AMAZON COM INC Q3 2025 earnings call

Hello, and welcome to our Q3 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, October 30th, 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. Now I'll turn the call over to Andy.

Thanks, Dave. We saw strong growth across our business in Q3, and we're reporting $180.2 billion in revenue, up 12% year-over-year, excluding the impact from foreign exchange rates. Operating income was $17.4 billion, but would have been over $21 billion if not for two special Q3 expenses: $2.5 billion for an FTC settlement and $1.8 billion for estimated severance costs. Trailing 12-month free cash flow was $14.8 billion. I'll start with AWS. AWS is growing at a pace we haven't seen since 2022, re-accelerating to 20.2% year-over-year, our largest growth rate in 11 quarters. It's worth remembering that year-over-year % growth is a relative term. It's very different having 20% year-over-year growth on a $132 billion annualized run rate than to have a higher % growth rate on a meaningfully smaller annual revenue, which is the case with our competitors.

Backlog grew to $200 billion by Q3 quarter end and doesn't include several unannounced new deals in October, which together are more than our total deal volume for all of Q3. AWS is gaining momentum. Customers want to be running their core and AI workloads in AWS, given its stronger functionality, security, and operational performance. The scale I see in front of us gives me significant confidence in what lies ahead. I'll share a little more detail on why. It starts with AWS having much broader infrastructure functionality. Startups, enterprises, and governments want to move their production workloads to the place that has the broadest and deepest array of capabilities. AWS has more services and deeper features within those services than anybody else and continues to innovate at a rapid clip.

These are key building blocks for anything that customers want to create, and they're a big part of why Gartner has named AWS leader in its strategic cloud platform services, Magic Quadrant, for 15 consecutive years. We're bringing the same building block approach to AI. SageMaker makes it much simpler for companies to build and deploy their own foundation models. Bedrock gives customers leading selection of foundation models and superior price performance to deploy inference into their next-generation applications. A lot of the future value companies will get from AI will be in the form of agents. AWS is heavily investing in this area and well-positioned to be a leader. Companies will both create their own agents and use agents from other companies. For those building their own, it's been harder to build than it should be.

It's why we launched Strands to make it much easier to create agents from any foundation model that builders desire. For companies who've successfully built agents, they've hesitated putting them into production because they lack secure, scalable runtime services, or memory or observability built specifically for agents. It's why we launched AgentCore, a set of infrastructure building blocks that allow builders to deploy secure, scalable agents. Ericsson used AgentCore to deliver AI agents across their workforce. Sony used it to build an agentic AI platform with enterprise-level security, observability, and scalability. Cohere Health is using AgentCore to deploy agents that will reduce medical review times by up to 30%-40%. AgentCore's SDK has already been downloaded over a million times, and our builders are excited about it. It's an enabler.

Companies will also use others' agents, and AWS continues to build many of the agents we believe builders will use in the future. For coding, we've recently opened up our agentic coding IDE called Kiro. More than 100,000 developers jumped into Kiro in just the first few days of preview, and that number has more than doubled since. It's processed trillions of tokens thus far, weekly actives are growing fast, and developers love its unique spec and tool calling capabilities. For migration and transformation, we offer an agent called Transform. Year to date, customers have already used it to save 700,000 hours of manual effort, the equivalent of 335 developer years of work. For example, Thomson Reuters used it to transform 1.5 million lines of code per month, moving from Windows to open-source alternatives and completing tasks four times faster than with other migration tools.

Customers have also already used Transform to analyze nearly a billion lines of mainframe code as they move mainframe applications to the cloud. For business customers, we've recently launched Quick Suite to bring a consumer AI-like experience to work, making it easy to find insights, conduct deep research, automate tasks, visualize data, and take actions. We've already seen users turn months-long projects into days, get 80%+ time savings on complex tasks, and realize 90%+ cost savings. For contact centers, we offer Amazon Connect, which creates a more personalized and efficient experience for contact center agents, managers, and their customers. Connect has recently crested a $1 billion annualized revenue run rate, with 12 billion minutes of customer interactions being handled by AI in the last year and is being used by large enterprises like Capital One, Toyota, American Airlines, and Ryanair.

These are real, practical results for customers, and there are many more examples like them. Because of its advantaged capabilities, security, operational performance, and customer focus, AWS continues to earn most of the big enterprise and government transformations to the cloud. As a result, AWS is where the preponderance of companies' data and workloads reside and part of why most companies want to run AI in AWS. To enable customers to do so, we need to have the requisite capacity, and we've been focused on accelerating capacity the last several months, adding more than 3.8 GW of power in the past 12 months, more than any other cloud provider. To put that into perspective, we're now double the power capacity that AWS was in 2022, and we're on track to double again by 2027.

