Thank you for standing by. Good day, everyone, and welcome to the Amazon.com Q1 2021 Financial Results Teleconference. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Today's call is being recorded. For opening remarks, I will be turning the call over to Director of Investor Relations, Mr. Dave Fildes. Please go ahead.

Hello, and welcome to our Q1 2021 financial results conference call. Joining us today to answer your questions is Brian Olsavsky, our CFO. As you listen to today's conference call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2020. Our comments and responses to your questions reflect management's views as of today, April 29, 2021, only, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings. During this call, we may discuss certain non-GAAP financial measures. In our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our IR website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Our guidance incorporates the order trends that we've seen to date and what we believe today to be appropriate assumptions. Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic conditions and customer spending, world events, the rate of growth of the Internet, online commerce and cloud services, and the various factors detailed in our filings with the SEC. This guidance also reflects our estimates to date regarding the impact of the COVID-19 pandemic on our operations, including those discussed in our filings with the SEC, and is highly dependent on numerous factors that we may not be able to predict or control, including: the duration and scope of the pandemic, including any recurrence; actions taken by governments, businesses and individuals in response to the pandemic; the impact of the pandemic on global and regional economies and economic activity; workforce staffing and productivity; and our significant and continuing spending on employee safety measures; our ability to continue operations in affected areas; and consumer demand and spending patterns as well as the effects on suppliers, creditors and third-party sellers, all of which are uncertain. Our guidance also assumes, among other things, that we don't conclude any additional business acquisitions, investments, restructurings or legal settlements. It's not possible to accurately predict demand for our goods and services, and therefore, our actual results could differ materially from our guidance. And now, I'll turn the call over to Brian.

Thank you for joining us today. Before we get to Q&A, I will touch upon a few highlights from the first quarter of the year. Let me start by highlighting the momentum we are seeing in AWS. In the first quarter, AWS revenue growth accelerated across a broad range of customers. During COVID, we've seen many enterprises decide that they no longer want to manage their own technology infrastructure. They see that partnering with AWS and moving to the cloud gives them better cost, better capability and better speed of innovation. We expect this trend to continue as we move into the post-pandemic recovery. There's significant momentum around the world, including broad and deep engagement across major industries. For example, last quarter, we announced new commitments and migrations from some of the world's most renowned sports leagues, the National Hockey League, the PGA Tour, Formula 1 and the German Bundesliga. We continue to expand our AWS infrastructure footprint to support the strong growth we're seeing. AWS offers 80 availability zones across 25 geographic regions around the world. And we've announced plans to launch 15 more availability zones in five more regions. Turning to the consumer business, we continue to see strong customer demand globally in the first quarter. Revenue growth in our international segment grew 50% on an FX-neutral basis year-over-year in Q1 as restrictive regional and national lockdowns were in place throughout the quarter, particularly in the UK and Europe. In North America, revenue growth of 39%, largely reflects the continuation of demand trends that we have seen since the early months of the pandemic. Third-party sellers were largely comprised of small- and medium-sized businesses, and they continue to see strong sales and serve more customers. Our third-party seller services revenue increased 60% on an FX-neutral basis year-over-year in the first quarter, growing significantly faster than online stores revenue. Third-party units represented 55% of our total paid units in Q1, up from 52% in Q1 of last year. Prime members also continue to shop with greater frequency and across more categories than before the pandemic. These trends have also extended to Prime's digital benefits. Over the past 12 months, Prime Video streaming hours were up over 70% year-over-year. Amazon Studio had its best award season yet, and Prime members can look forward to a strong slate of upcoming original series and films featuring an impressive group of diverse talent and creators. We're also continuing to expand our roster of live sports content, and we're excited to partner with the NFL and be the exclusive home of NFL Thursday Night Football into the next decade. Twitch is also seeing great momentum. Hours watched on Twitch nearly doubled year-over-year in the first quarter, and we now average more than 35 million daily visitors. Another popular benefit of Prime membership is Prime Day, and we are excited to announce that we will hold the two-day savings event during the second quarter. Prime Day is also a great opportunity for our selling partners to reach more customers, and we will make supporting small businesses a big focus again this year. We'll have more to share on Prime Day, including the event dates a bit later this quarter. We continue to prioritize the safety and well-being of our employees. In the U.S., Amazon has held on-site vaccination events in 29 states, reaching more than 300,000 frontline employees and contractors. We are watching events closely in Europe and in particular, India, where we have put in place employee initiatives, from medical health lines, teleconsulting, hotel rooms for quarantining and financial support, as well as donating 100 ICU ventilator units to local hospitals. We'll continue to invest in the health and safety of our employees and delivery partners, particularly in our global fulfillment and logistics operations. And finally, to summarize our financial results. Total revenue of $108.5 billion came in above the guidance range of $100 billion to $106 billion. In addition to our strong segment results, advertising revenue within the North America and international segments also accelerated during the quarter. The leverage we are seeing on this higher revenue, combined with strong operational performance led to higher operating income as well. Operating income of $8.9 billion in Q1 was above our guidance range of $3 billion to $6.5 billion. We incurred a little less than the $2 billion in COVID-19-related operating costs that we had projected in the first quarter. We continue to incur these costs across our global fulfillment network as we maintain social distancing measures, which impacts our productivity, and as we make direct investments in employee safety. Looking ahead, we expect to incur approximately $1.5 billion in COVID-19-related operating costs in the second quarter. Lastly, I'd like to congratulate and thank our employees for making Amazon #1 in the U.S. on LinkedIn's 2021 top companies ranking, an annual list identifying the most sought-after places to work. We appreciate the customer obsession and passion for innovation from teams across the company to make Amazon a great place to work. With that, let's move on to Q&A.

