AMAZON COM INC Q4 2025 earnings call

Hello, and welcome to our Q4 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 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 2024. Our comments and responses to your questions reflect management's views as of today, February fifth, 2026 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 and energy prices, changes in global economic and geopolitical conditions, tariff and trade policies, resource and supply volatility, including for memory chips, 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're reporting $213.4 billion in revenue, up 12% year-over-year, excluding the impact from foreign exchange rates. Operating income was $25 billion, and trailing twelve-month free cash flow was $11.2 billion. We're seeing strong growth, and with the incremental opportunities available to us in areas like AI, chips, low Earth orbit satellites, quick commerce, and serving more consumers' everyday essentials needs, we have a chance to build an even more meaningful business at Amazon in the coming years, with strong return on invested capital, and we're investing to do so. We're already seeing strong demand in these areas, even in these early innings. I'll start with AWS.

AWS growth continued to accelerate to 24%, the fastest we've seen in 13 quarters, up $2.6 billion quarter-over-quarter and nearly $7 billion year-over-year. AWS is now a $142 billion annualized run rate business, and our chips business, inclusive of Graviton and Trainium, is now over $10 billion in annual revenue run rate, growing triple-digit percentages year-over-year. As a reminder, it's very different having 24% year-over-year growth on a $142 billion annualized run rate than to have a higher percentage growth on a meaningfully smaller base, which is the case with our competitors. We continue to add more incremental revenue and capacity than others and extend our leadership position.

We're continuing to see strong growth in core non-AI workloads as enterprises return to focusing on moving infrastructure from on-premises to the cloud, along with AWS having the broadest functionality, strongest security and operational performance, and most vibrant partner ecosystem. AWS continues to earn most of the big enterprise and government transitions to cloud. Since our last call, we announced new agreements with OpenAI, Visa, NBA, BlackRock, Perplexity, Lyft, United Airlines, DoorDash, Salesforce, U.S. Air Force, Adobe, Thomson Reuters, AT&T, S&P Global, National Bank of Canada, the London Stock Exchange, Choice Hotels, Accenture, Indeed, HSBC, CrowdStrike, and many more. More of the top 500 U.S. startups use AWS as their primary cloud provider than the next two providers combined. We're adding significant EC2 core computing capacity each day, and the majority of that new compute is using our custom CPU silicon, Graviton.

Graviton is up to 40% more price-performant than leading x86 processors and is used expansively by over 90% of AWS's top 1,000 customers. Graviton itself is a multi-billion-dollar annualized run rate business, growing more than 50% year-over-year. We consistently see customers wanting to run their AI workloads where the rest of their applications and data are. We're also seeing that as customers run large AI workloads on AWS, they're adding to their core AWS footprint as well. But the biggest reason that AWS continues to gain AI share is our uniquely broad top-to-bottom AI stack functionality. In AI, we're doing what we've always done in AWS, solving customer challenges. Let me give you some examples. The first challenge is having a strong foundation model to generate inferences or predictions.

Customers are realizing, as they get further into AI, that they need choice, as different models are better on different dimensions. In fact, most sophisticated AI applications leverage multiple models... Whether customers want frontier models like Anthropic's Claude or open models like Mistral or Llama, frontier intelligence with lower cost and latency like Amazon Nova, or video and audio models like Twelve Labs or Nova Sonic. Amazon Bedrock makes it easy to use these models to run inference securely, scalably, and performantly. Bedrock is now a $ multi-billion-dollar annualized run rate business, and customer spend grew 60% quarter-over-quarter. The second challenge is how to hone the model for your application. Customers sometimes think if they have a good model, they will have a good AI application. That's not really true. It takes a lot of work to post-train and fine-tune a model for your application.

Our SageMaker AI service, along with fine-tuning tools in Bedrock, make this much easier for customers. A third challenge is how to have a custom version of a foundation model that best leverages a company's secret sauce, their own data. To date, companies have tried to shape models with their own data late in the process, usually with fine-tuning or post-training. There's debate in the industry about this, but we believe that enterprises will want models trained on their own data at an early stage, at pre-training, if possible, so their models have the best possible foundation for what matters most to each enterprise on which to learn and evolve. It's a little like teaching a child a foreign language early in their life. That becomes part of their learning foundation moving forward, and it makes it easier to pick up other languages later in their life.

To solve for this need, we just launched Nova Forge, which gives customers early checkpoints on our Amazon Nova models, allows them to securely mix their own proprietary data with the model's data in the pre-training stage, and enables their own uniquely customized versions of Nova, what we call Novellas, trained with their data early in the process. This will be very useful for companies as they build their own agents on top of a model. There is nothing else out there like this today and a potential game changer for companies. Another challenge is cost. I've said this many times, but if we want AI to be used as expansively as companies want, we have to make the cost of inference lower. A significant impediment today is the cost of AI chips.

