AMAZON COM INC Q2 2025 earnings call

Hello, and welcome to our Q2 2025 Financial Results Conference Call. Joining us today to answer your questions is Andy Jassy, our CEO, and Brian Olsavsky, our CFO. As you listen to today's conference call, we encourage you to have a 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 2024. Our comments and responses to your questions reflect management's views as of today, July 31, 2025 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 and geopolitical conditions, tariff and trade policies, and customer demand and spending, including the impact of recessionary fears, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, and the various factors detailed in our filings with the SEC.

Our guidance assumes, among other things, that we don't conclude any additional business acquisitions, 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. I'll turn the call over to Andy.

Thanks, Dave. Today we're reporting $167.7 billion in revenue, up 12% year over year, excluding the impact from foreign exchange rates. Operating income was $19.2 billion, up 31% year over year, and trailing 12-month free cash flow was $18.2 billion. We saw good progress across our various customer experiences and businesses this past quarter. Starting with stores, we feel good about both the inputs and outputs of the business. At Amazon, we think of our business in terms of inputs and outputs. Outputs are metrics like revenue or operating margin, but of course, you can't manage at the output level. It's the inputs that drive the outputs, so we spend virtually all of our time internally talking about and goaling against inputs. The inputs that matter most to customers in our stores business are selection, low prices, and speed of delivery.

We've taken another step forward in selection these past few months, headlined by the much-requested return of Nike's products to Amazon's retail store. We've added premium brands like Away, Aveda, Marc Jacobs, fragrances, and brands from Saks on Amazon like Dolce & Gabbana, Etro, Stella McCartney, Roksanda, and La Prairie. We started expanding our very successful perishables pilot, where we offer customers perishables at the point of purchase when they're ordering other items that will be delivered same day from our same-day fulfillment nodes. We're seeing strong customer adoption, as 75% of customers who've used the service this year are first-time shoppers for perishables on Amazon, with 20% of customers who use the service returning multiple times within their first month. Our prices continue to be low and sharp for customers.

It's one of the reasons our everyday essentials growth outpaced the rest of the business globally and represented one out of every three units sold. It's also why well-known research firm Profitero has concluded for eight years in a row that Amazon has the lowest prices of any U.S. retailer. Perhaps the clearest outputs are the rate at which our stores business grew this past quarter and the success we saw in our recent Prime Day event. This year's Prime Day was our biggest ever, with record sales, number of items sold, and number of Prime sign-ups in the three weeks leading up to the Prime Day. Customers saved billions of dollars, and independent sellers, most of which are small and medium-sized businesses, saw their best sales performance of any Prime Day event yet.

There continues to be a lot of noise about the impact that tariffs will have on retail prices and consumption. Much of it thus far has been wrong and misreported. As we said before, it's impossible to know what will happen. Where will tariffs finally settle, especially China? What happens when we deplete the inventory we forward bought or that our selling partners forward deployed in advance of the tariffs going into effect? If costs end up being higher, who will absorb them? What we can share is what we've seen thus far, which is that through the first half of the year, we haven't yet seen diminishing demand nor prices meaningfully appreciating.

We also have such diversity of sellers in our marketplace, over 2 million sellers in total, with differing strategies of whether to pass on higher costs to consumers, that customers are advantaged shopping at Amazon because they're more likely to find lower prices on the items they care about. Further improving delivery speed remains a key focus, and we continue to make progress. We've previously shared how we re-architect our U.S. inbound network into a regional structure, allowing us to place inventory and ship from locations closer to customers, improving speed and lowering costs. That work is delivering tangible results. In Q2, we've increased the share of orders moving through direct lanes, where packages go straight from fulfillment to delivery without extra stops, by over 40% year over year. We've also reduced the average distance packages traveled by 12% and lowered handling touches per unit by nearly 15%.

We've made progress on order consolidation. With more products positioned locally, we're able to pack more items into each box and send fewer packages per order. That has helped drive higher units per box and improved overall cost to serve. Taken together, these improvements are making the network faster and structurally more efficient. We've also set another global speed record in Q2, delivering to Prime members at our fastest speeds ever. In the U.S., we delivered 30% more items same day or next day than during the same period last year. Items customers used to pick up locally in nearby physical stores are now arriving at their door, often within hours. We're working to further improve delivery speeds no matter where customers live. We've recently announced plans to expand our same-day and next-day delivery to tens of millions of U.S.

customers in more than 4,000 smaller cities, towns, and rural communities by the end of the year. Today, it's already available in more than 1,000 of these communities across the U.S. The early response from customers in these areas has been very positive. They're shopping more frequently and purchasing household essentials at meaningfully higher rates. Automation and robotics are also important contributors to improving cost efficiencies and driving better customer experiences over time. We deployed our one millionth robot across our global fulfillment network and unveiled innovations at our last-mile innovation center, such as automated package sorting and a transformative technology that brings packages directly to employees at an ergonomic height. We rolled out DeepFleet, our AI that improves robot travel efficiency by 10%. At our scale, that's a big deal.