Thank you. We will now open the call for questions. Our first question is coming from Ross Sandler with Barclays. Please proceed with your question.

Great. Thanks, Brian. A question on last-mile delivery. So you guys are investing pretty aggressively to build out that Amazon-controlled last-mile fulfillment. We see the blue vans driving around everywhere in the Bay Area, so congrats on that. So I guess the question is, how long until you feel like if that's in the right place as far as all your major metros where you want to set that up? And at what stage does the unit cost of shipping start to improve from these initiatives? And I guess, high level, is controlling the last mile allowing you to further penetrate or gain market share in certain categories where speedy delivery is of the essence? Can you talk about that, please? Thank you.

Ross, thanks for your questions. Yes, let me start with last mile in general. So we're investing heavily. We talked about it last year, our fulfillment, including Amazon Logistics investment, we increased our capacity by 50%. And you can see from our CapEx numbers, the CapEx, including infrastructure, of course, increased to 80% in the trailing 12 months over the prior trailing 12 months. So certainly, a large area of investment, not only in fulfillment centers but also two elements of transportation, what we call the middle mile, where we're putting sort centers, Amazon Air, line haul, trailers, think of all the intermediate movements between our warehouses and our final delivery stations. And then that last mile was just delivery stations, DSP and seeing our delivery service partners as well. So you talked about costs. We actually think our cost right now is very competitive with our external options, and we measure that very closely. It certainly gets better with demand and amortization and route density, et cetera. But we see, which is very helpful, is the ability to control the whole flow of products from the warehouse to the end customer. It would normally be a batch process where we would hand off a large batch of orders to a third-party once a day, let's say, to a continuous flow process, where we continually have orders leaving our warehouses five, six times a day going through middle mile and then to final delivery, either through our AMZL drivers or DSP partners. So that gives us a lot of ability not only to control the flow of the product but also the flow of information. We're seeing a lot of progress in that area. And I think you'll see it, too, as a customer where you're starting to get more precise estimates of delivery. You'll get notes that say, hey, you're eight stops away from your delivery, et cetera. Because everyone's busy. A big part of delivery is actually being there sometimes when you need to get there for the delivery. Other times, of course, you can just have it put on your doorstep and get to it later. But we see a lot of benefit from that. We also see that there's a lot of cutoff times that we can extend, again, because we pretty much have perfect information between the order placement allocation to warehouses where we're going to pick and box up the product and send it on its way. So lots of advantages. We are continuing to invest, and we'll see a large investment in this area through 2021 as well. We do think that it may also spill to 2022. That should set us up in really good stead with our capacity. And already, the majority of our units are going through AMZL today.

