Amazon 2Q17 Earnings Call Notes

Brian T. Olsavsky – Amazon.com, Inc.

Explanation of Whole Foods purchase

Sure, Colin. First, as far as Whole Foods is concerned, as Darin mentioned, it’s not included in this guidance since it hasn’t closed yet, but we are excited about that acquisition and looking forward to working with the team at Whole Foods. We think they are very customer-centric, just like us. They’ve built a great business, focus around quality and customer. So we’re really glad to join up with them. On your larger question about what the place of Amazon Fresh, likely Prime Now and some of our other efforts, I would say we believe there’ll be no one solution, so we’re experimenting with a number of the formats from physical pickup points in Amazon Go to online ordering and delivery to your door through Prime Now and Amazon Fresh.

Amazon 4Q16 Earnings Call Notes

Brian Olsavsky

Prime video usage doubled in 2016

“Sure. Well, ultimately, I’ll step back and say one of the main things we look out on Prime Video is customer usage patterns and in 2016 we had a doubling of Prime hours for video, music and reading. So we’re happy with the engagement that customers have.”

We are always looking to not be beat on price

” We are always looking to not be beat on price. We want to offer the best options to customers and we saw a lot of great response from customers this holiday season. I think we would be a very trusted holiday partner particularly as you get closer to the holiday.”

Continuing to grow square footage in fulfillment centers

“We will continue to invest in FCs. The comparable I’ll give you is that I won’t forecast 2017, but the 20% growth in square footage that we saw in 2015 was followed by 30% square footage increase in 2016. That generally went to service that 40% growth in units, in AFN units. It also included some of the additional logistics delivery stations and all, too. ”

Tens of thousands of developers are building new skills for Alexa

“We’ve added 4,000 skills to Alexa since I last spoke to you in October and we’re working with a lot of major companies as they add abilities, too, for our customer base to use the Alexa or the Echo to reach them. Tens of thousands of developers are building new skills for Alexa. So, the skills addition should continue. And just as importantly, tens of thousands of developers are also using the Alexa Voice Service to help integrate Alexa into their products, which then creates a great network effect.”

Adding more Amazon bookstores

“Probably more advanced and further along are the Amazon Bookstores. We have three physical stores; Seattle, San Diego, and Portland right now. We see adding five more this year. So we’re still in that phase where we’re testing and learning and getting better, even on the bookstore. I would say there’s other things that are physical in nature, the pop-up stores and college pickup points that we learn from as well, and think creates a great value particularly at the college pickup points.”

Very early for us in the advertising space

“it’s very early in the advertising space. But what our goals there are to be helpful to customers and enhance their shopping and viewing experiences, mostly with targeted recommendations. We think that is a good strategy rather than invasive things that take away from the shopping experience. I would say Sponsored Products is off to a great start. I find it a very effective way for advertisers to reach interested customers. We also, on video, have not added much in the way of advertising yet. There’s some pre-roll as we call it. But for the most part, we like the progression. We are balancing customer experience with advertising at all times and we like the team that’s working on it.”

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.”

Amazon (AMZN) Senior Vice President David Limp Interview

Amazon (AMZN) Senior Vice President David Limp explained their hardware strategy

“What we’re trying to do is build a business model where we sell our hardware side of the products effectively at cost.  We think that aligns ourselves very well with customers.  If a customer buys a product, doesn’t like it and puts it in a drawer, we shouldn’t profit from that.  If customers use it, over time, we should take a small portion in each transaction of profit.”

Amazon (AMZN) Senior Vice President David Limp talked about the goal with the Alexa Echo device

“The goal long term is not to have you put Alexa in a specific mode, we want it to be conversational.  To do that, it’s going to take a long time.  We have to give it a sense of a short term memory and long term memory.  And we have to give it the ability to understand context and we have to understand who you are versus who your wife is.  It is not an unsolvable computer science problem and the team is working hard on getting us there.”

 

 

Source: Fortune Interview July 13, 2016 https://www.youtube.com/watch?v=zle7iBvcw7I

Amazon (AMZN) CEO Jeff Bezos Interview

Amazon (AMZN) CEO Jeff Bezos on building out a logistics platform to compete with FedEx & UPS

“We are not aiming to take over last mile delivery.  We are looking to supplement it heavily.  It happened first in the UK but Royal Mail ran out of capacity at peak.  We have to plan, just like any company would, to have capacity not for the average load but for the peak which is usually around the holiday season.  So we’ve had to take over last mile delivery in the UK over the last several years and we’re about half of the capacity there doing it ourselves and, in certain parts of the US, we’re doing last mile delivery.  What we want is better prices on transportation.  We are driven to supplement their capacity.  We’re growing our business with US Postal Service and we’re growing our business with UPS and we’re still supplementing.  And I predict that will continue for some time.”

