WEBVTT - Instant Reaction: Amazon Falls After Earnings, Cloud Growth Spooks Investors 0:00:02.520 --> 0:00:10.480 Bloomberg Audio Studios, podcasts, radio news. This is a breaking 0:00:10.560 --> 0:00:15.480 news update from Bloomberg, instant reaction and analysis from our 0:00:15.520 --> 0:00:20.320 three thousand journalists and analysts around the world. Amazon shares 0:00:20.360 --> 0:00:23.000 down in the after hours. The company cees third quarter 0:00:23.040 --> 0:00:25.680 operating income fifteen and a half to twenty point five 0:00:25.720 --> 0:00:27.800 billion dollars. I was in line with estimates that are 0:00:27.840 --> 0:00:30.240 at nineteen point four two billion. I guess maybe on 0:00:30.280 --> 0:00:32.520 the lower side, it's not in line and head quarter 0:00:32.560 --> 0:00:36.120 operating income though blue past estimates at nineteen point one 0:00:36.280 --> 0:00:37.240 seven billion dollars. 0:00:37.320 --> 0:00:40.120 Yeah, I do think that third quarter operating income could possibly, 0:00:40.280 --> 0:00:42.720 especially the downside or the lower end of the estimate, 0:00:43.040 --> 0:00:45.320 be problematic. Let's see what our team has to say. 0:00:46.240 --> 0:00:47.960 It is such a massive company, as you know, we 0:00:48.000 --> 0:00:50.920 need two Bloomberg Intelligence analysts to really break it down 0:00:50.960 --> 0:00:54.200 with us. Is senior technology analyst Ana Agrana and senior 0:00:54.880 --> 0:00:58.279 analysts excuse me for e commerce and at leisure Punamgoyle 0:00:58.600 --> 0:01:00.680 at a RAG out there in our Chicago bureau, and 0:01:00.680 --> 0:01:03.400 we've got Punham in our Princeton bureau. Hey, honourg I 0:01:03.400 --> 0:01:05.760 want to start with you because AWS is always so 0:01:05.880 --> 0:01:08.440 important when it comes to the top and bottom line 0:01:08.480 --> 0:01:11.400 here at Amazon, walk us through what we got on 0:01:11.440 --> 0:01:12.640 that side of the business. 0:01:12.959 --> 0:01:15.280 Yeah, I mean, as you see, you know, they met 0:01:15.520 --> 0:01:20.080 expectations on aw's growth of seventeen percent in constant currency. 0:01:20.080 --> 0:01:22.240 But you know, this is where we are saying that 0:01:22.319 --> 0:01:25.440 this is probably not good enough because Microsoft beat by 0:01:25.440 --> 0:01:27.959 a big number, Google beat by a big number, and 0:01:28.000 --> 0:01:29.520 the big question is going to be, you know, why 0:01:30.080 --> 0:01:32.160 didn't Amazon beat by a big number? And I think 0:01:32.520 --> 0:01:34.479 we look forward to hearing what management has to say 0:01:34.520 --> 0:01:34.880 about it. 0:01:35.040 --> 0:01:37.200 I want to bring in Punham here because one thing 0:01:37.200 --> 0:01:39.240 that I noticed when I was reading this in real 0:01:39.280 --> 0:01:43.240 time the statement from CEO Andy Jasse, also president over 0:01:43.280 --> 0:01:46.120 at Amazon, was Punham how much he talked about the 0:01:46.120 --> 0:01:50.720 connection between the shopping experience for Amazon's core customer and 0:01:50.880 --> 0:01:54.160 artificial intelligence. Because up to now, and maybe I'm wrong, 0:01:54.240 --> 0:01:57.160 but I've thought about AI and the context of AWS, 0:01:57.640 --> 0:02:00.240 but what he's trying to communicate to investors is the 0:02:00.280 --> 0:02:03.279 effect that AI is happening is having on how people 0:02:03.360 --> 0:02:05.720 are buying stuff. Is it actually doing that? 0:02:06.640 --> 0:02:09.320 