has launched a new format in physical stores, with promising results in Chicago and Southern California. They have also introduced a Prime benefit for grocery delivery, which has had a strong start. The company believes there are many ways to continue satisfying customer's grocery needs and that there are building blocks that may change how customers split up their orders. The company remains optimistic about the growth of their grocery business. In terms of international profitability, the company saw a 2.8% margin in the first quarter and expects to continue benefiting from regionalization and shorter distances for package travel. The company also expects inbound fulfillment architecture to contribute to faster shipping options. In the first quarter, international operating income was $902 million.

The company has seen steady growth in operating income in their international segment, with established countries like Europe, Japan, and the UK following a similar trajectory as the United States. The company has also launched 10 new countries in the past seven years, with each having its own profitability trajectory. The focus is on providing a good customer experience, increasing Prime memberships, and improving cost structures. The company is optimistic about the future of their international stores business and is working on regionalization to further improve profitability.

The speaker discusses how there is still room for improvement in their company's operations, and how they have learned from their experiences in both the US and Europe. They mention the potential for more efficient use of their inbound network and partnerships with sellers. They also highlight the success of their same-day facilities, which have proven to be the least expensive in their network.

The speaker discusses the potential growth of Amazon in the US and other parts of the world, which will change their cost structure and increase speed. They acknowledge that this growth will take time, but there is a lot of potential for growth in the future. The call concludes with a reminder that a replay will be available and thanks the participants for their interest.

This summary was generated with AI and may contain some inaccuracies.