Amazon (AMZN) CEO Jeff Bezos on why they are building physical book stores

“We built one in Seattle.  We announced the second one in San Diego.  We’re learning.  We’ve got a few experiments going on to figure out the right layout, the right store size, and the right approach in general.  Already, we like what we’re finding.  It’s very different than any other book store you’ve ever been into, it has a very small selection, highly curated, only about 5000 titles and they are all face out on the shelves.  And they’re picked based on the data that we have at Amazon website.  This is about browsing and discovering and having a fun place to wander around in.”

Amazon (AMZN) CEO Jeff Bezos on dealing with critics

“As a public figure, the best defense to speech that you don’t like against yourself is to develop a thick skin.  It’s really the only effective defense because you can’t stop it.  You are going to be misunderstood.  If you’re doing anything interesting in the world, you’re always going to have critics.  If you absolutely can’t tolerate critics, than don’t do anything new or interesting than you can insulate yourself.”

Amazon (AMZN) CEO Jeff Bezos on the importance of artificial intelligence

“The importance of machine learning and artificial intelligence is gigantic.  It’s hard to overstate how big of an impact it’s going to have on society over the next 20 years.  It doesn’t mean phone’s are going away or voice interfaces will replace everything.  We’re seeing amazing progress with machine vision.  The combination of new and better algorithms and vastly superior compute power and the ability to harness huge amounts of training data.  This will help us solve previously unsolvable problems and help us solve huge problems for customers.  And there’s so much more to come.  It’s the first inning, in fact in might be the first guy who’s up at bat.  I think we’re on the edge of a golden era.”

Amazon (AMZN) CEO Jeff Bezos said the bigger companies have the competitive edge in artificial intelligence

“Larger tech companies like Amazon have an advantage because of the training data sets that are required to do this.  You need a lot of data to do extraordinary things with the current algorithms we have.”

 

 

Source: https://www.youtube.com/watch?v=guVxubbQQKE

May 31st, 2016

Amazon (AMZN) CEO Jeff Bezos Interview

Amazon (AMZN) CEO Jeff Bezos said we are in the golden age of artificial intelligence 

“It has been a dream for so long, a kind of science fiction scenario, the things we’re solving with machine learning today are extraordinary.  We really are at a tipping point where the progress is accelerating.  I think we’re entering a golden age of machine learning.  We’re still along ways away from being able to do things the way humans doing things.  Human like intelligence is still pretty mysterious even to the most advanced AI research.  If you think about the way humans learn, we are incredibly data efficient.”

Amazon (AMZN) CEO Jeff Bezos selling Amazon stock to fund space exploration company

“Whenever you see me selling Amazon stock, it is to fund Blue Origin.  Funding a space company is not necessarily the highest return on invested capital investment.”

Amazon (AMZN) CEO Jeff Bezos on why he bought the Washington Post newspaper

“I’ve always believed democracy dies in darkness.  Certain institutions have an important role in making sure that there is light.  And I think the Washington Post has an important seat to do just that because it is located here in the heart of Washington DC.”

Amazon (AMZN) CEO Jeff Bezos said the phone isn’t the ideal tool to solve all our problems

“The phone is not the right solution for every problem.  It’s a good solution for many problems but not for every problem.  More progress to come.  The original inspiration for the Alexa product was the Star Trek computer.”

 

 

 

Source: Video Interview https://www.washingtonpost.com/blogs/post-live/wp/2016/04/07/meet-amazon-president-jeff-bezos/

May 20, 2016

Miscellaneous Notes 4.14.16


Source: Amazon 2015 Annual Report

Amazon (AMZN) CEO Jeff Bezos says their success due in part to both luck and their differentiated culture

“This year, Amazon became the fastest company ever to reach $100 billion in annual sales. Luck plays an outsized role in every endeavor, and I can assure you we’ve had a bountiful supply. But beyond that, there is a connection between these two businesses. Under the surface, the two are not so different after all. They share a distinctive organizational culture that cares deeply about and acts with conviction on a small number of principles. I’m talking about customer obsession rather than competitor obsession, eagerness to invent and pioneer, willingness to fail, the patience to think long-term, and the taking of professional pride in operational excellence.”