This is Dave, Ross. I want to emphasize an important aspect of our last-mile effort, which is the delivery services partner program. This program plays a crucial role in our last-mile network and employs over 100,000 drivers, seeing consistent growth in recent years. It provides a pathway for individuals to become small business owners and launch their own package delivery ventures. This initiative allows them to leverage our delivery technology and package volumes while integrating into our network. Additionally, we have various supportive elements within this program, including grant initiatives aimed at assisting entrepreneurs and minority groups, which fosters a diverse business community.

Your next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.

Good afternoon. On AWS, I'm curious if you could give us a backlog number. And there have been a lot of questions about the incredible backlog strength you've seen in the last several quarters, and it finally seems that you're seeing the conversions between that backlog growth and now revenue growth accelerating. If you could just comment a little more on that conversion and how you expect it to trend? Thank you.

Yes, it's Dave. As of March 31, our backlog growth stands at $52.9 billion. The average remaining life is just over three years, consistent with what we've experienced in recent quarters and reflecting a 55% increase. We're very pleased with this strong performance. Alongside the backlog figures, we're also witnessing significant revenue growth and momentum, which is a testament to the hard work, innovation, and collaboration of our teams. Customers are continuing to make long-term commitments, indicating their trust in us. This reflects the relationships we've built with numerous companies that feel increasingly confident in their engagement with us. As we enhance our offerings and deliver more value, these partnerships are expected to flourish over multiple years.

Your next question comes from the line of Youssef Squali with Truist Securities. Please proceed with your question.

Thank you very much. Maybe just a two-part question. First, Brian, you touch upon this a little bit in your prepared remarks about the acceleration in international growth. Can you maybe just speak to the drivers there? And in particular, in markets where COVID is no longer a major issue, have you seen any particular declines or maybe just slow down in e-commerce demand or a decline in growth? It seems like they're going in different directions in Europe. For instance, it seems like a lot of these markets are still very much under lockdown, yet your international business has grown pretty significantly. I don't know if there is a positive or negative correlation. Thanks.

Thanks, Youssef. We're experiencing strong performance across the international segment, although it varies by country. On an FX-neutral basis, we grew 50% in this quarter and also 50% last quarter, partly because Prime Day was in Q4 this year. When comparing growth rates before and after COVID, the international segment has tripled its prior revenue growth rate. We're pleased to have demonstrated our value to customers, not just through our shipping capabilities during the pandemic, but also with the strong performance of our digital offerings, including video, music, and devices. We're actively investing in international markets and enhancing Prime benefits. It's encouraging to see the underlying consumer shipping business grow, with healthy and increasing engagement. I don't currently see any downside, and the growth has been a bit surprising; I wouldn't have anticipated 50% growth in Q1. Our operations team managed the increased volume in Q1 very efficiently, keeping costs controlled and leveraging our fixed assets effectively, particularly our fulfillment centers and transportation resources.

This is Dave. While these aren't major contributors to the growth numbers Brian mentioned, we are continuing to expand into new regions alongside our efforts in existing markets. For instance, Poland launched in March, and Sweden opened in the last quarter of last year. In Turkey, where we've had a presence for a few years, we introduced Prime in the latter half of last year. The teams are putting in significant effort and thought to take what we've learned in these various regions and enhance our local presence, maximizing everything we've learned from Prime and the overall consumer experience.

Your next question comes from the line of Ed Yruma with KeyBanc Capital Markets.

You clearly gained some market share in delivery and grocery during the pandemic. I'm curious about consumer behavior since then; is it holding steady? Also, could you talk about the overall performance of fresh stores in the grocery sector?

Certainly. Grocery has been a significant area of growth during the post-pandemic period. People highly appreciate the convenience of home delivery, and we have observed a notable increase in demand before and after the pandemic. We have also worked diligently to enhance our delivery capacity during this time. In the United States, we are delivering from our Whole Foods locations, and we plan to expand pickup options at these stores. Amazon Fresh became a no-cost benefit for Prime members in late 2019, and customer uptake has been strong, with ongoing growth. Regarding the fresh stores, it may still be too early to assess their performance. We are optimistic that the Just Walk Out technology will greatly benefit customers, and we are excited about future developments, but we are still in the early stages.