Yeah? Absolutely. You know, AI is a big deal in 0:02:09.360 --> 0:02:12.800 e commerce, and Amazon's been investing a lot to improve 0:02:12.840 --> 0:02:15.520 the customer experience. It starts with search, right when you 0:02:15.560 --> 0:02:18.720 go to Amazon and you're searching something. They've just improved 0:02:18.760 --> 0:02:21.800 it and they've also launched rufes, which is their AI 0:02:21.960 --> 0:02:25.680 or your personal assistant, So that's really been helping shoppers 0:02:26.040 --> 0:02:28.359 and just you know, figure out what they want to buy. 0:02:28.400 --> 0:02:31.080 You want to buy a microwave, but what microwave is better? 0:02:31.760 --> 0:02:35.000 The shopping assistant helps you not only bring choices forward, 0:02:35.080 --> 0:02:38.560 but also helps you navigate through the descriptions, the pricing, etc. 0:02:39.120 --> 0:02:42.200 So it really helps improve conversion. And that's where AI 0:02:42.360 --> 0:02:44.000 is helping on the shopping side. 0:02:44.080 --> 0:02:45.959 Are you what metrics do you look at punam to 0:02:46.000 --> 0:02:48.440 make sure that the investments that they're making are actually 0:02:48.600 --> 0:02:50.440 leading me to spend more money on Amazon. 0:02:51.440 --> 0:02:53.920 So Amazon doesn't share all the metrics that we'd like 0:02:54.000 --> 0:02:56.399 to see, but we know that they've talked about conversion 0:02:56.400 --> 0:02:58.960 and how that's improving. So I think that's the number 0:02:58.960 --> 0:03:01.799 one metric to any extent when we get color around that, 0:03:02.200 --> 0:03:04.960 I think that is what's most important. If you think 0:03:05.080 --> 0:03:08.560 back online conversion just broadly speaking is in the low 0:03:08.600 --> 0:03:12.160 to midsig diligit range, So only about five percent of 0:03:12.200 --> 0:03:16.280 shoppers that go online to shop actually transact. It's very 0:03:16.360 --> 0:03:18.720 very low compared to a brick and mortar store, and 0:03:19.080 --> 0:03:22.040 every little that Amazon does on AI or anything else 0:03:22.120 --> 0:03:24.680 is going to help boost that conversion. It's higher on Amazon. 0:03:24.680 --> 0:03:28.080 Of course, let's remind everybody that in the aftermarket following earnings, 0:03:28.080 --> 0:03:31.120 Amazon down about two point six percent. Here it's only 0:03:31.200 --> 0:03:34.280 up about seven percent year to date. Ana Rag, you know, 0:03:34.320 --> 0:03:37.360 you talked about, you know, the blow out numbers that 0:03:37.360 --> 0:03:40.240 we've gotten from the likes of Alphabet and others. When 0:03:40.280 --> 0:03:43.640 it comes to cloud aws, as we said, the growth 0:03:43.680 --> 0:03:45.600 was in line with what the street was expecting. What 0:03:45.720 --> 0:03:49.160 might why why might they not have outperformed what we 0:03:49.200 --> 0:03:50.880 got from some of the other hyperscalers. 0:03:51.280 --> 0:03:53.680 You know, the first thing is they are much larger 0:03:53.720 --> 0:03:55.760 than all the others. Their round rate is over one 0:03:55.800 --> 0:03:58.360 hundred million dollars, So you know, that's one factor, and 0:03:58.400 --> 0:04:01.200 you know, to be very honest, growing seventeen eight one 0:04:01.240 --> 0:04:03.880 hundred billion is not a bad deal. But the second 0:04:03.880 --> 0:04:06.160 part is when you look at somebody like a Microsoft, 0:04:06.400 --> 0:04:09.280 they are getting a bit the benefit of you know, 0:04:09.360 --> 0:04:13.120 chat