Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is a breaking
Speaker 1: news update from Bloomberg, instant reaction and analysis from our
Speaker 1: three thousand journalists and analysts around the world. Amazon shares
Speaker 1: down in the after hours. The company cees third quarter
Speaker 1: operating income fifteen and a half to twenty point five
Speaker 1: billion dollars. I was in line with estimates that are
Speaker 1: at nineteen point four two billion. I guess maybe on
Speaker 1: the lower side, it's not in line and head quarter
Speaker 1: operating income though blue past estimates at nineteen point one
Speaker 1: seven billion dollars.
Speaker 2: Yeah, I do think that third quarter operating income could possibly,
Speaker 2: especially the downside or the lower end of the estimate,
Speaker 2: be problematic. Let's see what our team has to say.
Speaker 2: It is such a massive company, as you know, we
Speaker 2: need two Bloomberg Intelligence analysts to really break it down
Speaker 2: with us. Is senior technology analyst Ana Agrana and senior
Speaker 2: analysts excuse me for e commerce and at leisure Punamgoyle
Speaker 2: at a RAG out there in our Chicago bureau, and
Speaker 2: we've got Punham in our Princeton bureau. Hey, honourg I
Speaker 2: want to start with you because AWS is always so
Speaker 2: important when it comes to the top and bottom line
Speaker 2: here at Amazon, walk us through what we got on
Speaker 2: that side of the business.
Speaker 3: Yeah, I mean, as you see, you know, they met
Speaker 3: expectations on aw's growth of seventeen percent in constant currency.
Speaker 3: But you know, this is where we are saying that
Speaker 3: this is probably not good enough because Microsoft beat by
Speaker 3: a big number, Google beat by a big number, and
Speaker 3: the big question is going to be, you know, why
Speaker 3: didn't Amazon beat by a big number? And I think
Speaker 3: we look forward to hearing what management has to say
Speaker 3: about it.
Speaker 1: I want to bring in Punham here because one thing
Speaker 1: that I noticed when I was reading this in real
Speaker 1: time the statement from CEO Andy Jasse, also president over
Speaker 1: at Amazon, was Punham how much he talked about the
Speaker 1: connection between the shopping experience for Amazon's core customer and
Speaker 1: artificial intelligence. Because up to now, and maybe I'm wrong,
Speaker 1: but I've thought about AI and the context of AWS,
Speaker 1: but what he's trying to communicate to investors is the
Speaker 1: effect that AI is happening is having on how people
Speaker 1: are buying stuff. Is it actually doing that?
Speaker 4: Yeah? Absolutely. You know, AI is a big deal in
Speaker 4: e commerce, and Amazon's been investing a lot to improve
Speaker 4: the customer experience. It starts with search, right when you
Speaker 4: go to Amazon and you're searching something. They've just improved
Speaker 4: it and they've also launched rufes, which is their AI
Speaker 4: or your personal assistant, So that's really been helping shoppers
Speaker 4: and just you know, figure out what they want to buy.
Speaker 4: You want to buy a microwave, but what microwave is better?
Speaker 4: The shopping assistant helps you not only bring choices forward,
Speaker 4: but also helps you navigate through the descriptions, the pricing, etc.
Speaker 4: So it really helps improve conversion. And that's where AI
Speaker 4: is helping on the shopping side.
Speaker 1: Are you what metrics do you look at punam to
Speaker 1: make sure that the investments that they're making are actually
Speaker 1: leading me to spend more money on Amazon.
Speaker 4: So Amazon doesn't share all the metrics that we'd like
Speaker 4: to see, but we know that they've talked about conversion
Speaker 4: and how that's improving. So I think that's the number
Speaker 4: one metric to any extent when we get color around that,
Speaker 4: I think that is what's most important. If you think
Speaker 4: back online conversion just broadly speaking is in the low
Speaker 4: to midsig diligit range, So only about five percent of
Speaker 4: shoppers that go online to shop actually transact. It's very
Speaker 4: very low compared to a brick and mortar store, and
Speaker 4: every little that Amazon does on AI or anything else
Speaker 4: is going to help boost that conversion. It's higher on Amazon.
Speaker 2: Of course, let's remind everybody that in the aftermarket following earnings,
Speaker 2: Amazon down about two point six percent. Here it's only
Speaker 2: up about seven percent year to date. Ana Rag, you know,
Speaker 2: you talked about, you know, the blow out numbers that
Speaker 2: we've gotten from the likes of Alphabet and others. When
Speaker 2: it comes to cloud aws, as we said, the growth
Speaker 2: was in line with what the street was expecting. What
Speaker 2: might why why might they not have outperformed what we
Speaker 2: got from some of the other hyperscalers.
