WEBVTT - Instant Reaction: Amazon Jumps After Sales, Profit Tops Estimates

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. This is a breaking

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<v Speaker 1>news update from Bloomberg, instant reaction and analysis from our

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<v Speaker 1>three thousand journalists and analysts around the world. It is

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<v Speaker 1>Bloomberg Business Week Daily. That's Carol Masser. I'm Tim Steneveeck.

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<v Speaker 1>I'm watching shares at Amazon in the after hours up

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<v Speaker 1>eight and a half percent right now. The company reported

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<v Speaker 1>net sales for the third quarter that beat the average

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<v Speaker 1>analyst estimates. We're talking about one hundred and eighty point

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<v Speaker 1>one seven billion dollars. That's up thirteen percent year over year.

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<v Speaker 1>The estimate was for one hundred and seventy seven zero

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<v Speaker 1>point eight two billion dollars AWS coming in net sales

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<v Speaker 1>excluding fax, up twenty percent versus nineteen percent year over year.

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<v Speaker 1>Estimos for seventeen point nine percent. As far as that

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<v Speaker 1>forecast looks, Seeson net sales of two hundred and six

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<v Speaker 1>billion to twohundred and thirteen billion. The estimus for two

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<v Speaker 1>hundred and eight billion dollars, so kind of on the high, like, yeah,

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<v Speaker 1>some of the format.

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<v Speaker 2>Yeah.

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<v Speaker 1>Operating income for the fourth quarter, the company sees that

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<v Speaker 1>at twenty one billion dollars to twenty six billion dollars

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<v Speaker 1>the estimate for twenty three point seven eight billion.

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<v Speaker 3>We're going to get some analysis of on on Amazon,

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<v Speaker 3>but just want to mention Netflix soaring all of a

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<v Speaker 3>sudden of three point two percent here in the aftermarket.

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<v Speaker 3>This is the company announces a ten for one stocks.

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<v Speaker 1>But keep in mind this stock.

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<v Speaker 3>One share costs one eighty nine dollars. So we're talking

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<v Speaker 3>about now it's going to be much more accessible to investors.

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<v Speaker 1>Right, is going to Well don't I don't think so.

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<v Speaker 3>At one hundred dollars this year.

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<v Speaker 1>No, you can buy shares, you can buy pieces of stock.

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<v Speaker 1>You don't believe that, I don't. I think back in

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<v Speaker 1>the day, yeah, back in the day it made a

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<v Speaker 1>big difference. But now that all these retail brokerages offer.

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<v Speaker 3>You want to take this outside?

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<v Speaker 1>No, I mean everyone whenever I say, these people get

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<v Speaker 1>in touch with me online and they talk about options

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<v Speaker 1>and like how important it is for that. But it's

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<v Speaker 1>always weird when you do see something that's not fundamental

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<v Speaker 1>actually moving the stock price.

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<v Speaker 3>All right, good stuff, all right anyway, but it is,

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<v Speaker 3>but it is moving it. Hey, let's get to back

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<v Speaker 3>to Amazon, because that stock is soaring in the aftermarket.

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<v Speaker 3>Put them going is Bloomberg Intelligence senior analysts for e

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<v Speaker 3>commerce andth leisure. She joins us from the Bloomberg Intelligence

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<v Speaker 3>Princeton Bureau. Let's go to you god, put this looks

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<v Speaker 3>like a really strong report on a lot of metrics.

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<v Speaker 2>It definitely is. I mean, they hit it out of

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<v Speaker 2>the park. Sales were very get across the board, across

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<v Speaker 2>all business segments, AWS, online advertising, even physical stores. So

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<v Speaker 2>from a top line perspective, very very encouraging results. In

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<v Speaker 2>fact as was probably the right spot here. Twenty percent gains,

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<v Speaker 2>we haven't seen that in a while. On the margin side,

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<v Speaker 2>I think AWUS did really well, but then when it

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<v Speaker 2>came to North America margins, they were weaker than we expected.

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<v Speaker 2>So it's the only one area that I saw some skepticism,

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<v Speaker 2>and I think that's largely due to their ability to

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<v Speaker 2>want to maintain low prices to make sure the consumer

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<v Speaker 2>keeps coming back and investing in its fulfillment.

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<v Speaker 1>So you think that margins took a hit because Amazon

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<v Speaker 1>is keeping is low why.