DeepFleet acts like a traffic management system to coordinate robots' movements to find optimal paths and reduce bottlenecks. For customers, it means faster delivery times and lower costs. For our team members, our robots handle more of the physically demanding tasks, making our operations network even safer. This combination of robotics and generative AI is just getting started, and while we've made significant progress, it's still early with respect to what we'll roll out in the next few years. Moving on to Amazon Ads, we're pleased with the strong growth, generating $15.7 billion of revenue in the quarter, growing 22% year over year. We continue to see strength across our broad portfolio of full-funnel advertising offerings that, in the U.S. alone, help advertisers reach an average ad-supported audience of more than 300 million across our own properties.

These are properties like our retail marketplace, Prime Video, Twitch, and Fire TV, in live sports such as NFL, NASCAR, and the NBA, as well as third-party websites and apps. Another area we're excited about is our demand-side platform, or Amazon DSP. Our DSP enables advertisers to plan, activate, and measure full-funnel investments. Our trillions of proprietary browsing, shopping, and streaming signals, paired with extensive supply-side relationships and our secure clean rooms, provide advertisers the ability to optimize advertising, deliver greater precision, and drive efficient and effective advertising outcomes. In June, we announced a momentous partnership with Roku, giving advertisers access to 80 million connected TV households, the largest authenticated connected TV footprint in the U.S., exclusively through Amazon DSP. It's a giant leap forward for advertisers, bringing best-in-class planning, audience precision, and performance to TV advertising.

We also announced an integration between Disney's real-time ad exchange and Amazon DSP. This collaboration allows advertisers to gain direct access to Disney's premium inventory across platforms like Disney+, ESPN, and Hulu, while allowing them to leverage insights from both companies. When advertisers work with Amazon, they're not just buying ad space. They're benefiting from exceptional programming, innovative technology, and unrivaled signals, measurement, and audience development that provide strong relevancy for consumers and return on investment for brands. Moving on to AWS. In Q2, AWS grew 17.5% year over year and now has over a $123 billion annualized revenue run rate. We continue to help organizations of all sizes accelerate their transition to the cloud, signing new agreements with companies including PepsiCo, Airbnb, Peloton, Nasdaq, London Stock Exchange, Nissan Motor, GitLab, SAP, Warner Bros. Discovery, Twelve Labs, FICO, Iberia Airlines, SK Telecom, and NatWest.

In the rapidly evolving world of generative AI, AWS continues to build a large, fast-growing, triple-digit year-over-year percentage, multi-billion-dollar business with more demand than we have supply for at the moment. A few points to make. First, on the hardware side, our custom AI chip, Trainium2, is landing capacity in larger quantities and has impressively emerged as the backbone for Anthropic's newest generation Claude models and many of our most essential offerings like Amazon Bedrock. We've also launched Amazon EC2 instances powered by NVIDIA Grace Blackwell Superchips, AWS's most powerful NVIDIA GPU-accelerated instance. Second, in Bedrock, we've recently added Anthropic's Claude 4, and it's the fastest-growing model ever in Bedrock. We've also continued to see strong adoption of Amazon Nova, our own frontier model, and it's now the second most popular foundation model in Bedrock.

New features in Nova allow customers to customize their Nova models in ways they can't on other foundation models, allowing organizations to infuse these models with their unique expertise while optimizing for cost and speed. As people have become excited about building agents, they're realizing they lack the tools to build them. In May, we released Strands, an open-source way to more easily build agents that's taken off with a wide range of customers with already 2,500 stars on GitHub and over 300,000 downloads on PyPI. Customers are also struggling with deploying agents into production in a secure and scalable way. It's holding up enterprises' scaling agents. To help solve that problem, Bedrock just released AgentCore.

Thanks, Andy. Let's start with our top-line financial results. Worldwide revenue was $167.7 billion, a 12% increase year over year, excluding the impact of foreign exchange. Foreign exchange had a $1.5 billion favorable impact to revenue in the quarter as foreign currencies generally strengthened versus the U.S. dollar. As a reminder, our Q2 revenue guidance had anticipated an unfavorable impact of approximately 10 basis points or $100 million.

