Latest / Bloomberg Intelligence / Instant Reaction: Amazon Reports Cloud Sales Growth for Fifth Straight Quarter

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Instant Reaction: Amazon Reports Cloud Sales Growth for Fifth Straight Quarter · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
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  Speaker 2: This is a breaking news update from Bloomberg.
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  Speaker 1: Instant reaction and analysis from our three thousand journalists and
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  Speaker 1: analysts around the world.
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  Speaker 3: Shares of Amazon hire in the aftermarket. Let's get to
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  Speaker 3: it with our team. Two members killer members, if you will,
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  Speaker 3: of our Bloomberg Intelligence team. We're talking about Putnam Goyle,
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  Speaker 3: She's Bloomberg Intelligence Senior analyst for e Commerce and ath Leisure.
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  Speaker 3: And Anna Agrana, Bloomberg Intelligence Senior Technology analysts.
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  Speaker 4: Put them.
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  Speaker 3: Let me kick it off with you in terms of Amazon,
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  Speaker 3: what's jumping out here for you?
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  Speaker 5: Look, it looks like broadbats, Bob, broad based strength across
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  Speaker 5: the board. The retail numbers were particularly good, and that
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  Speaker 5: was expected because we had the prime day shift moving
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  Speaker 5: in from three Q to two Q. So overall, really
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  Speaker 5: nice numbers here on the retail side. Consumers came to
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  Speaker 5: Amazon to shop prime day sales, and the shift to
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  Speaker 5: online just continues up here, more and more apparent as
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  Speaker 5: we moved through a tough consumer spending cycle.
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  Speaker 1: What's this third quarter net sales miss one ninety seven
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  Speaker 1: to two hundred and two billion. The estimus were two
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  Speaker 1: hundred and four billion dollars poon.
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  Speaker 3: Hm.
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  Speaker 5: I think part of it is the prime day shift,
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  Speaker 5: right when you think about.
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  Speaker 2: What analysts knew about that, so they should have, but
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  Speaker 2: we don't know.
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  Speaker 5: How much, right, we don't know how much in dollar
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  Speaker 5: volume has moved into Q If you look at the
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  Speaker 5: beat that we saw, analysts were expecting revenues to be up,
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  Speaker 5: but they came and even higher than that. Right, thirteen
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  Speaker 5: point seven percent online revenues was the expectation and they
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  Speaker 5: came in a fifteen percent, So a couple of billion
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  Speaker 5: dollars there could be part of the movement that we're
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  Speaker 5: seeing here in the guidance as well.
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  Speaker 3: All right, Anderrok, com on in on here. Let's talk
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  Speaker 3: about AWS. What doing pretty well, to say the.
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  Speaker 6: Least, actually much much better than what I would have
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  Speaker 6: expected them in going from to thirty seven in constant
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  Speaker 6: currency is phenomenal just because the size of this business
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  Speaker 6: is so large. I mean, it's so much bigger than
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  Speaker 6: aud Equal and much bigger than Google. But this is
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  Speaker 6: a very big beat, frankly, and the bigger thing, the
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  Speaker 6: biggest surprise for me was the margins. I would have
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  Speaker 6: expected margins to go down with all these investments that
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  Speaker 6: actually went up. So you know, kudos to the AWS team,
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  Speaker 6: and we look to hear more about guidance for a
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  Speaker 6: next quarter, and you know, how much longer can these
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  Speaker 6: margins hold up?
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  Speaker 2: Honor Rock.
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  Speaker 1: The AI and chips run rate, the ease eclipsed run
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  Speaker 1: rates of over twenty five billion dollars can textualize that
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  Speaker 1: for US, as Romaine said, a division of a division
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  Speaker 1: with twenty five billion dollar run rates.
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  Speaker 6: Yeah, I mean, to be honest, I don't really care
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  Speaker 6: that much about the AI net number. The number of
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  Speaker 6: the chips is the one that I find it more
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  Speaker 6: exciting because here's the thing. All these big companies that
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  Speaker 6: are spending all this capex, A large portion of that
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  Speaker 6: capex is going to buy GPUs and video GPUs. If
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  Speaker 6: Amazon can go and figure out their workloads onto their
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  Speaker 6: own chips, it saves them massive amount of money and
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  Speaker 6: helps them recognize the big backlock that they have without
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  Speaker 6: having to spend you know, given video that cashital I
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  Speaker 6: think that's one of the biggest differentiators between Google, Amazon,
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  Speaker 6: and Microsoft is you know, the first to have their
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  Speaker 6: own chips that people are embracing at a fast pace.