GPT transactions being run on their cloud. So you know, 0:04:13.240 --> 0:04:17.000 that's that's a huge benefit for them. Amazon doesn't have 0:04:17.080 --> 0:04:20.080 that option, frankly because they don't have a chat GIPD 0:04:20.320 --> 0:04:22.880 like you know application that's running. A lot of what 0:04:22.920 --> 0:04:25.560 they're doing is on the enterprise side, and at those 0:04:25.600 --> 0:04:29.640 applications are currently in the build phase, which means over 0:04:29.680 --> 0:04:32.479 the next several years we should see the trickle down 0:04:32.480 --> 0:04:35.560 effect of those usage you know, driving up awis. So 0:04:35.600 --> 0:04:38.160 I think there is a timing mismatch. I don't see, 0:04:38.600 --> 0:04:40.719 you know, them as being inferior in any way to 0:04:40.920 --> 0:04:43.320 some of the other cloud providers. In fact, as I said, 0:04:43.320 --> 0:04:46.000 they are the largest with probably the most services out 0:04:46.040 --> 0:04:46.679 there right now. 0:04:46.839 --> 0:04:49.520 Do they stay the largest? I mean, they certainly were 0:04:49.560 --> 0:04:52.080 early into this. I think you could say that they 0:04:52.120 --> 0:04:54.680 helped invent this. I mean Andy Jasse certainly, that's why 0:04:54.680 --> 0:05:00.159 he's CEO, after heading up the Amazon Web Services and 0:05:00.200 --> 0:05:03.599 then being picked by Bezos to take this job. Would 0:05:03.600 --> 0:05:06.080 you say that they are comfortably in first or is 0:05:07.040 --> 0:05:11.800 azure at Microsoft on IRAQ? And also is Google Cloud 0:05:11.800 --> 0:05:13.080 doing a good job of catching up? 0:05:13.520 --> 0:05:15.520 They're both doing a very good job of catching up. 0:05:15.520 --> 0:05:17.560 And as I said, you know, Microsoft has an inherent 0:05:17.600 --> 0:05:20.160 advantage there. So maybe down the road, you know, several 0:05:20.240 --> 0:05:22.280 years from now, let's say three to four years, they 0:05:22.320 --> 0:05:24.080 would be neck to neck. But you know, one of 0:05:24.120 --> 0:05:26.080 the things is this is a market where we think 0:05:26.120 --> 0:05:28.800 the entire market is growing much bigger. You know, we 0:05:28.880 --> 0:05:31.160 don't see five years from now ew as being a 0:05:31.200 --> 0:05:33.840 smaller business than where it is right now. The rate 0:05:33.880 --> 0:05:37.440 of growth depends on the propensity of enterprises to spend 0:05:37.440 --> 0:05:40.279 on technology, but we think all three of them will 0:05:40.320 --> 0:05:43.920 benefit with cloud becoming much bigger over the next three 0:05:43.920 --> 0:05:44.559 to five years. 0:05:44.680 --> 0:05:47.520 We should point out some more of the statistics on 0:05:47.560 --> 0:05:51.359 Amazon online stores net sales sixty one point five billion, 0:05:51.400 --> 0:05:54.280 up eleven percent year over year, Physical stores net sales 0:05:54.279 --> 0:05:56.200 about five point six billion, ups seven and a half 0:05:56.200 --> 0:05:59.280 percent year over year. Third party seller services net sales 0:06:00.279 --> 0:06:03.520 forty point three five billion, that's up eleven percent year 0:06:03.600 --> 0:06:08.040 over year. Put them you know. They also say in 0:06:08.080 --> 0:06:10.560 some of the commentary or conviction that AI will change 0:06:10.600 --> 0:06:14.240 every customer experience is starting to play out. So we 0:06:14.320 --> 0:06:16.080 talked about it a little bit earlier. I mean, what 0:06:16.160 --> 0:06:18.400 they are doing in terms of getting people to spend 0:06:18.400 --> 0:06:20.880 more time on the platform, spend more time on the platform, 0:06:21.080 --> 0:06:22.280 it's all happening. 