Speaker 3: You know, the first thing is they are much larger
Speaker 3: than all the others. Their round rate is over one
Speaker 3: hundred million dollars, So you know, that's one factor, and
Speaker 3: you know, to be very honest, growing seventeen eight one
Speaker 3: hundred billion is not a bad deal. But the second
Speaker 3: part is when you look at somebody like a Microsoft,
Speaker 3: they are getting a bit the benefit of you know,
Speaker 3: chat GPT transactions being run on their cloud. So you know,
Speaker 3: that's that's a huge benefit for them. Amazon doesn't have
Speaker 3: that option, frankly because they don't have a chat GIPD
Speaker 3: like you know application that's running. A lot of what
Speaker 3: they're doing is on the enterprise side, and at those
Speaker 3: applications are currently in the build phase, which means over
Speaker 3: the next several years we should see the trickle down
Speaker 3: effect of those usage you know, driving up awis. So
Speaker 3: I think there is a timing mismatch. I don't see,
Speaker 3: you know, them as being inferior in any way to
Speaker 3: some of the other cloud providers. In fact, as I said,
Speaker 3: they are the largest with probably the most services out
Speaker 3: there right now.
Speaker 1: Do they stay the largest? I mean, they certainly were
Speaker 1: early into this. I think you could say that they
Speaker 1: helped invent this. I mean Andy Jasse certainly, that's why
Speaker 1: he's CEO, after heading up the Amazon Web Services and
Speaker 1: then being picked by Bezos to take this job. Would
Speaker 1: you say that they are comfortably in first or is
Speaker 1: azure at Microsoft on IRAQ? And also is Google Cloud
Speaker 1: doing a good job of catching up?
Speaker 3: They're both doing a very good job of catching up.
Speaker 3: And as I said, you know, Microsoft has an inherent
Speaker 3: advantage there. So maybe down the road, you know, several
Speaker 3: years from now, let's say three to four years, they
Speaker 3: would be neck to neck. But you know, one of
Speaker 3: the things is this is a market where we think
Speaker 3: the entire market is growing much bigger. You know, we
Speaker 3: don't see five years from now ew as being a
Speaker 3: smaller business than where it is right now. The rate
Speaker 3: of growth depends on the propensity of enterprises to spend
Speaker 3: on technology, but we think all three of them will
Speaker 3: benefit with cloud becoming much bigger over the next three
Speaker 3: to five years.
Speaker 2: We should point out some more of the statistics on
Speaker 2: Amazon online stores net sales sixty one point five billion,
Speaker 2: up eleven percent year over year, Physical stores net sales
Speaker 2: about five point six billion, ups seven and a half
Speaker 2: percent year over year. Third party seller services net sales
Speaker 2: forty point three five billion, that's up eleven percent year
Speaker 2: over year. Put them you know. They also say in
Speaker 2: some of the commentary or conviction that AI will change
Speaker 2: every customer experience is starting to play out. So we
Speaker 2: talked about it a little bit earlier. I mean, what
Speaker 2: they are doing in terms of getting people to spend
Speaker 2: more time on the platform, spend more time on the platform,
Speaker 2: it's all happening.
Speaker 4: Yeah, it's happening. I mean, all the numbers that you
Speaker 4: just cited, they have performed expectations. So whatever they're doing,
Speaker 4: and they're doing a lot, they're doing it right. We
Speaker 4: think that Amazon is making the right moves to expand
Speaker 4: their retail footprint online. Once again, you know, it comes
Speaker 4: back to what a customers want. They want everything, and
Speaker 4: Amazon's a marketplace that really sells a lot of different
Speaker 4: types of goods and they want the speed and speed
Speaker 4: is key here because you can get things same day
Speaker 4: or next day from Amazon without paying a fee being
Speaker 4: a Prime member. So that's really key here. And the
Speaker 4: numbers in the second quarter we're actually quite impressive on
Speaker 4: the retail side. They did do really well Prime Day
Speaker 4: sounds like it was a great success. We'll hear more
Speaker 4: on the call, but the numbers outperformed on the retail side.
Speaker 2: Is there a read a follow through if you will,
Speaker 2: when it comes to what this tells you about kind
Speaker 2: of consumers and the US economy.
Speaker 4: Yeah, I think consumers are focused on value, and I
Speaker 4: think Amazon does give you value. They are trying to
Speaker 4: keep prices low and this may be a function of
Speaker 4: that where you know, as consumers shop around and they're
Speaker 4: seeing price hikes due to tariffs, either they've already started
Speaker 4: or they're coming up. They're finding deals on Amazon, so
Speaker 4: they are going there and that's a nice place for
Speaker 4: Amazon to be as we move forward into the second half.
Speaker 2: I want to ask both of you, and let me
Speaker 2: start with you put them. I mean, what are you
Speaker 2: thinking about that you want to listen for on the
Speaker 2: call that the company does with analyst and investors top
Speaker 2: of mine or what you would be asking?
Speaker 4: Yeah, for me on the retail side, it's really the
Speaker 4: terriff question and the Diminimus question. You know, we know
Speaker 4: we're losing the diminamous exemption, so how should we think
Speaker 4: about that in terms of their third party, especially where
Speaker 4: they do rely on some of those drop shipping, especially Hall.
Speaker 4: And then the second thing I'm looking for is just
Speaker 4: how they're going to be pricing the goods as we
Speaker 4: move into the second half, because for now we have
Speaker 4: been somewhat insulated with a ten percent pause and most
Speaker 4: goods outside of China, but that we know is changing
Speaker 4: in the back half.