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  Speaker 4: Meanwhile, that's not the case with Microsoft.
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  Speaker 3: Yeah, I think it's just fascinating. As I said, I
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  Speaker 3: don't always think about Amazon as a chip company, but
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  Speaker 3: you got to remember that they are doing this, and
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  Speaker 3: increasingly these big tech guys are doing it. Put them
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  Speaker 3: Come on back in here. Anything here, I know we're
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  Speaker 3: still getting information. There's still stuff we're going to get
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  Speaker 3: on the analysts called anything though, that you find is
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  Speaker 3: maybe something that's worth digging a little bit deeper into
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  Speaker 3: and asking about.
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  Speaker 5: I think the advertising business saw a nice pickup, right,
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  Speaker 5: twenty six percent growth rates this quarter is a is
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  Speaker 5: a step up from the close to twenty percent that
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  Speaker 5: they've been recording for the past few quarters. Was that
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  Speaker 5: also led by the prime day shift? Given such a
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  Speaker 5: big event moved into the second quarter to advertising dollars
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  Speaker 5: shift too, and we will we see that slowed down
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  Speaker 5: a little in the next quarter. So I'm looking to
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  Speaker 5: better understand how this prime day shift affected and helped
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  Speaker 5: to queue across the board and what it really does
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  Speaker 5: to three Q. They've never quantified it, so we're hoping
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  Speaker 5: to get some color.
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  Speaker 1: Well, how big is prime like how big is Prime Day?
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  Speaker 1: Because I know we know from a metrics perspective, but
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  Speaker 1: prime day kind of started a few years ago as
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  Speaker 1: this offshoot of what was it Ali Baba doing Singles Day?
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  Speaker 1: Is that what sort of inspired it years ago?
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  Speaker 5: That could have inspired it? But you know Prime Day
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  Speaker 5: was a once a year phenomenal.
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  Speaker 2: Yeah, I know, it's like holiday right a week.
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  Speaker 5: It's now twice a year, right, So it's really just
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  Speaker 5: a move to pull shoppers to spend earlier. So if
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  Speaker 5: you think about the timing of Prime Day, right this time,
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  Speaker 5: they moved it into June, usually in July, so really
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  Speaker 5: capturing spend for back to school, for these peak holiday
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  Speaker 5: moments where consumers are looking to stretch their dollars. They're
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  Speaker 5: they're essentially taking the dollars up front and trying to
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  Speaker 5: get the consumers to spend it with them versus elsewhere.
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  Speaker 5: Does that happen? Yes and no, because around Prime Day,
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  Speaker 5: it's not just Amazon that's striking the deals. It's also Walmart,
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  Speaker 5: it's also Target, it's also Best Buy. Everyone is having
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  Speaker 5: their own version of deals around this day.
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  Speaker 3: Anything to get us to buy. I know how that works. Hey,
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  Speaker 3: just to remind you everybody, we're talking with Punamgoyle, Bloomberg Intelligence,
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  Speaker 3: senior analysts for e Commerce and at Leisure Aragrana Bloomberg
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  Speaker 3: Intelligence senior technology analyst joining us. If you have a question,
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  Speaker 3: let us know. We'd love to bring you into the conversation.
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  Speaker 3: live on air with us.
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  Speaker 1: Hey, I want to just look at shares of roadblocks
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  Speaker 1: real quick. The gaming company down about eleven percent in
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  Speaker 1: the after hours, just taking a look at what exactly
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  Speaker 1: is happening. Second quarter daily active users came in below
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  Speaker 1: estimates one hundred and twenty three million. The SMOs for
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  Speaker 1: one hundred and twenty eight point seven million dollar million users.