0:06:23.360 --> 0:06:25.200 Yeah, it's happening. I mean, all the numbers that you 0:06:25.279 --> 0:06:28.640 just cited, they have performed expectations. So whatever they're doing, 0:06:28.680 --> 0:06:31.120 and they're doing a lot, they're doing it right. We 0:06:31.240 --> 0:06:34.320 think that Amazon is making the right moves to expand 0:06:34.320 --> 0:06:37.560 their retail footprint online. Once again, you know, it comes 0:06:37.640 --> 0:06:40.640 back to what a customers want. They want everything, and 0:06:40.680 --> 0:06:43.599 Amazon's a marketplace that really sells a lot of different 0:06:43.640 --> 0:06:46.039 types of goods and they want the speed and speed 0:06:46.160 --> 0:06:48.719 is key here because you can get things same day 0:06:48.800 --> 0:06:51.880 or next day from Amazon without paying a fee being 0:06:51.880 --> 0:06:54.719 a Prime member. So that's really key here. And the 0:06:54.880 --> 0:06:58.240 numbers in the second quarter we're actually quite impressive on 0:06:58.240 --> 0:07:01.120 the retail side. They did do really well Prime Day 0:07:01.240 --> 0:07:03.920 sounds like it was a great success. We'll hear more 0:07:03.960 --> 0:07:06.920 on the call, but the numbers outperformed on the retail side. 0:07:07.320 --> 0:07:09.679 Is there a read a follow through if you will, 0:07:10.240 --> 0:07:12.520 when it comes to what this tells you about kind 0:07:12.520 --> 0:07:15.280 of consumers and the US economy. 0:07:15.440 --> 0:07:18.120 Yeah, I think consumers are focused on value, and I 0:07:18.120 --> 0:07:21.400 think Amazon does give you value. They are trying to 0:07:21.480 --> 0:07:24.320 keep prices low and this may be a function of 0:07:24.320 --> 0:07:26.440 that where you know, as consumers shop around and they're 0:07:26.480 --> 0:07:29.680 seeing price hikes due to tariffs, either they've already started 0:07:30.000 --> 0:07:33.120 or they're coming up. They're finding deals on Amazon, so 0:07:33.440 --> 0:07:35.480 they are going there and that's a nice place for 0:07:35.520 --> 0:07:37.880 Amazon to be as we move forward into the second half. 0:07:38.000 --> 0:07:39.480 I want to ask both of you, and let me 0:07:39.480 --> 0:07:40.960 start with you put them. I mean, what are you 0:07:41.000 --> 0:07:44.480 thinking about that you want to listen for on the 0:07:44.520 --> 0:07:48.600 call that the company does with analyst and investors top 0:07:48.640 --> 0:07:50.120 of mine or what you would be asking? 0:07:51.000 --> 0:07:52.920 Yeah, for me on the retail side, it's really the 0:07:53.000 --> 0:07:55.840 terriff question and the Diminimus question. You know, we know 0:07:55.920 --> 0:07:58.560 we're losing the diminamous exemption, so how should we think 0:07:58.560 --> 0:08:01.800 about that in terms of their third party, especially where 0:08:01.840 --> 0:08:04.760 they do rely on some of those drop shipping, especially Hall. 0:08:05.120 --> 0:08:07.280 And then the second thing I'm looking for is just 0:08:07.320 --> 0:08:09.320 how they're going to be pricing the goods as we 0:08:09.320 --> 0:08:11.880 move into the second half, because for now we have 0:08:12.040 --> 0:08:14.880 been somewhat insulated with a ten percent pause and most 0:08:14.880 --> 0:08:17.960 goods outside of China, but that we know is