Amazon (AMZN) CEO Jeff Bezos says cultures take years to reinforce

“A word about corporate cultures: for better or for worse, they are enduring, stable, hard to change. They can be a source of advantage or disadvantage. You can write down your corporate culture, but when you do so, you’re discovering it, uncovering it – not creating it. It is created slowly over time by the people and by events – by the stories of past success and failure that become a deep part of the company lore. If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture, while someone who loves to pioneer and invent may choose another. The world, thankfully, is full of many high-performing, highly distinctive corporate cultures. We never claim that our approach is the right one – just that it’s ours – and over the last two decades, we’ve collected a large group of like-minded people. Folks who find our approach energizing and meaningful.”

Amazon culture embraces failure

“One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there. Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.”

Amazon getting into the finance business

“We also created the Amazon Lending program to help sellers grow. Since the program launched, we’ve provided aggregate funding of over $1.5 billion to micro, small and medium businesses across the U.S., U.K. and Japan through short-term loans, with a total outstanding loan balance of about $400 million. Click-to-cash access to capital helps these small enterprises grow, benefits customers with greater selection, and benefits Amazon since our marketplace revenue grows along with the sellers’ sales. We hope to expand Amazon Lending and are now working on ways to partner with banks so they can use their expertise to take and manage the bulk of the credit risk.”


Source: New York Times Interview https://www.youtube.com/watch?v=ru995JyegDc

Dupont (DD) Former CEO Ellen Kulman

“The world is a more competitive place, it is getting more competitive not less competitive. So what that means is that you have to be really clear about what you’re doing,where you’re going, and how you’re going to get there.”


Source: CSX 2015 Annual Report

CSX CEO Michael Ward emphasized cost reduction in his annual report, much like many of the other Fortune 500 CEO’s

“Over the past decade, CSX has consistently delivered significant gains in productivity, even during the tough years of the most recent recession. 2015 was no different, with efficiency initiatives and cost reductions driving more than $180 million in productivity despite declines in some of the most profitable markets. The initiatives behind those savings are designed to create sustainable changes such as improving fuel efficiency and increasing the use of technology automation. What’s more, CSX delivered a total cost reduction of nearly $375 million, which includes savings from right- sizing resources to match demand. We have demonstrated repeatedly that we can aggressively manage costs in what is often considered a high fixed-cost business.”

Doesn’t expect coal markets to recover anytime soon

“The baseline coal market, which generated $3.7 billion in revenue in 2011, declined to $2.3 billion in 2015, and will continue to decline in 2016 and beyond. While this market remains important, it has given way to more consumer-oriented markets that demand premium, and ever more cost-effective, service. In an era in which the $1.4 billion in coal revenue declines over the past five years will continue to accelerate, the status quo is no longer an option.”


Source: Schwab 2015 Annual Report

Schwab (SCHW) CEO Walt Bettinger tries to be as candid as possible in his annual letter to shareholders about the state of the business

“Each year it is an honor to sit down and craft a letter to share my thoughts on Schwab with you, our valued stockholders. I strive to write this letter with a minimum of jargon, corporate speak and trendy business buzzwords. It isn’t written to compete with the latest bestseller on business strategy or how to be a better leader in changing times; it is written with the goal of simply discussing the current state of our company and the future we face together. The litmus test for this letter is: “Does it read as if I were corresponding with a business partner who has been out of touch for the past year?” As always, my hope is that you will share with me your feedback on whether this goal has been achieved.”

Schwab (SCHW) CEO Walt Bettinger said humans will continue to seek a human relationship in some form when seeking investment or financial advice

“One of the most over-hyped aspects of investing in the past year is the concept of “robo-advice.” A “robo-advisor” offers a user-friendly website and mobile experience where an investor can answer a few questions, have a complete investment portfolio built, and receive ongoing management with rebalancing and, in some cases, tax-loss harvesting. Now, I say over-hyped because the press has speculated that growth in “robo-advice” could jeopardize the desire for investors to want an in-person relationship–a suggestion that we see as folly. That said, there are real benefits to the concept of automated investment advice if it is combined with the availability of live professionals by phone, chat or in person.”