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  Speaker 1: That was really that what missed the average analyst estimate,
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  Speaker 1: and that is what has has investors concern. Bookings came
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  Speaker 1: in a little shy, hours, engaged came in shy. Revenue
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  Speaker 1: did come in higher than expected, though a loss per
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  Speaker 1: share at twenty six cents. The estimos for a lost
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  Speaker 1: percent at thirty four cents lost per share, rather shares
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  Speaker 1: down eleven and a half percent from the after hours.
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  Speaker 3: All right, so getting hammered going in the other direction,
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  Speaker 3: shares of Amazon continuing to rally. Our spencer soper out
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  Speaker 3: with his story. Amazon reported cloud computing revenue that beat
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  Speaker 3: analyst estimates, with booming demand for artificial intelligence services accelerating
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  Speaker 3: sales for the fifth straight quarter, revenue jump thirty seven
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  Speaker 3: percent to forty two point two billion at Amazon Web Services,
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  Speaker 3: which generates about a fifth of the company's revenue and
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  Speaker 3: most of its operating profit. It was the fastest pace
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  Speaker 3: of growth since the fourth quarter of twenty twenty one. Analyst,
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  Speaker 3: on average forecast sales of forty point six billion, according
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  Speaker 3: to data compiled by Bloomberg. You know, Ana Rag, you
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  Speaker 3: have Amazon against the other hyperscalers. What is it that's unique?
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  Speaker 3: I mean, you talk a little bit about the chips,
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  Speaker 3: and that certainly kind of keeps a lid on some
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  Speaker 3: of their costs and their access situation among the chip
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  Speaker 3: demands that we've seen out there. But what is the
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  Speaker 3: special sauce of Amazon?
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  Speaker 6: So the first and foremost, it is the largest public
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  Speaker 6: cloud provider, It has a much longer history of working
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  Speaker 6: with enterprises. So remember when we talk about AI adoption,
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  Speaker 6: you think about chat GPT app, it's primarily hosted on
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  Speaker 6: Microsoft as here.
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  Speaker 4: That's a consumer app.
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  Speaker 6: But now you think about AWS and enterprise AI adoption,
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  Speaker 6: that's where a lot of large companies around the world
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  Speaker 6: would be building their application or they would be infusing
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  Speaker 6: AI into their older application. So that's a big difference,
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  Speaker 6: is the enterprise presence as well as that. And you know,
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  Speaker 6: for the Microsoft is on the consumer side. Microsoft does both,
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  Speaker 6: but for Amazon that's primarily the bread and butter. The
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  Speaker 6: other thing is they're also the key or the preferred
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  Speaker 6: cloud provider for anthropic and we have seen a massive
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  Speaker 6: boost in and thropics use for coding agents, and I
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  Speaker 6: think that's also helping AWS in that case. And then
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  Speaker 6: if you think you know the future of AI is
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  Speaker 6: enterprise adoption, you know Amazon has a lot of data,
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  Speaker 6: it has a lot of services, so it's right in
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  Speaker 6: the middle of this entire I would say air diffusion
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  Speaker 6: within companies.
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  Speaker 1: I want to bring in ed La look to the conversation.
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  Speaker 1: He's the host of Bloomberg Tech out there in San Francisco,
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  Speaker 1: and what sticks out to you Amazon's numbers up the
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  Speaker 1: stock up eight point nine percent in the after hour.
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  Speaker 2: Yeah, what's sticking mean you.
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  Speaker 7: And Anna Rag will forgive me because I missed the
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  Speaker 7: first part of your conversation.
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  Speaker 2: I was on the phone with the CFO.
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  Speaker 7: But I mean, this is a beat on every metric
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  Speaker 7: where AWS absolutely matters most. You know, thirty seven percent
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  Speaker 7: growth against street expectation of thirty one percent. You know,
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  Speaker 7: it's it's a pretty straightforward set of numbers where you
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  Speaker 7: know they will be peppered with questions on the call
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  Speaker 7: for the same magic formula that we discussed in the
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  Speaker 7: last few afternoons, capital expenditure, direction of travel, and other
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  Speaker 7: points of tangible evidence that the AI from Amazon is
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  Speaker 7: gaining traction in its different guises.
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  Speaker 2: What did you hear from the c CFO.
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  Speaker 7: That, as I suppoke to the CFO of a different company,
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  Speaker 7: describe your kind of things?
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  Speaker 2: Which CFO? Which CFO were you talking to?