Yes. We currently have about 12 fresh stores that are open and operational, and we have confirmed more locations coming in Southern California, Illinois, New Jersey, and in the Seattle area. As Brian mentioned, we are very pleased with the start, the technology, and the customer feedback so far.

Your next question comes from the line of John Blackledge with Cowen.

Great. Two questions. The 2Q revenue guide range was strong, despite the initial pandemic comps. Could you just discuss demand levels you're seeing on the e-commerce side, and just other key drivers of strong expected revenue growth in the second quarter? And then on the advertising business, if you can just talk about some of the key drivers of the acceleration? I think it feels like it's maybe the third quarter in a row of acceleration. So what's kind of driving that? And how should we think about the trajectory for the business as we round through the year?

Sure, John. Let me start with your second question on advertising. So certainly, traffic has been a large driver of what we're seeing in the advertising space. But it discounts kind of the improvement that we're also seeing, relevancy and new products that the team is rolling out, that the customers also enjoy. So I think the advertising team's done a great job of turning clicks into productive sales, and the advertising that results is valuable to us as well. We're using new deep learning models to show more relevant sponsored products. We continue to improve the relevancy of the ads being shown on the product detail pages. And we've seen rapid adoption of the video creative format for sponsored brands, among other things. So you're seeing a little bit more than just traffic. And again, we're very pleased with the performance of that team and of the receptiveness of our customers, our vendors, our authors, and sellers to our advertising products. We think it's also very valuable for consumers as well, helping them find things more easily and discover new brands. On Q2 guidance, yes, I would say we are projecting, again, continued strength across all of our segments. I will remind you that Prime Day has been scheduled for later in Q2, and we'll have more on that as the quarter unfolds.

Your next question comes from the line of Doug Anmuth with JPMorgan.

Just wanted to follow up there on Prime Day, Brian. Can you tell us at all just in terms of quantifying or just how you're thinking about the contribution within that 2Q guidance? And then also just on the rationale for timing, given historically in 3Q, we moved to 4Q last year and then now in 2Q. And then hoping you could also just talk about the Thursday Night Football deal, the strategy there, how that drives engagement and strengthens the ecosystem and also what it needs for ad dollars for you.

First on Prime Day, we are not quantifying its size, but there are some good estimates out there that you can utilize. I can say it's included in our guidance. Regarding the timing, last year we planned to hold Prime Day earlier. There are several factors this year, such as the Olympics and the fact that July is a significant vacation month in many regions. Therefore, it might be beneficial for customers, sellers, and vendors to try a different time period. We previously experimented by moving it to October in 2020, but we believe later in Q2 might be better timing, so that's what we are testing this year. As for Thursday Night Football, I'm not sure I can currently quantify the advertising opportunity, but we are excited to have exclusive content for Thursday Night Football. We have broadcasted this for several years, sharing the responsibility with other partners. We believe we can create new and innovative experiences with those games and the NFL, and we are looking forward to starting that in earnest.

Your next question comes from the line of Justin Post with Bank of America.

Two questions. First on the AWS acceleration, was that at all related to transaction volumes coming back for maybe more cyclical sectors? And could 2Q see even more of that? And then secondly, I think in your release, you talked about 175 million Prime members watching video. It's about 7 of 8 users. So just wondering what you see as the effect on your retail business from that? Any updates you could provide on content spending? And how you think about Prime Video as a driver for overall Amazon.

Let me begin with the AWS acceleration. We are not focusing on any specific customer group, as we are observing significant usage and growth across various industries and customer types, ranging from startups to large enterprises. For some perspective, in the first quarter of 2019, our annualized run rate was $31 billion. By last year, we had raised it to a $41 billion run rate, reflecting a 32% increase. This year, we have reached a $54 billion run rate, which also shows a 32% year-over-year growth, but it represents an addition of $13 billion in revenue over the last 12 months, compared to $10 billion in the previous 12 months. The percentages might seem misleading, so I suggest considering the absolute dollar growth, even though both figures were strong this quarter. We are witnessing solid performance across the board and have strong confidence in the benefits we provide to AWS customers, including enhanced functionality and a vibrant partner ecosystem. Additionally, we offer reduced downtime and improved security, which is increasingly important to our customers, especially regarding security today. That summarizes our AWS performance. Now, Dave, could you take it from here?

