Optimistic about Growth in Fulfillment Network and Generative AI | Amazon.com, Inc. (AMZN) Q3 2023 Earnings Call Transcript

1. Amazon's Q3 financial report showed $143.1 billion in revenue, up 11% YoY, and $11.2 billion in operating income, up 343% YoY. The shift from a single national fulfillment network to 8 distinct regions has gone smoothly and exceeded expectations, resulting in lower cost-to-serve and faster delivery times. Amazon remains on pace to deliver its fastest delivery speeds for Prime customers in its 29-year history. The company is continually fine-tuning its placement algorithms to enable more in-region fulfillment and to further increase consolidation into fewer shipments, with long-term goals to improve cost and speed.

2. AWS reported a 12% YoY growth in Q3 revenue and is seeing success with generative AI. The company is investing in custom silicon for training and inference and has partnered with Anthropic to build, train, and deploy large language models. Bedrock, a managed service that offers customers access to leading LLMs, has added new features like creating agents for completing tasks. Amazon CodeWhisperer has gained traction with its customization feature. Many companies are building generative AI apps on AWS.

3. Amazon's significant businesses are investing in AI applications to enhance customer experiences. They use it to improve product discovery, forecast inventory needs, and create new product pages. Alexa has new conversational AI capabilities, and Prime Video is becoming a large and profitable business. International stores, Buy with Prime, Supply Chain by Amazon, Amazon Pharmacy, and Project Kuiper are making progress. The company's annual AWS re:Invent conference begins soon, and the holiday shopping season is underway.

4. In Q3, Amazon's revenue was $143.1 billion and operating income was $11.2 billion, both record highs. North America and international revenue grew by 11%, and Prime Day was the biggest ever. Third-party sellers and advertising grew by 18% and 25%, respectively. AWS revenue was $23.1 billion, with an operating income of $7 billion and an operating margin of 30.3%. Free cash flow adjusted for finance leases was $20.2 billion, up $41.7 billion year-over-year. Amazon is well-prepared for the holiday season and remains focused on customer-centric growth.

5. During the Q&A, Jassy discussed AWS's Q4 outlook and cost optimization trends. While still seeing higher customer optimization levels, it is slowing down. He also expressed optimism for AWS's future given its unique approach to generative AI and strong fundamentals such as functionality, partner ecosystem, and security. Jassy also mentioned AWS's margin improvement due to leverage on headcount costs.

6. Olsavsky discussed the success of Amazon's regional fulfillment network, which has resulted in shorter transportation distances and faster delivery times. He also expressed optimism about generative AI's growth potential, noting that companies are still experimenting with different models and sizes to optimize cost and latency for various use cases. Olsavsky also highlighted the advantage of AWS's Bedrock service, which allows customers to easily leverage third-party and Amazon language models of various sizes.