Worldwide operating income was $19.2 billion, which was $1.7 billion above the high end of our guidance range. Across our segments, we continue to prioritize cost-effective innovation that delivers value for our customers. In the North America segment, second-quarter revenue was $100.1 billion, an increase of 11% year over year. International segment revenue was $36.8 billion, an increase of 11% year over year, excluding the impact of foreign exchange. Worldwide paid units grew 12% year over year. We remain focused on inputs that matter most to our customers. In the second quarter, we saw broad-based strength across our key performance metrics. This includes sharp pricing and more in-stock availability, as well as record delivery speeds for Prime members. Our millions of global sellers continue to be an important contributor to our vast selection. This helps customers find the items they need and does so at a competitive price.

Our investment in tools, services, and fast delivery speeds help our selling partners reach more customers and further scale their businesses. In Q2, worldwide third-party seller unit mix was 62%, the highest ever, up 100 basis points from Q2 of last year. We are also closely monitoring the macroeconomic environment, including the impact of tariffs. As Andy mentioned, our Q2 plan factored in a range of assumptions, not all of which materialized. We will continue to consider a range of assumptions going forward. Shifting to profitability, North America segment operating income was $7.5 billion, an increase of $2.5 billion year on year. North America operating margin was 7.5%, up 190 basis points year over year. International segment operating income was $1.5 billion, up $1.2 billion year over year. International operating margin was 4.1%, up 320 basis points year over year.

We're pleased with the strong execution of our operations teams and the positive experience they delivered for customers. In Q2, we saw productivity gains in our transportation network, driven by improved inventory placement, strong leverage on high unit volumes, and higher levels of in-demand inventory from both first-party and third-party selling partners. These factors contributed to faster delivery speeds and lower costs. Outbound shipping costs were up 6% year over year and continue to grow at a meaningfully slower pace than unit growth, which, as I mentioned earlier, was up 12% year over year. We're committed to initiatives that further improve our cost structure. Strategic inventory placement drives multiple benefits, including better in-stock availability, shorter delivery routes, and faster customer delivery times. When we optimize inventory location, we can consolidate more items per package, reducing packaging materials and costs.

To achieve this, we will continue to improve upon our inbound network, expand our U.S. same-day delivery facilities, including in rural communities, and implement robotics and automation across our facilities. While year-over-year improvements in operating margin may fluctuate, we have a purposeful strategy to achieve sustained progress over time. Shifting to advertising, advertising revenue grew 22% year over year, driven by sponsored products as we saw strong traffic in our stores. Advertising remains an important contributor to profitability in the North American international segments. Our full-funnel advertising approach of connecting brands with customers is resonating. Moving next to our AWS segment, revenue was $30.9 billion, an increase of 17.5% year over year. AWS now has an annualized revenue run rate of more than $123 billion.

During the second quarter, we continue to see growth in both our generative AI and non-generative AI businesses as companies turn their attention to newer initiatives, bring more workloads to the cloud, restart or accelerate existing migrations from on-premise to the cloud, and tap into the power of generative AI. AWS operating income was $10.2 billion. We did see AWS segment margins decline from a record high of 39.5% in Q1 to 32.9% in Q2. The largest quarter-over-quarter driver of the decrease, or about half, is due to the seasonal step-up in stock-based compensation expense, driven by the timing of our annual compensation cycle. AWS margins also saw headwinds from higher depreciation expense, as well as unfavorable impacts from year-over-year fluctuations in foreign exchange rates. The depreciation expense is a result of our growing investments in capital expenditures in AWS.

As we've said in the past, we expect AWS operating margins to fluctuate over time, driven in part by the level of investments we are making at any point in time. We will continue to invest more capital in chips, data centers, and power to pursue this unusually large opportunity that we have in generative AI. Now turning to our cash CapEx, which was $31.4 billion in Q2. We expect Q2 CapEx to be reasonably representative of our quarterly capital investment rate for the back half of this year. AWS continues to be the primary driver as we invest to support demand for our AI services and increasingly in custom silicon like Trainium, as well as tech infrastructure to support our North America and international segments.

Additionally, we continue to invest in our fulfillment and transportation network to support growth of the business, improve delivery speeds, and lower our cost to serve by investing in same-day delivery facilities, as well as robotics and automation. Collectively, these investments will support growth for many years to come. Moving on to our third-quarter financial guidance. As a reminder, our guidance considers a range of possibilities, which take into consideration Q2 results, trends we see quarter to date, and expectations around the macroeconomic environment, including tariffs. Q3 net sales are expected to be between $174 billion and $179.5 billion. We estimate the year-over-year impact of changes in foreign exchange rates based on current rates, which we expect to be a favorable impact of approximately 130 basis points. As a reminder, global currencies can fluctuate during the quarter. Q3 operating income is expected to be between $15.5 billion and $20.5 billion.

In this dynamic environment, we will focus on what matters most: delivering exceptional customer value through broad selection, competitive prices, and unmatched convenience. We will remain focused on driving a better customer experience and believe putting customers first is the only reliable way to create lasting value for our shareholders. With that, let's move on to your questions.