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  Speaker 7: Sorry, I was talking to the I was talking to
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  Speaker 7: the Rivian's okay, we're going to get to get that data. Okay, great,
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  Speaker 7: But yeah, like again, you know, an Ana Rag like,
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  Speaker 7: I'm such a massive Anaag fan, and so if I
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  Speaker 7: say something and he's like that's dumb. Let him say
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  Speaker 7: it's dumb. But you know, operating income also like a
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  Speaker 7: huge beat. And you know, if the concern of the
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  Speaker 7: market for the hyperscalers is that they want to see
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  Speaker 7: free cash flow and profit and a commitment to spend
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  Speaker 7: and continue top line growth, they kind of got all
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  Speaker 7: of that. There's not a lot left to complain about.
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  Speaker 2: Is there an rag you want to come in now
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  Speaker 2: on that?
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  Speaker 6: No, I absolutely agree with that. In fact, that's what
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  Speaker 6: I was trying to figure out. Can I find any
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  Speaker 6: mistakes over here? But we don't.
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  Speaker 4: And in fact, which is why I said, you know, when.
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  Speaker 6: You think of enterprise adoption and AI, you really cannot
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  Speaker 6: think of anybody better than AWS because of given that
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  Speaker 6: how much of world applications the house already you know,
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  Speaker 6: within their ecosystem. So the big question now is how
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  Speaker 6: much they have to spend for the next twelve months
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  Speaker 6: to get this kind of rate going. We saw the
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  Speaker 6: AWUS growth rate jump to thirty seven percent. You know,
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  Speaker 6: next quarter, is it going to be faster than that
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  Speaker 6: or do we see some moderation in that? So now
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  Speaker 6: we are really getting into, to be honest, fifty basis
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  Speaker 6: points here or one hundred basis points here, it's a
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  Speaker 6: you're nitpicking at this point.
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  Speaker 1: Frankly, Hey, we're getting some questions from viewers and listeners
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  Speaker 1: around the world.
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  Speaker 2: Just a reminder.
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  Speaker 1: Subscribers to Bloomberg dot com and terminal subscribers can ask
• 10:50
  Speaker 1: questions Bloomberg dot com slash ask radio. I want to
• 10:53
  Speaker 1: throw this one. This is from Connor in Auckland, New Zealand.
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  Speaker 1: Thanks for stand up late, I guess early in the
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  Speaker 1: morning for us, Connor, Microsoft and Amazon are making good
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  Speaker 1: progress in enterprise AI. How sticky are their product offerings?
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  Speaker 1: Will there be big swings in market share going forward?
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  Speaker 6: On a rock?
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  Speaker 2: I think this is a good question for you.
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  Speaker 4: So the way we think about it is the pie
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  Speaker 4: is growing at such a fast space.
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  Speaker 6: They will all make money. I'm fairly confident about it.
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  Speaker 6: But the question is what kind of money they will
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  Speaker 6: be making. Are they making money renting GPUs and training
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  Speaker 6: models or are you building AI applications on top of it.
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  Speaker 6: We like the second kind of business better because in
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  Speaker 6: the long run, it's very difficult to take it off.
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  Speaker 6: So let's say go back, you know, twenty years or
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  Speaker 6: fifteen years. If lift or Uber started their application on AWS.
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  Speaker 6: That's a cloud native application. As the application is growing,
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  Speaker 6: AWS makes more money. If you are developing a brand
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  Speaker 6: new AI application today, if you pick one of these
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  Speaker 6: three or four cloud platforms, as you as those apps
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  Speaker 6: get bigger, you're going to make money. So it's a
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  Speaker 6: perpetual revenue email. It's very difficult to take that out
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  Speaker 6: and move it somewhere else. But if you're only training models,
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  Speaker 6: that's a very different revenue stream.
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  Speaker 4: Yeah.
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  Speaker 3: It's interesting too because I was just looking at Spencer Soaper,
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  Speaker 3: the story that he's got on the Bloomberg Terminal or
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  Speaker 3: Bloomberg Spencer Soaper. He says the company lacks a hit
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  Speaker 3: consumer AI product on par with open ais chatchypt and
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  Speaker 3: Anthropics Claude, but has ink Deals, committing both AI labs
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  Speaker 3: to spend at least one hundred billion dollars in services
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  Speaker 3: from the Amazon Web Services cloud unit in the coming years.