In the last quarter of this year alone, we expect to add at least another 1 GW of power. This capacity consists of power, data center, and chips, primarily our custom silicon Trainium and NVIDIA. We've recently brought Project Rainier online, our massive AI compute cluster spanning multiple U.S. data centers and containing nearly 500,000 of our Trainium2 chips. Anthropic is using it now to build and deploy its industry-leading AI model, Claude, which we expect to be on more than 1 million Trainium2 chips by year-end. Trainium2 continues to see strong adoption, is fully subscribed, and is now a multi-billion-dollar business that grew 150% quarter-over-quarter. Today, Trainium is being used by a small number of very large customers, but we expect to accommodate more customers starting with Trainium3.

We're building Bedrock to be the biggest inference engine in the world, and in the long run, believe Bedrock could be as big a business for AWS as EC2, and the majority of token usage in Amazon Bedrock is already running on Trainium. We're also continuing to work closely with chip partners like NVIDIA, with whom we continue to order very significant amounts, as well as with AMD and Intel. These are very important partners with whom we expect to keep growing our relationships over time. You're going to see us continue to be very aggressive investing in capacity because we see the demand. As fast as we're adding capacity right now, we're monetizing it. It's still quite early and represents an unusual opportunity for customers in AWS.

I'll now turn to stores, where the team continues to deliver and innovate for customers across our key priorities: selection, low prices, and convenience, particularly fast delivery. We're offering 14% more selection since last quarter from popular brands like The North Face and Charlotte Tilbury, and we've added hundreds of thousands of items from popular brands this year. Everyday essentials continues to grow quickly, and year to date is growing nearly twice as fast as the rest of the business. We continue to make it easier for customers to order low-priced perishable groceries from Amazon, and customers in more than 1,000 cities and towns now can shop fresh groceries alongside millions of Amazon.com products with free same-day delivery. This is a game changer for customers who can now order milk alongside electronics, check out with one card, and have everything delivered to their doorstep within hours.

The team also invented a new add-to-delivery button that lets customers add items to previously scheduled orders, and it's been used more than 80 million times since launch, and it just launched. It's an example of one of those seemingly simple but powerful innovations that make customers' lives easier. We remain committed to staying sharp on price and meeting or beating prices of other major retailers. In July, we had our biggest Prime Day event ever, with customers saving billions of dollars across more than 35 categories. We continue to break records on speed. We're on track to deliver at our fastest speeds ever for Prime members globally once again this year, and we've started rolling out three-hour delivery in select U.S. cities. We're also continuing to invest in infrastructure to speed up rural deliveries and serve more customers in more communities.

That includes committing over $4 billion to expand our rural delivery network across the U.S. These are small towns where people want fast delivery, but where other companies have been backing out and reducing service. In contrast, we've already increased the number of rural communities with access to our same-day and next-day delivery by 60%, reaching roughly half of the total communities we plan to expand to by the end of the year. The stores team is also innovating rapidly with AI. For example, Rufus, our AI-powered shopping assistant, has had 250 million active customers this year, with monthly users up 140% year-over-year, interactions up 210% year-over-year, and customers using Rufus during a shopping trip being 60% more likely to complete a purchase. Rufus is on track to deliver over $10 billion in incremental annualized sales. Here are the highlights.

Thanks, Andy. Starting with our top-line financial results, worldwide revenue was $180.2 billion, a 12% increase year-over-year, excluding a 90 basis point favorable impact of foreign exchange. In Q3, we reported worldwide operating income of $17.4 billion. This operating income includes two special charges, which reduced operating income by $4.3 billion.

The first charge, of $2.5 billion, is related to a legal settlement with the Federal Trade Commission, which impacts the North America segment and is recorded in the other operating expense line. The second charge, of $1.8 billion, relates to severance costs for role eliminations and impacts all three of our segments. The severance charge is recorded primarily in the technology and infrastructure, sales and marketing, and general and administrative expense line items. Excluding these two charges, worldwide operating income would have been $21.7 billion, or $1.2 billion above the high end of our guidance range. Moving to our segment results, we remain encouraged by the innovation our teams are delivering for customers across all three segments. In the North America segment, third-quarter revenue was $106.3 billion, an increase of 11% year-over-year. International segment revenue was $40.9 billion, an increase of 10% year-over-year, excluding the impact of foreign exchange.