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<v Speaker 2>I mean, they want to drive market share gains, right,

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<v Speaker 2>So if you think about what's happening in retail this year,

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<v Speaker 2>tariffs have clearly added to costs, and many retailers have

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<v Speaker 2>decided to offset those costs through efficiencies to try to

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<v Speaker 2>keep an hold prisis study or raise them selectively, so

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<v Speaker 2>that could be part of the pressure. And then also,

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<v Speaker 2>you know, Amazon has stepped up its game on shipping

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<v Speaker 2>where it was the leader, and it still is the leader,

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<v Speaker 2>but they're continuing to invest there to get items to faster,

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<v Speaker 2>same day, et cetera.

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<v Speaker 3>Yeah, they still do it right there, definitely completing on

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<v Speaker 3>that one. Hey Ludlow, come on into our conversation, co

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<v Speaker 3>host of Bloomberg a b Tech on Bloomberg Television. Watching

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<v Speaker 3>these numbers, I mean, investors are sending shares of Amazon

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<v Speaker 3>much higher here in the aftermarket stock up about nine percent.

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<v Speaker 4>The cloud computing division accounts for the majority of operating income,

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<v Speaker 4>right and this return to growth a year and year

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<v Speaker 4>of above twenty percent for the first time twenty twenty two.

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<v Speaker 4>It's absolutely timely. You know, I think Google gave us

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<v Speaker 4>a lot of evidence that GCP their cloud offering, has

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<v Speaker 4>a lot of momentum at the moment. But this is

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<v Speaker 4>a bit of a barnstormer from Amazon to say, actually,

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<v Speaker 4>on every metric that we track, AWS is doing really well.

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<v Speaker 4>One of the headlines that you spotted really excellent, the

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<v Speaker 4>appreciation in their investment on Entthropic that had a non

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<v Speaker 4>operating income impact to the bottom line, right. But also

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<v Speaker 4>they're talking a pretty fierce game about their custom training

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<v Speaker 4>chip Trainium too and calling it a multi billion dollar business.

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<v Speaker 4>And what we've seen in the past is when Amazon

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<v Speaker 4>hasn't necessarily put a specific dollar figure on something but

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<v Speaker 4>said this AI thing is in the billions of dollars,

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<v Speaker 4>the market has given them a lot of credit for

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<v Speaker 4>giving us at least like a little bit more detail.

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<v Speaker 1>Ed where does the trainum to model fit in?

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<v Speaker 4>Well, this is why I bring Google up. You know,

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<v Speaker 4>when we broke the story that Anthropic had done a

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<v Speaker 4>deal with Google for the use of one million TPUs

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<v Speaker 4>Google's custom AI card or accelerator, it was a bit

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<v Speaker 4>of a black eye for Amazon because Amazon is also

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<v Speaker 4>a major investor in Anthropic and Amazon Anthropic have this

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<v Speaker 4>large project called Project Rainier, a data center in Indiana.

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<v Speaker 4>What they're saying is that this is a multi billion

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<v Speaker 4>dollar run rate business offering their in house chip to

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<v Speaker 4>third party customers. We don't know any more than that,

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<v Speaker 4>but it does indicate that both for Ranthropic and for

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<v Speaker 4>other customers outside of Anthropic that it's a viable business.

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<v Speaker 4>You know, they've invested a lot of money on custom

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<v Speaker 4>silicon and at least on the one headline we have

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<v Speaker 4>on that it's paying dividends so to speak.

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<v Speaker 3>Hey, speaking of dividends and paying dividends and punum, I

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<v Speaker 3>want to go back to you on the retail side

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<v Speaker 3>of this. I mean, we know that Andy Jasse, the

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<v Speaker 3>CEO of Amazon, has really been working on improving profitability

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<v Speaker 3>of that business automation. We've had their key head of

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<v Speaker 3>robotics talking about what Amazon continues to do at that

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<v Speaker 3>company in terms of automation and robotics. So what else

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<v Speaker 3>can you give us in terms of color on the

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<v Speaker 3>retail side of the business, which is something that so

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<v Speaker 3>many of us right identify very clearly with when it

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<v Speaker 3>comes to Amazon.

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<v Speaker 2>Yeah, I think, Look, they're making all the right investments

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<v Speaker 2>to improve profitability. In the longer term, Amazon's retail businesses

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<v Speaker 2>finally break evento profitable. It took a long time to

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<v Speaker 2>get here, and I think automation will be the next

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<v Speaker 2>leg of growth to drive that further. But as I

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<v Speaker 2>mentioned you know earlier, AWS is driving their EBIT margins.

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<v Speaker 2>So aws can compensate these investments to a certain extent,

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<v Speaker 2>and so can advertising because the margins here are just

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<v Speaker 2>so much higher than they'll ever be able to get

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<v Speaker 2>in the retail business.

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<v Speaker 1>How is how is the advertising business during PUNAM?