changing 0:08:18.000 --> 0:08:18.800 in the back half. 0:08:19.960 --> 0:08:22.600 Hey on a rock, come on back in here, because 0:08:23.320 --> 0:08:25.880 one thing that we're I'm looking at the write ups 0:08:25.920 --> 0:08:28.480 right now and it does seem like, you know what 0:08:28.600 --> 0:08:32.400 we said at the beginning that this operating profit estimate 0:08:32.559 --> 0:08:36.600 for the current quarter really underwhelmed. Why is it that 0:08:37.840 --> 0:08:41.719 Amazon doesn't get rewarded for being less profitable the same 0:08:41.760 --> 0:08:44.880 way that other companies are rewarded for this or maybe 0:08:44.920 --> 0:08:46.800 the better way to ask it would be, you know, 0:08:47.000 --> 0:08:50.679 the measure of capex and why you know, investors are 0:08:50.679 --> 0:08:54.000 so okay with meta platforms spending so much money, but 0:08:54.640 --> 0:08:58.200 Amazon's operating profit not coming in as high as they 0:08:58.200 --> 0:09:01.040 thought it would. Is it because Matta is just printing 0:09:01.080 --> 0:09:03.560 money and has a higher margin business. 0:09:05.040 --> 0:09:07.120 I mean, you have to remember, you know, Amazon has 0:09:07.160 --> 0:09:09.600 a lot of retail footprint also, so you can't really 0:09:09.800 --> 0:09:11.720 equate them to a tech company as is. I mean, 0:09:11.760 --> 0:09:14.400 it's only the aw as part of it. But frankly speaking, 0:09:14.400 --> 0:09:16.480 if you go back to the history of Amazon for 0:09:16.480 --> 0:09:19.600 probably ten fifteen years, you know, they did were extremely 0:09:19.679 --> 0:09:23.000 unprofitable and people you know, still rewarded for them. You know, 0:09:23.040 --> 0:09:25.520 in our view, profitability story has been amazing over the 0:09:25.600 --> 0:09:28.120 last three to four years. Look at where AWS has 0:09:28.200 --> 0:09:31.520 gone from low twenties to the thirties. Now today, it 0:09:31.640 --> 0:09:34.960 was a bit lower than what consensus were anticipating, but 0:09:35.080 --> 0:09:37.320 you know, it ebbs and flows because of the CAPEX 0:09:37.720 --> 0:09:41.360 that they're investing in throughout their ecosystem. Imagine a business. 0:09:41.440 --> 0:09:44.440 I mean last quarter their aw as profit or our 0:09:44.480 --> 0:09:47.319 operating margins were thirty nine point five percent. I mean 0:09:47.320 --> 0:09:50.280 that's a forty percent margin business. That's that's pretty impressive 0:09:50.559 --> 0:09:54.880 across any you know, tech platform. So again, it is lumpy, 0:09:55.000 --> 0:09:57.560 but that's because of investments, that's because of how they hire. 0:09:58.200 --> 0:10:00.240 You know, we think longer term, that is a still 0:10:00.240 --> 0:10:01.520 a forty percent margin business. 0:10:01.720 --> 0:10:03.520 So I want to put the same question I asked 0:10:04.040 --> 0:10:06.600 punam Anag what you are thinking that you want to 0:10:06.640 --> 0:10:08.880 know a little bit more about when the company gets 0:10:08.880 --> 0:10:10.880 on the calls with the analysts and investors. 0:10:12.320 --> 0:10:13.880 Yeah, the two things that we want to know is 0:10:13.920 --> 0:10:16.319 what's happening to you a capex. Now, my god feels 0:10:16.360 --> 0:10:18.280 they will want to take the capex up because all 0:10:18.320 --> 0:10:20.440 the other job providers have done it, so they can't 0:10:20.480 --> 0:10:23.200 really be left behind. But then the second question is, well, 0:10:23.240 --> 0:10:25.680 can you give me an idea for all the capecks 0:10:25.679 --> 0:10:28.480 that's going in. What kind of AI workloads are you seeing? 