Amazon.com, Inc Q2 2023 Earnings Conference Call Insights

Key highlights from Amazon.com, Inc (AMZN) Q2 2023 Earnings Concall

Management Update:

• [00:03:16] AMZN is shifting its store fulfillment and transportation from one national network to eight separate regions. This move resulted in a 20% decrease in package handling, a 19% reduction in delivery miles, and over 1,000 basis points improvement in regional deliveries.

• [00:10:45] AMZN said AWS is investing heavily in generative AI, including developing its own custom AI chips for training and inference. The company believes that LLMs as a service will be a major growth area for AWS in the future.

Q&A Highlights:

• [00:23:10] Colin Sebastian with Baird asked how much AMZN has improved its fulfillment network’s efficiency, and how much more can it improve? Brian Olsavsky CFO said AMZN is encouraged by the progress it is making in improving fulfillment efficiency, but there is still a lot of work to be done. The company is also using its new fulfillment network to expand its selection of grocery products.

• [00:23:29] Colin Sebastian of Baird also enquired if AMZN’s reformulated fulfillment network be used to help with grocery expansion, or will it be limited to stores and specialized automated facilities. Andy Jassy CEO answered that AMZN is improving its delivery network by adding more items to its same-day delivery facilities, allowing customers to make last-minute additions to their orders. The company is also investing in infrastructure specifically designed for the grocery business.

• [00:26:08] Mark Mahaney from Evercore ISI asked about the priority and growth strategy of Amazon Business, and how it can reach $100 billion in sales. Andy Jassy CEO answered that AWS is seeing strong growth in new customers and workloads, despite the business being very large. Amazon Business is growing rapidly, but AMZN believes there is still a lot of room for growth. Amazon is investing heavily in features and services to make Amazon Business more attractive to businesses of all sizes.

• [00:26:37] Mark Mahaney at Evercore ISI also queried about the trends in AWS growth, moving beyond optimization and into new workloads, and how they compare to 2Q. Brian Olsavsky CFO replied that AWS revenue growth has stabilized after a period of decline, and the company is optimistic about the future of the business.

• [00:31:46] Brent Thill with Jefferies asked when AMZN expects to see AI monetization start to flow into the AWS business and have a significant impact. Andy Jassy CEO answered that AMZN has been seeing significant growth in its AI-powered services on AWS, but the company believes that the real potential of generative AI is still in the early stages.

• [00:33:31] Eric Sheridan of Goldman Sachs asked how AMZN plans to capitalize on the grocery market and whether it will need to invest in new infrastructure or execute on its existing plans. Andy Jassy CEO said AMZN is taking a two-pronged approach to its grocery business: it is expanding its non-perishable business online and through Whole Foods, and it is also investing in new physical formats for its Amazon Fresh stores.

• [00:37:48] Brian Nowak with Morgan Stanley enquired how AMZN plans to achieve its goal of reaching or exceeding pre-COVID retail margins while also investing in new initiatives. Andy Jassy CEO said Amazon is not planning to expand its physical Amazon Fresh stores until it finds a format that customers like and that makes a good profit. However, the company is planning to expand its same-day delivery network, which is cheaper and can offer a wider range of products.

• [00:41:27] Doug Anmuth from JPMorgan asked about the expected growth of AWS as it improves and recovers from a slowdown, and begins to work on new projects in a better economic environment. Andy Jassy CEO said AMZN is hopeful about the long-term growth of AWS, even with the current focus on reducing costs. The company is seeing a shift from reducing costs to working on new projects and moving to new systems, which is driving growth.

• [00:41:46] Doug Anmuth of JPMorgan enquired about how generative AI could change the capex trajectory going forward, given the just over $50 billion capex number for this year. Andy Jassy CEO replied that AMZN is investing heavily in generative AI, which is driving capital expense growth in the AWS business. The company is confident that this investment will be successful in the long term.