Customers are starving for better price performance, and typically, and understandably, the dominant early leaders aren't in a hurry to make that happen. They have other priorities. It's why we've built our own custom silicon and Trainium, and it's really taken off. We've landed over 1.4 million Trainium2 chips, our fastest ramping chip launch ever. Trainium2 is 30%-40% more price performant than comparable GPUs and is a multi-billion dollar annualized revenue run rate business with 100,000+ companies using it, as Trainium is the majority underpinning of Bedrock usage today. We recently launched Trainium3, which is up to 40% more price performant than Trainium2. We're seeing very strong demand for Trainium3 and expect nearly all of our Trainium3 supply of chips to be committed by mid 2026. And though we're still building Trainium4, we're seeing very strong interest already.

Looking ahead, the primary way companies will get value from AI is with agents, some their own, some from others, and there are several customer challenges that we're well-positioned to solve. It's harder to build agents than it should be. For that, we've built Strands, a service enabling agents to be created from any model. Once agents are built, enterprises are apprehensive about deploying to production because these agents need to securely and scalably connect to compute, data, tools, memory, identity, policy governance, performance monitoring, and other elements. This is a new and hard problem where a solution has not existed until we launched Bedrock Agent Core. Customers are quite excited about Agent Core, and it's unlocking deployments.

Customers also want to leverage others' useful agents, and we've built several, including Kiro for coding, Amazon Q for knowledge workers to leverage their own data and analytics, AWS Transform for software migration, and Amazon Connect for call center operations. We continue adding new capabilities, and usage continues to grow quickly. For example, the number of developers using Kiro grew more than 150% quarter-over-quarter. In addition to agents that customers direct, customers are also becoming excited about agents that require less human interaction. They can be fully autonomous, run persistently for hours or days, scale out quickly, and remember context. At this past AWS re:Invent, we launched Frontier Agents to do that.

Kiro Autonomous Agents for coding tasks, AWS DevOps Agents for detecting and resolving operational issues, and AWS Security Agents for proactively securing applications throughout the development lifecycle, and they're already making a big difference for customers. We expect to invest about $200 billion in capital expenditures across Amazon, but predominantly in AWS, because we have very high demand. Customers really want AWS for core and AI workloads, and we're monetizing capacity as fast as we can install it. We have deep experience understanding demand signals in the AWS business and then turning that capacity into strong return on invested capital. We're confident this will be the case here as well. I'll now turn to Stores.

We continue to expand selection, including more than 400 new beauty brands in the U.S. in 2025, like Bobbi Brown Cosmetics, Charlotte Tilbury, and Laura Mercier, and new fashion brands like Away, Converse, Diesel, Michael Kors, Nike, and The North Face. Our ultra-low-priced offering, Amazon Haul, grew selection to over 1 million items under $10 and expanded to serve customers in more than 25 countries and regions. We continue to see strong customer response to everyday essentials and Grocery. In 2025, everyday essentials grew nearly twice as fast as all other categories in the U.S., representing one out of every three units sold in our store. We've become a go-to grocery destination for over 150 million Americans, mostly through online shopping and Whole Foods.

Thanks, Andy. Starting with our top-line financial results. Worldwide revenue was $213.4 billion, a 12% increase year-over-year, excluding the 150 basis points favorable impact of foreign exchange. In Q4, we reported worldwide operating income of $25 billion. This operating income includes three special charges, which reduced operating income by $2.4 billion. The first charge of $1.1 billion is for the resolution of tax disputes associated with our Stores business in Italy and the settlement of a lawsuit. This charge primarily impacts our international segment and is largely recorded in the Fulfillment and other operating expense line items. Second charge of $730 million is for the estimated severance costs.

This charge impacts all three of our segments and is recorded primarily in the Fulfillment, Sales and Marketing, and Technology and Infrastructure expense line items. The third charge of $610 million is for asset impairments, primarily related to physical Stores. This charge primarily impacts the North America segment and is recorded in the other operating expense line. Moving on to our segment results. In the North America segment, fourth quarter revenue was $127.1 billion, an increase of 10% year-over-year. The international segment revenue was $50.7 billion, an increase of 11% year-over-year, excluding the impact of foreign exchange. Worldwide paid units grew 12% year-over-year, which is our highest quarterly growth rate in 2025.