Schwab (SCHW) CEO Walt Bettinger says they are disrupting themselves in order to create a better client experience

“Today, despite what you might hear in the press about “Silicon Valley disruptors” and “fintech,” Schwab remains the consummate challenger in the investment industry. Each day we ask ourselves a question consistent with our “Through Clients’ Eyes” strategy: “How can we use our deep knowledge of investing to help our clients be better investors, to deliver services to clients at a lower cost, and to ultimately help them achieve better outcomes and take ownership of their financial futures?”

Federal Reserve’s low interest rate policy is hurting their business results

“Punishing. There is no other way to describe the financial impact on our company from the unprecedented experiments taken by the Federal Reserve since 2008. While the Fed experimented with zero interest rates and printing money under the guise of a fancy term–quantitative easing–savers suffered, responsible people who had avoided large debt suffered, and our company suffered as well. In 2008, when client assets at Schwab were slightly in excess of $1 trillion, we generated revenue of just over $5 billion. In 2015, when client assets were in excess of $2.5 trillion, we generated revenue of just over $6 billion. Put more succinctly, during that period total client assets grew by about 120% while revenues grew just 24%. Punishing. And you can attribute virtually this entire scenario to the interest rate policies of the Fed.”

Schwab (SCHW) CFO Joe Martinetto said they are assuming one Federal Reserve rate hike this year for their internal budgeting

“With that crucial first Fed rate move behind us, the path forward could be a bit brighter. As we finalized our annual planning at the beginning of 2016, the forward rate curve implied that, despite some global market jitters, the U.S. economy was strong enough to support expectations for at least one more Fed move in 2016, and we developed our baseline scenario with that in mind. Our baseline scenario also includes relatively flat long-term rates and a 6.5% improvement in the S&P 500 Index relative to year-end 2015, as well as a potential decline in revenue trades as average portfolio turnover continues to slow.”


Source: October 2015 Stanford Interview https://www.youtube.com/watch?v=hcRxFRgNpns&list=PLnsTB8Q5VgnVzh1S-VMCXiuwJglk5AV–&index=8

Alphabet (GOOGL) Chairman Eric Schmidt

“The ideal business is the Microsoft business. A monopoly software business with hardware competitors who are competing for good treatment by you in a global and growing industry. Let’s use Uber as an example. Uber spends an awful lot of time saying that the drivers don’t work for them and they don’t own the cars. There’s a reason and it’s not legal or liability reasons. It’s because if you think of them as a software infrastructure company that helps assemble this thing, they have very different economics. In that sense, it’s the modern version of a franchisee. Why do people own McDonald’s franchises rather than McDonald’s owning them? Well, it’s because McDonald’s couldn’t get the capital to own them all themselves.”


Source: November 2015 Stanford Interview https://www.youtube.com/watch?v=jYhP08uuffs&index=16&list=PLnsTB8Q5VgnVzh1S-VMCXiuwJglk5AV–

Netflix (NFLX) CEO Reed Hastings says you can never know anything for sure

“Maintaining a reservoir of doubt is extremely important.
“We often do an exercise, every year or so, what would be different at Netflix if you were CEO? It’s a way for me to gather all the different strategies. Would you change the pricing? Would we be in the ad business? And I really try to think through all the different methods, We call it farming for dissent. You can never be confident of anything, you always have to be curious. Yet you have to be executing really firmly. Simultaneously, knowing there is no certainty yet working really hard to know what you think.”

They don’t do company acquisitions

“In 17 years, we’ve never done an acquisition. People have tried to acquire us, but it never worked.”


Source: McCormick 2015 Annual Report

McCormick (MKC) CEO Alan Wilson said they are accelerating their shift to digital advertising

“Across all of our markets, we increased brand marketing support by 6% in 2015. Increasingly, we are shifting toward digital marketing, which comprised 38% of our advertising, up from 11% in 2011. Digital marketing creates a direct connection to consumers, including Millennials, who view the McCormick brand positively. As an example, our mccormick.com site has become a top 50 most visited food/lifestyle site.”


Source: Morningstar 2015 Annual Report

Morningstar (MORN) CEO Joe Mansueto says the company benefits from key tailwinds

“We benefit from some important industrywide trends, such as outsourced investment management, the convergence of the advisor and workplace/retirement spaces, the shift to passive investing and strategic- beta strategies, and growing market acceptance of new credit-ratings entrants.

Morningstar (MORN) CEO Joe Mansueto says asset management clients remain cautious about spending

“Low interest rates and the industrywide shift to passive investment manage- ment continued to put pressure on spending for many of our asset management clients.”