Worldwide paid units grew 11% year-over-year. We continue to prioritize the inputs that matter most to our customers. In the third quarter, our sharp pricing, broad selection, and fast delivery speeds continued to resonate with customers. Customers appreciate the ability to quickly receive items essential for their daily needs, including perishable groceries, and have them delivered in the same day. Our millions of global third-party sellers continue to be important contributors to our vast selection, which helps customers find the items they need at competitive prices. We're committed to building innovative services and features for our sellers, including our ongoing advancements in generative AI. Today, more than 1.3 million sellers have used our generative AI capabilities to more quickly launch high-quality listings. Better listings translate into better traction with customers, and in Q3, worldwide third-party seller unit mix was 62%, up 200 basis points from Q3 of last year.

Shifting to profitability, North America segment operating income was $4.8 billion, with an operating margin of 4.5%. Excluding the $2.5 billion charge related to the legal settlement with the FTC, North America segment operating income would have been $7.3 billion, with an operating margin of 6.9%. North America segment operating margin also includes a portion of the severance charge. International segment operating income was $1.2 billion, with an operating margin of 2.9%. Excluding the impact of the severance charge, International segment operating margins expanded year-over-year. Globally, our progress on key inputs is delivering a better customer experience while driving a more efficient cost structure. For example, we're making notable strides in improving inventory placement to speed up delivery to customers. For the third year in a row, we are on track to deliver our fastest speeds ever for Prime members in 2025.

We continue to tune and improve our fulfillment operations, and our regionalized network is operating at scale. We see many benefits from our inbound process improvements, including a reduction of U.S. inbound lead time by nearly four days compared to last year. This allows us to be more efficient with our inventory purchasing, which benefits working capital. We're also placing inventory more strategically throughout the network. By leveraging our existing infrastructure, we're now offering U.S. customers the ability to order perishable groceries and receive them the same day in as little as five hours. We're seeing positive early results. Since launching in January, when customers start shopping fresh groceries on Amazon, they are visiting the site more often and returning twice as often as non-perishable shoppers. Looking ahead, we see further opportunity to improve productivity in our global fulfillment and transportation network.

We will continue to improve inventory placement to drive down distance traveled and touches per package. We will also build on the gains from our regionalized network through algorithmic improvements, as well as launching robotics and automation. While operating margin may fluctuate quarter to quarter, we have a deliberate approach to achieve sustained progress over the long term. Shifting to advertising. Advertising revenue was $17.7 billion, and growth accelerated for the third consecutive quarter. We continue to see strong growth on an increasingly large base as our full-funnel advertising approach of connecting brands with customers is resonating. Moving next to our AWS segment, revenue was $33 billion, up 20.2% year-over-year. This is an acceleration of 270 basis points compared to last quarter, driven by strong growth across both our AI and core services and more capacity which has come online to support customer demand.

AWS revenue increased $2.1 billion quarter over quarter and now has an annualized revenue run rate of $132 billion. AWS operating income was $11.4 billion and reflects our continued growth coupled with our focus on driving efficiencies across the business. We are expanding our data center footprint largely to accommodate Gen AI, and to the extent those assets were placed into service, the related depreciation does impact our margins. As we've long said, we expect AWS operating margins to fluctuate over time, driven in part by the level of investments we're making at any point in time. Now turning to our cash CapEx, which was $34.2 billion in Q3. We've now spent $89.9 billion so far this year.

This primarily relates to AWS as we invest to support demand for AI and core services and in custom silicon like Trainium, as well as tech infrastructure to support our North America and international segments. We'll continue to make significant investments, especially in AI, as we believe it to be a massive opportunity with the potential for strong returns on invested capital over the long term. Additionally, we continue to invest in our fulfillment and transportation network to support the growth of the business, improve delivery speeds, and lower our cost to serve. These investments will support growth for many years to come. Looking ahead, we expect our full-year cash CapEx to be approximately $125 billion in 2025, and we expect that amount will increase in 2026. I'll finish up my remarks with net income.

While we primarily focus our comments on operating income, our third-quarter net income of $21.2 billion includes a pre-tax gain of $9.5 billion related to our investment in Anthropic. This investment activity is not related to Amazon's ongoing operations and is included in non-operating income. We're encouraged by the start of the peak season, and we are ready to serve customers in the coming months. I want to thank our teams across Amazon for their hard work as we get ready to delight customers during the holiday season. Our commitment to elevating the customer experience is the only reliable way to drive sustainable value for our shareholders. With that, let's move on to your questions.