The fourth quarter marked a strong finish to the year as we delivered for customers during the peak holiday season. Our sharp pricing, vast selection, and record-fast delivery speeds resonated with customers. They appreciated the convenience of receiving their items quickly, from gifts for family and friends to everyday essentials and perishable groceries. Our millions of global third-party sellers continue to be an important contributor to our broad selection. In Q4, worldwide third-party seller unit mix was 61%. We continue to invest in tools and services, including a comprehensive suite of AI tools, that help our selling partners manage and grow their businesses. Shifting to profitability, North America segment operating income was $11.5 billion, with an operating margin of 9%, up from an 8% margin in Q4 of 2024.

International segment operating income was $1 billion, with an operating margin of 2.1%. Excluding the impact of special charges mentioned earlier, the international segment operating margins also expanded year-over-year. We're pleased with the fulfillment network performance throughout the peak season. We made strong progress improving the cost structure of our network over the past few years. In the U.S., our regionalized network is operating at scale, and we've continued to make refinements. This regionalization has improved local inventory placement, leading to faster delivery and lower costs. Last year, U.S. Prime members received over 8 billion items the same or next day, up more than 30% year-over-year, with groceries and everyday essentials making up half of the total items.

For the third year in a row, globally, in 2025, we achieved both our fastest-ever delivery speeds for Prime members while also reducing our cost to serve. By leveraging our existing U.S. network, we can now deliver perishable groceries to customers in more than 2,300 cities and towns, all with same-day delivery. We saw significant adoption of this service throughout the year. When customers engage with our perishable offering, they demonstrate notably higher monthly spend compared to those who do not shop the category. We also see that customers shopping perishable groceries add three times more items to their same-day delivery orders. Looking ahead, we see further opportunity to enhance productivity in our global fulfillment network while delivering at faster speeds for customers.

We will continue optimizing inventory placement to drive down distance traveled, reduce touches per package, and improve package consolidation, as well as launch robotics and automation to increase efficiency and elevate the customer experience. Shifting to advertising. Advertising revenue grew 22% in the fourth quarter, and we added over $12 billion of incremental revenue in 2025 alone, as our full-funnel advertising approach of connecting brands with customers is resonating. Simplifying the advertiser experience to enable brands to better reach customers wherever they are. Moving next to our AWS segment. Revenue was $35.6 billion, and growth accelerated to 24% year-over-year. We added $2.6 billion in quarter-over-quarter revenue, and AWS now has an annualized revenue run rate of $142 billion.

This acceleration was driven by both core and AI services, as customers continue to modernize their infrastructure and migrate workloads to the cloud. Our AI offerings continue to resonate with customers, including our agentic capabilities.... This growth was helped in part by the more than 1 GW of capacity we added in Q4. In 2025, AWS added more data center capacity than any other company in the world. AWS operating income was $12.5 billion. We're seeing strong top-line growth while remaining focused on driving efficiencies across the business. This includes investing in software and process improvements to optimize server capacity, developing a more efficient network using our lower cost custom networking gear, and advancing custom silicon. At the same time, we've continued to rapidly develop products and services on behalf of customers.

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. Turning to cash flows. Our full year operating cash flow increased to under $39.5 billion in 2025, up 20% year-over-year, due primarily to improved operating income and changes in working capital. Now turning to our Q1 financial guidance. Q1 net sales are expected to be between $173.5 billion and $178.5 billion. This guidance anticipates a favorable impact of approximately 180 basis points from foreign exchange rates. As a reminder, global currencies can fluctuate during the quarter. Q1 operating income is expected to be between $16.5 billion and $21.5 billion.

A few things to mention on the operating income guidance. Within the North America segment, we do expect a year-over-year cost increase of approximately $1 billion related to Amazon Leo. We have more than 20 launches planned in 2026 and more than 30 in 2027, which means we're spending more on launching satellites each year. Select enterprise customers are testing Amazon Leo services now, and we expect a wider commercial rollout later this year. As a reminder, today, we do expense most of these Leo costs as incurred. We expect that later in the year, many of these costs, such as satellite manufacturing and launch services, will be capitalized. Within the international segment, we're continuing to invest more in our Stores business to enhance the customer experience and to encourage retail demand to move online more quickly.

This includes bringing faster delivery options, including Amazon Now, our service, which delivers to customers in 30 minutes or less. We're also working hard to stay sharp on pricing and seller fees, and there are countries where we've had to be more aggressive to meet or beat competitors' prices. We like these investments because they will delight customers, grow our business, and we believe they will generate long-term positive return on invested capital. As we enter 2026, I'm energized by our team's strong execution. I want to thank everyone across the company for their hard work on behalf of our customers. We remain focused on driving an even better customer experience, which is the only reliable way to create lasting value for our shareholders. With that, let's move on to your questions.