0:10:28.800 --> 0:10:31.560 And if you are seeing some MAI workloads, you know, 0:10:31.600 --> 0:10:33.839 why not disclose that number? And you know, talk about 0:10:33.840 --> 0:10:36.560 it openly as Microsoft has done in the past, you know, 0:10:36.600 --> 0:10:37.720 one and a half to two years. 0:10:37.840 --> 0:10:39.840 Hey, Punam Goyle, I want to bring you back in 0:10:39.880 --> 0:10:42.800 here because you cover e commerce and athleisure. Carol asked 0:10:42.800 --> 0:10:45.000 you a really good question about if we can get 0:10:45.040 --> 0:10:47.560 any insight into the consumer and the health of the 0:10:47.559 --> 0:10:50.560 consumer by reading into these numbers. Would you say that 0:10:50.600 --> 0:10:54.080 Amazon is well positioned if you indeed believe that we 0:10:54.120 --> 0:10:56.480 could be entering a downturn. We did see this question 0:10:56.520 --> 0:11:00.520 asked yesterday from at the Federal Reserve by one of 0:11:00.520 --> 0:11:05.439 our own reporters, and referencing that Vantage Score report that 0:11:05.720 --> 0:11:10.199 high income consumers are actually missing on their bills right 0:11:10.240 --> 0:11:12.800 now when it comes to autos and credit cards. Is 0:11:12.840 --> 0:11:15.400 Amazon well positioned to be a player if we do 0:11:15.440 --> 0:11:16.120 see a downturn. 0:11:17.320 --> 0:11:20.240 I think if we see a downturn, Amazon's not going 0:11:20.280 --> 0:11:24.320 to escape the ramifications of that. But that said, compared 0:11:24.360 --> 0:11:27.680 to everyone else in retail, I do think Amazon will 0:11:27.679 --> 0:11:29.600 fare better than the rest, and I do think that 0:11:29.640 --> 0:11:33.160 they will continue to attract the value customer who's just 0:11:33.200 --> 0:11:35.920 looking for deals and looking for value, Because at the 0:11:36.000 --> 0:11:39.200 end of the day, when you think about how retailers buy. 0:11:39.400 --> 0:11:43.080 Those with scale have buying power, and Amazon has over 0:11:43.120 --> 0:11:46.360 seven hundred billion dollars in GMB based on our estimates. 0:11:46.640 --> 0:11:48.560 I can't think of a retailer bigger than that in 0:11:48.600 --> 0:11:50.240 the US that has buying power. 0:11:50.440 --> 0:11:51.680 All right, put them, We're going to let you go. 0:11:51.760 --> 0:11:53.680 Put them go out, senior analysts for e commerce and 0:11:53.720 --> 0:11:55.439 at leisure. We're going to be watching out for her 0:11:55.480 --> 0:11:59.400 research and commentary. Also following the company call. She is, 0:11:59.440 --> 0:12:02.319 of course with our Bloomberg Intelligence Anna ra Grana, Thank 0:12:02.320 --> 0:12:05.280 you so much, senior tech analysts at Bloomberg Intelligence there 0:12:05.280 --> 0:12:08.080 in our Chicago bureau. I do want to point out, though, 0:12:08.120 --> 0:12:10.440 Amazon the big one right now. We've just talked about 0:12:10.720 --> 0:12:14.480 the company, but projecting profit for the third quarter that 0:12:14.600 --> 0:12:18.120 is underwhelming on the expense that it has been doing. 0:12:18.200 --> 0:12:20.800 When it comes to artificial intelligence, the race is on 0:12:20.840 --> 0:12:23.720 for AI, and it looks like some companies take Meta, 0:12:23.800 --> 0:12:27.880 take Microsoft, take Alphabet. Investors are impressed, but not necessarily 0:12:27.880 --> 0:12:29.000 the case here with Amazon.