Disclaimer: Reader acknowledges that all information appearing on Divergent View is provided for informational purposes only and does not constitute financial advice.  The Divergent View does not guarantee the completeness or accuracy of any information presented herein.  Readers should consult with their own advisors and conduct their own due diligence.

Below is an ongoing record highlighting notes from select AMZN investor presentations and earnings calls (newest content shown first).

Fourth Quarter 2018 Earnings Call, 1/31/2019


The Divergent View One Line Summary: AMZN reported Q4 revenue of $72.4Bn, beating consensus expectations of $71.9Bn and gross margin expansion of 180bps which increased at a slower rate than prior quarters due to increased sales and marketing spend, free shipping offer, and higher mix of hardware.  AMZN provided Q1 2019 guidance that was in-line to slightly below consensus.

Q&A with Sell-side Analysts

  • 14% unit growth in 4Q – how do you feel about overall unit growth as last year’s unit growth was in the 20s?
    • Unit growth doesn’t include some of the fastest growing area such as Whole Foods units, AWS, subscription services
    • A lot of strength in the retail business for the quarter
  • Prime accounting change impact on subscription revenues?
    • Anticipated $300mm headwind to subscription services revenue due to the accounting change
  • India
    • Incorporated into guidance is our best estimate for Q1 in India but there is uncertainty on how the government’s rule changes on e-commerce will affect the industry
  • Do the new policies change the attractiveness of operating in India?
    • Feel very good about long-term prospects in India. New regulations need to be interpreted and make sure there are no unintended consequences
  • Free shipping offers in US and UK?
    • We lowered the free shipping threshold in the 4Q headed into the holidays
    • As part of holiday offering, sold a record-breaking number of Alexa devices
    • Really pleased with continued engagement of Prime members. Most ever number of Prime numbers sign up in the quarter
  • How should we think about retail gross margins going forward? More modest growth in hiring and fulfillment center growth helped gross margins in 2018
    • Fulfillment costs – in 2016/2017, we had grown square footage tied to fulfillment by greater than 30%. In 2018, that square footage grew by 15%
    • Amazon Fulfilled Demand (FBA and Retail) remained strong, so we had a banking of large expansions in prior two years
    • We grew headcount by 48% in 2016, 38% in 2017 (excluding Whole Foods), and 14% in 2018
  • Seemed like a bit more gross margin pressure in 4Q?
    • Gross margins were up 180bps yoy but not up as much as prior quarters
    • Prior tailwinds remain – 3rd party units are growing, advertising growth
    • Headwinds – outbound shipping costs, higher AMZN fulfilled units, greater use of logistics
    • Echo Dot had strong sales in the quarter, and we don’t price devices to make money
  • Advertising – how do you see inventory growth vs. pricing growth as a driver in that business?
    • Priorities are on improving tools – addressing needs of brands, automating activities, inventing new products
    • Think there is a lot of opportunity and working with great brands to develop better toolkits
  • Reports that Amazon shipping efforts expanding beyond test markets?
    • Amazon Deliveries and Amazon Logistics – we have great partners in place and we add capacity where we feel we need to speed up service
  • Prime video spending
    • Has been increasing and expect increased spend in 2019 as well
    • Leads to higher membership renewal rates and higher engagement

 

Third Quarter 2018 Earnings Call, 10/25/2018


Q&A with Sell-side Analysts

  • Deceleration in unit growth or online stores – can you comment on that and initiatives to re-accelerate that?
    • Digital content is moving to subscriptions (Kindle Unlimited and Amazon Music Unlimited) so those don’t count in unit totals
    • Super saving shipping positive impacted 2Q and 3Q volumes
    • Still very encouraged by the demand and reception from consumers
    • Amazon fulfilled units growing faster than paid units. 3P is up to 53% of total paid units
    • Over 100mm Prime eligible items available for the holidays
  • International retail business slowing to 15%?
    • Material change in Diwali calendar in India. Half of Diwali sales were in 3Q 2017 but it is showing in 4Q this year and overall going really well.  60% growth in new customers in the period and orders coming in from 99% of PIN codes in the country
    • Launched Turkey in the quarter and have 17 international websites
  • Operating income upside in 3Q – biggest drivers of outperformance?
    • Strong growth in some very profitable businesses such as AWS and advertising
    • Also, great cost performance in three areas – 1) headcount, which was up 48% in 2016 and 38% in 2017 without Whole Foods. In 2018, only up 13% YTD on headcount, 2) In fulfillment centers, have grown square footage by over 30% in 2015 and 2016 but this year only adding 15% to square footage, and 3) Op margin for AWS up to 31% this quarter due to efficiencies with data centers.  Capital leases up only 9% yoy vs. 69% for 2017
  • AWS – dollar and percentage growth rates slowed. Will it be difficult to sustain 40%+ growth levels or something else going on in the quarter?
    • This growth rate will bounce around. Annualized run-rate of $26Bn revenue
    • Very happy with growth of business and momentum with enterprise customers
    • Have gained efficiencies on the cost side as mentioned
  • 4Q revenue guide deceleration – help to understand the categories or countries driving the deceleration?
    • Guidance implies 10-20% growth and 80bps FX impact
    • Much of revenue comes in middle of November to end of the year, so difficult to estimate
    • Feel we are in great shape for the holiday and great capacity for FBA and shipping to customers
    • Very bullish on 4Q and will have to see how revenue comes in
  • Robotics – need or desire to invest in autonomous driving?
    • No comment on autonomous vehicles but investing in robotics in our warehouses which is a good return on invested capital
  • Whole Foods strategy
    • Greater expansion of Whole Foods delivery with Prime Now in over 60 cities, delivering in as fast as an hour
    • Grocery pickup available in 10 cities
    • Can build your cart using Alexa
  • Storefronts
    • Experimenting with new store formats – now have 6 Amazon Go stores. Customers love being able to pick up their items and not have to wait in line to check out
    • Opened an Amazon Four Star Concept in NYC – curating a selection of items to consumers
    • Amazon Bookstores – 18 bookstores in the US
    • Will experiment with multiple ways of reaching the customer
  • USPS Potential rate hikes
    • Annual rate increases from transportation partners are a regular occurrence, so we don’t see it as being a huge issue
  • Wages
    • Just under 400k full-time and part-time employees will be getting a substantial wage increase starting Nov 1st which is factored into 4Q guidance
  • Ad-supported video service?
    • No plans to build an ad-supported prime video offering
  • Advertising – ad pricing and ad load?
    • Seeing strong adoption across vendors/sellers, authors, and third parties
    • Believe there is a lot of room to continue to improve presentation, automate activities, and invent new products for advertisers
  • Amazon Prime price increase
    • Went into effect in May and very pleased with renewal data and annual sign up data since then
    • Continue to make the Prime offer better including linkage with Whole Foods