Speaker 1: Hey on a rock, come on back in here, because
Speaker 1: one thing that we're I'm looking at the write ups
Speaker 1: right now and it does seem like, you know what
Speaker 1: we said at the beginning that this operating profit estimate
Speaker 1: for the current quarter really underwhelmed. Why is it that
Speaker 1: Amazon doesn't get rewarded for being less profitable the same
Speaker 1: way that other companies are rewarded for this or maybe
Speaker 1: the better way to ask it would be, you know,
Speaker 1: the measure of capex and why you know, investors are
Speaker 1: so okay with meta platforms spending so much money, but
Speaker 1: Amazon's operating profit not coming in as high as they
Speaker 1: thought it would. Is it because Matta is just printing
Speaker 1: money and has a higher margin business.
Speaker 3: I mean, you have to remember, you know, Amazon has
Speaker 3: a lot of retail footprint also, so you can't really
Speaker 3: equate them to a tech company as is. I mean,
Speaker 3: it's only the aw as part of it. But frankly speaking,
Speaker 3: if you go back to the history of Amazon for
Speaker 3: probably ten fifteen years, you know, they did were extremely
Speaker 3: unprofitable and people you know, still rewarded for them. You know,
Speaker 3: in our view, profitability story has been amazing over the
Speaker 3: last three to four years. Look at where AWS has
Speaker 3: gone from low twenties to the thirties. Now today, it
Speaker 3: was a bit lower than what consensus were anticipating, but
Speaker 3: you know, it ebbs and flows because of the CAPEX
Speaker 3: that they're investing in throughout their ecosystem. Imagine a business.
Speaker 3: I mean last quarter their aw as profit or our
Speaker 3: operating margins were thirty nine point five percent. I mean
Speaker 3: that's a forty percent margin business. That's that's pretty impressive
Speaker 3: across any you know, tech platform. So again, it is lumpy,
Speaker 3: but that's because of investments, that's because of how they hire.
Speaker 3: You know, we think longer term, that is a still
Speaker 3: a forty percent margin business.
Speaker 2: So I want to put the same question I asked
Speaker 2: punam Anag what you are thinking that you want to
Speaker 2: know a little bit more about when the company gets
Speaker 2: on the calls with the analysts and investors.
Speaker 3: Yeah, the two things that we want to know is
Speaker 3: what's happening to you a capex. Now, my god feels
Speaker 3: they will want to take the capex up because all
Speaker 3: the other job providers have done it, so they can't
Speaker 3: really be left behind. But then the second question is, well,
Speaker 3: can you give me an idea for all the capecks
Speaker 3: that's going in. What kind of AI workloads are you seeing?
Speaker 3: And if you are seeing some MAI workloads, you know,
Speaker 3: why not disclose that number? And you know, talk about
Speaker 3: it openly as Microsoft has done in the past, you know,
Speaker 3: one and a half to two years.
Speaker 1: Hey, Punam Goyle, I want to bring you back in
Speaker 1: here because you cover e commerce and athleisure. Carol asked
Speaker 1: you a really good question about if we can get
Speaker 1: any insight into the consumer and the health of the
Speaker 1: consumer by reading into these numbers. Would you say that
Speaker 1: Amazon is well positioned if you indeed believe that we
Speaker 1: could be entering a downturn. We did see this question
Speaker 1: asked yesterday from at the Federal Reserve by one of
Speaker 1: our own reporters, and referencing that Vantage Score report that
Speaker 1: high income consumers are actually missing on their bills right
Speaker 1: now when it comes to autos and credit cards. Is
Speaker 1: Amazon well positioned to be a player if we do
Speaker 1: see a downturn.
Speaker 4: I think if we see a downturn, Amazon's not going
Speaker 4: to escape the ramifications of that. But that said, compared
Speaker 4: to everyone else in retail, I do think Amazon will
Speaker 4: fare better than the rest, and I do think that
Speaker 4: they will continue to attract the value customer who's just
Speaker 4: looking for deals and looking for value, Because at the
Speaker 4: end of the day, when you think about how retailers buy.
Speaker 4: Those with scale have buying power, and Amazon has over
Speaker 4: seven hundred billion dollars in GMB based on our estimates.
Speaker 4: I can't think of a retailer bigger than that in
Speaker 4: the US that has buying power.
Speaker 2: All right, put them, We're going to let you go.
Speaker 2: Put them go out, senior analysts for e commerce and
Speaker 2: at leisure. We're going to be watching out for her
Speaker 2: research and commentary. Also following the company call. She is,
Speaker 2: of course with our Bloomberg Intelligence Anna ra Grana, Thank
Speaker 2: you so much, senior tech analysts at Bloomberg Intelligence there
Speaker 2: in our Chicago bureau. I do want to point out, though,
Speaker 2: Amazon the big one right now. We've just talked about
Speaker 2: the company, but projecting profit for the third quarter that
Speaker 2: is underwhelming on the expense that it has been doing.
Speaker 2: When it comes to artificial intelligence, the race is on
Speaker 2: for AI, and it looks like some companies take Meta,
Speaker 2: take Microsoft, take Alphabet. Investors are impressed, but not necessarily
Speaker 2: the case here with Amazon.