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  Speaker 3: I mean ANTAOG.
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  Speaker 2: That's a big deal.
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  Speaker 4: Yeah.
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  Speaker 6: So one of the things that mikel Microsoft said yesterday
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  Speaker 6: was the sequential increase in commercial real performance obligations or
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  Speaker 6: the backlock that they had. I think it was about
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  Speaker 6: forty five billion. All of that was from non frontier
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  Speaker 6: model companies, which is that is not anthropic, that is
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  Speaker 6: not opening eye because remember, what is the biggest fear
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  Speaker 6: right now in the market is what if open EI
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  Speaker 6: is not able to take care of the commitments or
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  Speaker 6: entropic and so forth. But what they're saying is the
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  Speaker 6: business now they're coming in in their backlocker and they're
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  Speaker 6: bookings is from non frontier models. And that's really I
• 13:03
  Speaker 6: think one of the most important questions that we want
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  Speaker 6: to ask the company today is if they talk about
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  Speaker 6: cloud commitments, where are those cloud commitments coming in.
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  Speaker 4: Is it the three or four companies or is it
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  Speaker 4: more diversified.
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  Speaker 3: Right exactly in terms of exposure to maybe just a
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  Speaker 3: few big customers put them on I want to bring
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  Speaker 3: you back. We spent We talked so much about AWS
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  Speaker 3: and I know we do that with you as well.
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  Speaker 3: It's so important in terms of what really makes money
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  Speaker 3: for Amazon. But you think about I mean, they sell
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  Speaker 3: a lot of stuff, so many of us relate to
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  Speaker 3: Amazon as a retailer. How do they think about increasingly
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  Speaker 3: using AI to kind of juice the numbers and maybe
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  Speaker 3: improve the profitability on the retail side of things.
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  Speaker 5: Yeah, AI has been a big push on the retail side,
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  Speaker 5: and actually I think Amazon does the best better than anyone.
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  Speaker 5: When they introduced Alexa for Shopping, for example, Alexa plus,
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  Speaker 5: it's pretty clever. You know, you go to the search bar,
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  Speaker 5: you can compare pricing. You can say I'm looking for
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  Speaker 5: this item and when was it priced, and if it
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  Speaker 5: drops to that price, buy it for me. I mean,
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  Speaker 5: just that simple, and it'll show about your door. So
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  Speaker 5: I do think that they're gaining traction there. In fact
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  Speaker 5: and the release, I believe they said that interactions and
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  Speaker 5: active users doubled over second quarter just with AI adoption
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  Speaker 5: and Alexa for Shopping, So they're making momentum here. We
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  Speaker 5: do think that the investments that they make in Alexa
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  Speaker 5: for Shopping and AI will continue to not only help
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  Speaker 5: them with customer service and conversion online, but also improve
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  Speaker 5: margins on the retail side, which are slimmed to none.
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  Speaker 7: As you know, I find that data so amazing. Puma,
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  Speaker 7: I didn't know you were with us. It's so good
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  Speaker 7: to see you. By the way, every morning when I
• 14:40
  Speaker 7: wake up for Bloomberg surveillance, it's because my Eco device works,
• 14:43
  Speaker 7: I ask Alexa to set an alarm and it's very
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  Speaker 7: reliable for that, But for ages, I've been thinking, what
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  Speaker 7: am I going to use this for? The data you're
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  Speaker 7: pointing to is amazing though, Alexa for shopping right if
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  Speaker 7: their shop is on prime, use Alexa more than forty
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  Speaker 7: percent more per order if they involve the A in
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  Speaker 7: the transaction. I find that amazing. But it doesn't move
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  Speaker 7: the needle on the financials right for Amazon at the stage.
