Amazon 3Q16 Earnings Call Notes

Brian Olsavsky

Investments

“First, video content and marketing associated with that is nearly doubling year-over-year in the second half of the year. And it continues to be a large increase both Q3 and Q4. In the quarter, in Q3 we added 18 fulfillment centers and we’ve added five more in October. For the year we’ll add 26. Most of those are in North America but that compares to 14 last year and I would look, looking back the last time we had double-digit increase in fulfillment centers was in 2012 when we added 11 in the third quarter.”

Initial fulfillment center costs include fixed and variable costs

“So those will dissipate as as they burn in. We’ve talked about fulfillment centers’ initial startup costs include increase in fixed costs but also variable cost as we train workers and also bring in inventory. And there’s a number of transportation costs also related to the startup of a new fulfillment center, both inbound and outbound. And they’re inherently less efficient than more established mature buildings, so there will be a cycle where those will be more productive next year than they are this year and more productive in 2018 than they are in 2017.”

$15 add on to Prime for fresh

“So yes, this quarter we launched in Northern Virginia, Maryland, Dallas and Chicago. We also launched a new pricing plan which is a monthly $14.99 add-on to Prime in the U.S. and we’ve expanded, as you know, previously into London. We’re very happy with the progression, both in the geographies that we’ve been in for a long time where we’re at, continuing to add zip codes and additional neighborhoods and also in these new cities. Certainly a business where we continue to work on costs and profitability, but we are finding it’s a very attractive service to our customers, which is what we’re after.”

Seeing a step up in investment

“The investment that we are seeing is a step-up versus what we have experienced in particularly the first half of this year and the last half, the second half of last year which I mentioned. But we have said investments are going to be lumpy. They are going to be high sometimes and they’ll be moderated at other times. We are right now, the second half of this year looks like a big step-up compared to the first half and it is. But again, it’s all areas that we will continue to invest in, some of which I just actually went through the laundry list. So I would not characterize it as a cycle. I would characterize it as continued investments. We make investments with the idea that they are going to pay off and they pay off in either directly in the business they’re in or in their contribution to the total business many times as a part of the Prime program.”