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.”

Alibaba (BABA) Jack Ma’s Annual Shareholder Letter

Alibaba (BABA) Chairman Jack Ma emphasized the evolution of Alibaba’s strength as a mobile company

“In the fiscal year prior to our IPO in September 2014, mobile revenue accounted for a single-digit percentage of total revenue from our China retail marketplaces; in our most recent quarter, mobile contributed more than 75% of total revenue. Our mobile monetization rate now exceeds that of the desktop, making Alibaba Group the largest mobile commerce company in the world.”

Their cloud platform hosts more than 1/3 of all websites in China

“Supported by the twin pillars of cloud computing and Big Data, our goal is to empower merchants with the ability to transform and upgrade their businesses for the future. Eight years ago, we began to strategically invest in Alibaba Cloud in order to fulfill this mission. Today, Alibaba Cloud hosts 35% of total websites in China while also providing clients with cloud computing and big data services. Alibaba Cloud is a company with cutting-edge technology and an extensive range of products and now ranks among the world’s top three cloud computing companies.”

Similar to IBM’s outlook, Jack believes big data is a natural resource which can be mined

“The widespread adoption of cloud computing is important, yet it is just a piece of a larger picture that we see coming into focus.  Throughout history, technological disruptions have followed similar trajectories: 20 years of technological disruption followed by 30 years of further rapid change as new technologies are applied throughout society. The internet revolution is a historical inflection point, much like when electricity was introduced, and it may have an even greater impact. Over the next 30 years, with computing power as the new “technology breakthrough” and data as the new “natural resource,” the landscape of retail, financial services, manufacturing and entertainment will be transformed.”

The Alibaba platform has particular strength in the millennial demographic

“Alibaba is shaping and guiding Chinese consumer behavior and trends. We are also helping consumers enjoy greater convenience and a wider range of options in the ongoing consumption upgrade. We are popular among millennials, who view us as an inseparable part of their lives. More than 75% of our users are 35 years old or younger.”

 

 

Source: http://www.alizila.com/letter-to-shareholders-from-executive-chairman-jack-ma/

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

Ebay (EBAY) CEO Devin Wenig Interview

Ebay (EBAY) CEO Devin Wenig said the difference between E-Commerce and physical retail is blurring 

“I don’t think E-commerce is a relative metric anymore, I think the metric is commerce.  About 2 years ago, the line between digital commerce and physical commerce became almost meaningless.  If I go into a store and I scan something and I walk out of the story and buy it online, which a lot of people do, is that commerce or E-Commerce?  And if I buy something on E-bay and I pick it up in the store, is that commerce or E-commerce?  That’s the pie, and it’s huge.  It’s 17 trillion dollars.”

 

Source: Recode Podcast

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

Alibaba FY 3Q16 Earnings Call Notes

Alibaba Group Holding (BABA) Daniel Yong Zhang on Q3 2016 Results

We see increased consumption in the Chinese economy from urban areas and younger generations

“We believe Alibaba has a significant opportunity that will be realized by the growth of the Chinese consumption economy. Specifically, we see increased consumption from the two key segments: number one, an expanding middle-class, particularly those living in urban areas who are undergoing lifestyle change and upgrading to higher-quality products and services; number two, young people who have strong appetite for spending but little interest in saving compared to their parents.”

Rural development will be a key to our success

“The future of our retail businesses will be driven by three key growth engines. Number one, rural development. Approximately half of China’s population live in rural areas. Our platform can reach rural villages very efficiently. So far, we have expanded our rural service centers to 12,000 villages. Our strategy is to sell goods from urban areas to village, as well as help farmers sell farmer products to people living in the cities.”

When times are not good advertisers will spend more on our platform because it’s more effective

“And as you said, today is a tough time in terms of macroeconomy and it’s not that good. And the brands are usually more cautious about spending marketing dollar. And that’s also the good time for us because when people are cautious, people care more about the effectiveness of the marketing dollar usage. So that’s why we can – they continue to spend more dollar on our platform because that’s one of the few platforms they can find to get the close-looped consumer track and to consumer interaction. Thank you.”

Chung Tsai – Executive Vice Chairman

The Chinese economy is undergoing a structural shift from high growth to moderate growth, investment to consumption and manufacturing to service

“I wanted to give you a few thoughts on the macroeconomic conditions in China since I know it is something that you are watching very closely.

The Chinese economy is going through a structural shift from high growth to more moderate but more sustainable growth. China is still one of the fastest growing economies in the world and we have no reason to think anything different in the foreseeable future. We are witnessing two significant trends consistent with Chinese government reforms that provide the secular drivers to Alibaba’s business.

First, China is moving from an investment-driven economy to a consumption-driven economy. Consumption-driven growth is clearly more sustainable and this plays to the strength of Alibaba with more than 400 million Chinese consumers shopping on our platforms.

Second, China is moving from an industrial manufacturing economy to a service economy. While the manufacturing sector lost jobs in 2014, the service sector added 17 million jobs. Job growth is taking place and it is driven by the services economy. People now have more employment opportunities in technology, commerce, logistics, entertainment, leisure, travel and finance. This is good for Alibaba because our platforms enable millions of small businesses and service providers to capture the growth of this new economy.”

Retail sales are going against the grain of a decelerating economy

“Chinese retail sales grew 10.7% in 2015. And it’s actually a higher growth rate than the prior year. So retail sales is going against the grain of what many consider to be a decelerating economy. And that’s because the shift of the Chinese economy is going from investment-driven to consumption-driven. So consumption, as a shared GDP, is becoming higher. So we benefit from that.”