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  Speaker 5: It doesn't move the need because you have to think
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  Speaker 5: about how big Amazon is. Right, We're approaching a trillion
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  Speaker 5: dollars in GMB this year based on our estimates, so
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  Speaker 5: that's a sizeable number. So when we see these growth
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  Speaker 5: rates with the online business up fifteen percent, it's a
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  Speaker 5: big number to move. That said, I do think it
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  Speaker 5: does move the needle on conversion. I do think the
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  Speaker 5: aluxafer shopping is helping it's prime customers more notably really
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  Speaker 5: engage and purchase things even quicker because now you're just
• 15:36
  Speaker 5: talking to someone, you're talking to this agent, and you're
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  Speaker 5: setting expectations on what you want and things will just
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  Speaker 5: show up to your door. So now you don't need
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  Speaker 5: to go back and keep going back to see, okay,
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  Speaker 5: did the price drop? Is this the best price is
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  Speaker 5: this what I need. Do I need something else? It's
• 15:52
  Speaker 5: doing the work for you, So I do think over
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  Speaker 5: time that will help boost sales and really help Amazon
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  Speaker 5: continue to maintain its lead in the online world.
• 16:02
  Speaker 1: I want to throw one to add and back to
• 16:04
  Speaker 1: the technology side of things, and I want to talk
• 16:07
  Speaker 1: a little bit about the company's chips and business. We
• 16:09
  Speaker 1: got some data about annual revenue run rates on a
• 16:12
  Speaker 1: rug said he's not as interested in the AI side
• 16:16
  Speaker 1: of it.
• 16:16
  Speaker 2: He's more interested in the chip side of it. But
• 16:18
  Speaker 2: me too.
• 16:19
  Speaker 1: You know, they've got the what is it the trainum
• 16:21
  Speaker 1: Is that what they're talking about here.
• 16:22
  Speaker 7: Well, it's multifaceted. But the chips business has revenue run
• 16:27
  Speaker 7: rate twenty five billion dollars, as does the AI business.
• 16:29
  Speaker 7: It's a run rate figure, but it is amazing how
• 16:33
  Speaker 7: quickly they've kind of turned it around from the in
• 16:35
  Speaker 7: house R and D to like they got a lot
• 16:38
  Speaker 7: of questions from what's the point of trainium, like who's
• 16:40
  Speaker 7: using it? They had a lot of early success with
• 16:44
  Speaker 7: saying Athropic will use Trainium, but and throp it quickly
• 16:47
  Speaker 7: followed up with some big TPU deals twenty five billion dollars.
• 16:50
  Speaker 7: You know, for context, AMD did thirty five billion dollars
• 16:54
  Speaker 7: of revenue all told in its last fiscal year, and
• 16:57
  Speaker 7: it's likely to do fifty billion dollars this year. But
• 16:59
  Speaker 7: it's oh, they're moving pretty quickly on it, you know,
• 17:02
  Speaker 7: across those It's not them literally a bag of chips
• 17:05
  Speaker 7: here you go. You know, it's still then renting capacity
• 17:09
  Speaker 7: specifically to their own silicon, but to third party customers.
• 17:12
  Speaker 7: And like, yeah, you know, if if Google gets all
• 17:15
  Speaker 7: the credit for TPU, then should Amazon get some credit
• 17:18
  Speaker 7: for those trainium chips too?
• 17:20
  Speaker 3: Some would say, yes, we were talking about anarak. Come
• 17:23
  Speaker 3: on back, we were talking about chips with you and
• 17:25
  Speaker 3: Amazon earlier.
• 17:28
  Speaker 6: Yeah, I think that's exactly what you know Ed is
• 17:30
  Speaker 6: talking about here, because remember it's the capic side of
• 17:33
  Speaker 6: it also, that's important. First of all, if customers are
• 17:36
  Speaker 6: embracing Cranium along with Amazon Cloud, I mean, it's really
• 17:39
  Speaker 6: good for them because guess what, they get to keep
• 17:42
  Speaker 6: a lot of that gross margin that they don't have
• 17:44
  Speaker 6: to pay in video for those ships.
• 17:46
  Speaker 4: So I think sooner or later, the game.
• 17:49
  Speaker 6: The big game in this case is going to be
• 17:52
  Speaker 6: who has the lowest you know cost per token within
• 17:56
  Speaker 6: the all the hyperskailled cloud providers, and that's where Google
• 17:59
  Speaker 6: and amaz z On may have a lego verted our
• 18:01
  Speaker 6: Microsoft
• 18:06
  Speaker 4: M mm hmm