Miscellaneous Earnings Call Notes 2.6.16

Amazon.com (AMZN) Management on Q4 2015 Results

Brian Olsavsky

Distribution partners have not been able to handle all the capacity that we need at peak

“what we’ve found is in order to serve – properly serve our customers at peak. We’ve needed to add more of our own logistics to supplement our existing partners. That’s not meant to replace them. And those carriers are just not – no longer able to handle all of our capacity that we need at peak. They have been and continue to be great partners. And we look forward to working with them in the future. It’s just we’ve had to add some resources on our own. You mentioned trucks. The Amazon trucks, we did invest in those – this past year. We use those primarily for movement between our warehouses and our source centers.”


Microsoft (MSFT) Satya Nadella on Q2 2016 Results

Security is now a major driver of cloud adoption

“Security is now a major driver of the cloud adoption. As threats become more frequent and sophisticated, Azure’s unique technology like machine learning empower customers to adapt to these new realities.”

AI will be at the heart of every business in the future helping to understand the past and predict the future

“At the heart of every business in the future will be systems of intelligence, powerful AI that helps people understand the past and predict the future. Cortana Analytics is the building block for these systems of intelligence. ”


Flextronics International (FLEX) Michael M. McNamara on Q3 2016 Results

See weaker industrial demand pull through

“As far as the macro, what we see is kind of broadly across the industrial set of businesses particularly – probably more so in the United States, but also in Europe. We see it’s just been a challenge. We’ve started seeing the macro push probably in the September quarter. We talked a little bit about it – maybe even at the end of the June quarter. We continue to see it going into the December quarter. And our forecast for March reflects kind of a weaker industrial demand pull-through.”


United Rentals’ (URI) CEO Michael Kneeland on Q4 2015 Results

Market activity is solid and in many cases trending upward

“Beyond the current market uncertainty, we agree with the industry forecasters that there are multiple years of growth ahead for rental in North America. The latest projection from Global Insight is about 6% annual growth in construction and industrial rentals through at least 2017. And we’re seeing levels of customer activity to support this view. That point can’t be lost when revenue flattens out for reasons I mentioned earlier. So it’s important to note that our actual — market activity is solid and in many cases trending upward. And our customers are on a whole optimistic.”


Honeywell International (HON) David M. Cote on Q4 2015 Results

Not seeing negative surprises in January

“Right now, I’d have to say it feels just fine. I know last year we got surprised the other way. This year we’re not getting surprised. But it’s three weeks, so who can tell how the whole thing’s going to go? But it’s – I would say we’re not having to deal with the same kind of negative surprise we had last year.”

Big thing in aerospace for us is that flight hours continue to increase

“if you take a look at what’s happening in the aerospace industry, the biggest thing for us is that flight hours increase. And flight hours last year were up 4% or 5%. They’re likely to be up 4% to 6% again this year. And the big thing is that planes fly, and as long as they fly, and as long as there’s a need for the kind of upgrades that we keep talking about, and as long as the technology keeps progressing towards this kind of connectivity and the need for airlines and passengers to just be connected better than they have in the past, those are all good phenomena for us.”

No doubt it’s a slow growth environment

“there’s no doubt, it’s a slow growth environment. That being said, whether it’s slow growth or high growth, we believe your best bet is Honeywell ”


Colgate-Palmolive’s (CL) CEO Ian Cook on Q4 2015 Results

It’s difficult to find anybody with anything optimistic to say

“it is difficult to find anybody with anything optimistic to say about much of anything these days. Without being overly general, I would say that the underlying consumer sentiment and behavior in China and India is okay. I would say that the underlying consumer sentiment in Mexico is okay. I would say that the underlying consumer sentiment in Russia is not great. And that would be English understatement. And I would say in Brazil, the underlying sentiment in Brazil is not great.”


Mattel (MAT) Christopher A. Sinclair on Q4 2015 Results

Richard Dickson – President and Chief Operating Officer, Mattel, Inc.

Barbie still relevant

“never has Barbie been more diverse on so many dimensions and more celebrated. TIME Magazine’s cover story and associated buzz last week are great examples that underscore not only how powerfully relevant the Barbie brand is, but reinforce that we’re on the right track.”