Yes. Regarding our strategy, there's not much that is new or surprising, but to emphasize, we see Prime Video as a key part of the overall Prime membership, helping to drive both adoption and retention. It serves as an important acquisition channel in Prime markets. We have observed that members who watch video tend to have higher conversion rates from free trials, higher renewal rates, and greater overall engagement. For instance, Brazil is a great example where we introduced a video-only subscription before launching the wider Prime membership, which includes shipping services. This served as an effective way to introduce people to Amazon. As we rolled out the full Prime experience in Brazil, it became a successful strategy to attract more members. There are many similar experiences to draw from. As Jeff's quote suggests, many more people are enjoying Prime Video. Furthermore, our studios team has done an excellent job in creating a welcoming environment for talent, attracting a diverse range of artists and filmmakers. This has been recognized both critically and in viewership, showing positive momentum. In terms of spending, we plan to continue increasing our investment in this area and beyond original content. Brian mentioned exciting opportunities in live sports that are also part of this growth. Overall, there is a lot of enthusiasm moving forward.

Our final question comes from Brian Nowak with Morgan Stanley.

I have two. Brian, I wanted to ask you one high level one. You guys have done such a great job building out your network and sort of providing consumers with access to so many categories of goods. Give us a couple of examples of areas where you see room for improvement? What areas are you most focused on when you look across all the categories, delivery experience, the countries to invest in and innovate, to really improve the consumer offering? That's one. And then secondly, can you just talk to us about sort of what you've learned about the Echo journey, areas where you've had success, and still existing opportunities for Echo to have a larger installed base and just more of an impact on the ecosystem.

Sure. Thanks, Brian, for your questions. There's always a lot of areas that we're working to improve upon. I think generally, the speed of innovation is very quick at Amazon, but we always want it to be quicker. And we always want it to be globally consistent, and we want to take the best practices from one country to make sure we're doing it the same way everywhere. I think currently on our list right now is that we are in the process of getting our one-day shipment percentages back up to where they were pre-pandemic. We're there in Europe, and we're starting to see in Europe not only strong one-day but also broader same-day selection, so they tend to go hand-in-hand. In the U.S., we've made improvements or are consistently getting better. I would say the end delivery is really a function of everything before it and how well we can handle and process in a timely manner all the orders in North America. It's been challenged by the volumes, but it's also been challenged by the rapid expansion of space. But we're making progress nonetheless, and we hope to get that even higher in 2021. We're very excited about the adoption of our Prime benefits pretty much across the board, especially with the digital benefits. We are looking forward to some new content, even though we're very happy with the performance, with the studios business and the content and awards that they were nominated for and were able to garner this year. We have some big things on the horizon, including Lord of the Rings, and we're very excited about getting that type of content to our Prime members quicker.

Yes, Brian. Regarding your question about Echo, I want to discuss Alexa and our devices more broadly. Our ongoing goal is to make our customers' lives easier and more convenient. We aim to offer more hardware options and enhance Alexa's intelligence with new features. As we've mentioned before, leveraging advancements in AI and machine learning is crucial, and we aim to provide tools that enable developers and third-party manufacturers to create devices compatible with Alexa. We've noticed significant progress in smart home features through collaboration with these manufacturers. It's important for us to maintain high standards in technology, especially in speech recognition and intelligence. Customers have increasing expectations for Alexa's capabilities, which is a positive development. Over the past year, customer usage patterns have highlighted how users turn to Alexa for staying connected with loved ones during times of isolation. Many are utilizing Alexa to support their health, whether through health tips, fitness apps, or by accessing Fire TV for information. Customers also use our devices and Alexa-enabled services for educational purposes and entertainment, particularly when they are homebound. These examples demonstrate substantial utility, encouraging our teams to work even harder to meet customer needs. Thanks for joining us today on the call and for your questions. A replay will be available on our Investor Relations website for at least 3 months. We appreciate your interest in Amazon, and we look forward to talking with you again next quarter.