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<v Speaker 2>It's doing really well, like brew twenty two percent in

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<v Speaker 2>and currency in the quarter, so right where we expected.

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<v Speaker 2>And I think, you know, that's a high profit business.

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<v Speaker 2>It's about seventy five to eighty percent profit margins by

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<v Speaker 2>our estimates, and that's flowing right to the bottom line.

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<v Speaker 2>We see it going to one hundred billion dollars. So

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<v Speaker 2>there's a lot of improvement that they can build in

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<v Speaker 2>advertising and really drive that business higher from here.

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<v Speaker 1>Where's that coming from? Is that coming from interstitials placed

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<v Speaker 1>in Amazon Prime Video, which I think you know, cut

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<v Speaker 1>a lot of people off guard when they started doing that.

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<v Speaker 1>Was it last year maybe? Or yeah? Or is it

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<v Speaker 1>or is it coming from like products that are paid

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<v Speaker 1>for placement.

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<v Speaker 2>I think it's a combination of both. You're absolutely right,

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<v Speaker 2>these ads are driving incremental revenue, but if you think

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<v Speaker 2>about the base of this revenue base, it's still coming

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<v Speaker 2>from product advertisements. The ads do help and They will

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<v Speaker 2>become a larger driver as the ad business grows in size,

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<v Speaker 2>but the core of it is still product advertisement.

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<v Speaker 3>Hey put them before we let you go. What's kind

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<v Speaker 3>of top of mind for you in the areas that

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<v Speaker 3>you cover with Amazon that you would be asking on

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<v Speaker 3>the earnings call.

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<v Speaker 2>On the retail side, it's really about holiday and how

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<v Speaker 2>that's going. The October Prime Day deals that they had,

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<v Speaker 2>how that's going, and how the customer is responding. We

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<v Speaker 2>think the customers are still holding up. Well, are they

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<v Speaker 2>seeing the same thing and how do they see holiday

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<v Speaker 2>shaping out to be where we're entering holiday?

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<v Speaker 3>All right?

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<v Speaker 5>Love it?

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<v Speaker 2>Love it?

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<v Speaker 3>Looking out for Punham's research too. That will hit the

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<v Speaker 3>Bloomberg punam Oil as Bloomberg Intelligence senior analysts for e

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<v Speaker 3>commerce and ath Leisure. We want to go back to

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<v Speaker 3>the co host BTech on Bloomberg TV every day eleven

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<v Speaker 3>am to noon on Bloomberg Television, Ed Ludlow still with

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<v Speaker 3>us at as you continue to pour over that release,

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<v Speaker 3>what else is catching your attention?

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<v Speaker 1>Yeah?

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<v Speaker 4>I mean Punham gave us the story with Amazon dot Com. Right,

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<v Speaker 4>most of the audience are going to be more familiar

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<v Speaker 4>with the e commerce business than they are with the

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<v Speaker 4>cloud computing business. They are number one in cow computing,

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<v Speaker 4>and as Punham put it so succinctly, the profit is

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<v Speaker 4>compensated for the less profitable e commace side through cloud.

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<v Speaker 4>But Andy Jasse's really focused on retail being more profitable.

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<v Speaker 4>Tim is absolutely right that you look at advertising in

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<v Speaker 4>the role that that's played there, and it has been improved.

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<v Speaker 4>I would also just note that in the quarter, Amazon

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<v Speaker 4>numbers reflect almost two billion dollars in severance costs. That's

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<v Speaker 4>the other story of Amazon right now, getting rid of

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<v Speaker 4>the bloat.

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<v Speaker 1>That was the previous quarter, right, not the current quarter.

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<v Speaker 4>Previous quarter exactly.

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<v Speaker 1>Yeah, is the current quarter going to take a hit

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<v Speaker 1>right now or is it going to be the upcoming quarter.

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<v Speaker 1>It's always tough with this stuff because we don't know

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<v Speaker 1>how these employment agreements work.

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<v Speaker 4>Yeah, but the third court operating income was twenty one

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<v Speaker 4>point seven billion dollars, almost twenty two billion dollars without

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<v Speaker 4>charges when you strip the charges out, and so you

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<v Speaker 4>know this is a profitable business overall because of cloud.

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<v Speaker 4>It's a funny thing to say, but what's a couple

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<v Speaker 4>of billion, you know to right size the company? And

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<v Speaker 4>and that is the thing here. Amazon has been inconsistent

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<v Speaker 4>on this point. At one time, Andy Jesse said that

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<v Speaker 4>right sizing the company eliminating roles was because of the

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<v Speaker 4>advent of AI. But the communication this past week when

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<v Speaker 4>they cut fourteen thousand corporate roles was it was more

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<v Speaker 4>about bloat and middle management, right sizing areas and simplifying

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<v Speaker 4>the management structure more than anything. So it's hard to

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<v Speaker 4>know which of those two stories is the predominantly of

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<v Speaker 4>prevailing one here. But yeah, it's for Amazon, like it's

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<v Speaker 4>a one time charge that so what all right?