Ralph Lauren (RL) Stefan Larsson on Q3 2016 Results

Our performance over the last couple of years has been very disappointing

“And when I looked at our performance over the last couple of years, including the recent quarters, it’s very disappointing. So I see significant untapped value in both the idea behind the brand and as well as how we drive the business. And therefore, in the way I outlined the way we approach, building the growth plan for the future, there will be a customer facing component which is about evolving the brand, evolving our product, marketing, shopping experience, and then radically improve some of our business engines. ”

The consumer is now in charge in retail

“When it comes to the disruption, I’m a firm believer that we’re just seeing the beginning. So I believe that the biggest disruption is that the customer is now in charge. So the customer has better visibility and better choices than ever before. So any company that’s in the business of providing generic products or don’t have any real value add beyond the lower and lower price or who, more importantly, is not close enough to the customer will be in trouble. So that’s why we are building on the strength that’s made us great, and we are adding an even closer focus to what’s going on in the market and what’s going on with the customer.”


Amazon 3Q15 Earnings Call Notes

2.1B AWS revenue 25% OM

“In the Amazon Web Services segment, revenue grew 78% to $2.1 billion. Amazon Web Services segment operating income was $521 million, a 25% operating margin, compared to $98 million in the prior-year period. AWS segment operating income includes $78 million of favorable impact from foreign exchange.”

Customers really like Prime Now

“On your comment about the economic drivers of Prime Now, what I’ll say is customers really value it. It’s not our entire selection, it’s tens of thousands of items that they may need on a daily basis. We think it’s an interesting part of the selection offer for Prime and it’s, in many ways, something that we can do that others can’t, because it’s a natural evolution of our 20-year effort to grow our fulfillment center network and our scale quite frankly makes it possible to even offer this to customers.”

India doesn’t have fulfillment options built, we view that as an opportunity

“India is a different market and does not have a lot of the same ready fulfillment options that some other countries did. We see that as an opportunity, an opportunity that we can build and we can bring to sellers.”

Amazon 2Q15 Earnings Call Notes

Ramping investment in India, because when we see a positive surprise, we double down

“What I can say about India is when we see a positive surprise we double down on it. That’s kind of our policy, and India is that kind of surprise. So we’re very happy, very encouraged early on with what we’ve seen in the ramping of the business, the level of invention going on for both customers and sellers. We are over $25 million or excuse me, 25 million names (14:02) which is the largest online store in India. And we continue to improve pricing and fast delivery so were super excited about India. I will not get into specific investment levels right now but we continue to ramp up our investment there.”

Admittedly, profits are lumpy, but we’re investing in businesses that can generate high return on capital

“If you saw our shareholder letter this year, I think Jeff Bezos put it really well. He said we’re going to look for things that are important to customers, customers love them, businesses that can grow to be a large size that can generate a high return on invested capital and are durable and can last for decades. So we will continue to invest in the businesses we think fit that profile and we’re always looking for a fourth or fifth business that fits that profile. So as far as lumpiness, admittedly it is lumpy and we will continue to work on both those tracks going forward.”

We lapped the Japanese consumption tax increase from last year. That helped

“International was up 800 basis points and half of that you remember we’ve spoken about the impact of the Japanese consumption tax that was instituted last – April 1 of 2014. It had a measurable impact on our run rate, our growth rate last year particularly Q2. And so we are lapping that, which sequentially makes up half of the 800 basis points sequential gain.”

North America operating margin up gaining efficiency

“So let me start with North America. 5.1% operating margin was up from 3.9% in Q1 and 3% last Q2. You hit a nail on the head. A lot of it is the top-line growth, but it’s also a lot of the efficiency we’re seeing, particularly on the fulfillment and marketing lines, which for the whole company were flat year-over-year on a percent of revenue basis. So we are getting very good top-line growth. A lot of that is fueled by Prime adoption and we are dropping a lot of it to the bottom line with many of the efficiency projects.”

Amazon is one of AWS’ largest customers

“What I can tell you is we have seen great efficiency on the cost side, the cost to generate the capacity for AWS. I will also say that Amazon is one of the primary large customers of AWS so we see it in the consumer side of the business as well, although that’s not included in AWS revenue. It’s an inter-company relationship. So, we get a double whammy there. We are getting great efficiency from our external AWS business but also from our own use of AWS services.”

Pleasantly surprised with the job that’s being done by the robotics team

“On robotics first, we don’t have any new numbers to share with you, but we’re super excited with the progress of that business. We had very high expectations for Amazon Robotics and its impact on our warehouse cost structure and we have been very pleasantly surprised by the job being done on that by that team”