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<v Speaker 3>We want to bring into the conversation to Eric Clark,

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<v Speaker 3>chief investment officer at Acivasque Global Advisors and portfolio manager

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<v Speaker 3>for the Alpha Brands Logo ETF, which has Amazon and

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<v Speaker 3>Apple and Alphabet and Microsoft and Netflix in its holdings. Edla, though,

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<v Speaker 3>is going to stay with us. He's, of course, co

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<v Speaker 3>host of BTech on BTV. Eric, come on in on Amazon.

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<v Speaker 2>You like this.

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<v Speaker 1>I love it.

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<v Speaker 5>I mean I think the market loves it too, How

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<v Speaker 5>are you guys? I think the setup into the quarter

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<v Speaker 5>was pretty attractive because people were nervous about AWS and

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<v Speaker 5>losing market share, so the stock sold off into the

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<v Speaker 5>print and then you get some reality that Amazon is

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<v Speaker 5>still doing Amazon Well.

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<v Speaker 1>How do you read into this report in the context

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<v Speaker 1>of the layoffs that we learned about earlier this week.

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<v Speaker 1>Did Amazon need to do those layoffs? Do you see

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<v Speaker 1>it as a directional shift for the company. Obviously they

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<v Speaker 1>were doing pretty well with this same headcount.

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<v Speaker 5>I mean, you're going to hear more and more of this,

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<v Speaker 5>and I don't love that as a consumer investor, but

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<v Speaker 5>the reality is, when you're implementing AI through your business,

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<v Speaker 5>and you're obviously serving other companies doing the same thing,

0:11:42.679 --> 0:11:45.640
<v Speaker 5>right sizing of your headcount is a big part of

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<v Speaker 5>the story. And so with robox in warehouses plus all

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<v Speaker 5>the typical right sizing, it's a very large company, a

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<v Speaker 5>very large employer. So I think we're going to have

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<v Speaker 5>to hear about that across most companies certainly deploying AI

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<v Speaker 5>because they're they're getting a lot of efficiencies and might

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<v Speaker 5>not need the same kind of people.

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<v Speaker 3>Hey, Ed, I know you're doing double duty for us

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<v Speaker 3>and for our TV team, but you know, I'm just

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<v Speaker 3>thinking about all these names, these hyperscalers, these big tech

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<v Speaker 3>that have been reporting, as Zanna Agrana said, they're not

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<v Speaker 3>apples to apples, even though we sometimes we're getting Apple.

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<v Speaker 3>We put them together and it's going to be back

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<v Speaker 3>to to talk at Apple with us. But how are

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<v Speaker 3>you thinking against kind of the big cap technique?

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<v Speaker 1>Smart question? Yeah, this fits well.

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<v Speaker 4>So what they all have in common is capital expenditures.

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<v Speaker 4>So okay, on the one hand, they all have capital expenditures.

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<v Speaker 4>It's what they then are able to say on the

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<v Speaker 4>other that they've been inconsistent. Meta didn't say anything about

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<v Speaker 4>growth related to AI, and the stock fell precipitously. I

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<v Speaker 4>go back to the trainium to headline from AWS it

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<v Speaker 4>being a multi billion dollar business, their commitment to invest

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<v Speaker 4>in infrastructure, but also giving us a number for what's

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<v Speaker 4>come online. The kind of fighting talk from Andy Jasse

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<v Speaker 4>on the AWA growth and its ties to AI specifically,

0:13:02.679 --> 0:13:05.680
<v Speaker 4>investors seem to be rewarding any more little bits of

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<v Speaker 4>information that you can get that shows something coming out

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<v Speaker 4>of the investment that's happened in prior quarters. And so

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<v Speaker 4>while they all have capex in common, the story they

0:13:14.760 --> 0:13:17.280
<v Speaker 4>had to tell about literal top line growth as it

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<v Speaker 4>relates to AI has been very different. And Amazon has

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<v Speaker 4>something to say here clearly

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<v Speaker 3>All right, ed, we know you're going to probably head

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<v Speaker 3>over to the TV side, but you're going to come

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<v Speaker 3>back with us a little bit later on when Apple

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<v Speaker 3>reports in just a few minutes, our ed Lolow, of course,

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<v Speaker 3>co hosts of b Tech on BTV