Alex Cho
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My Personal Notes on the Amazon Q&A and How it Affects Shareholders

Gene Munster from PiperJaffray asked about customer counts on the Amazon earnings conference call, and how they can grow SKUs in Prime. The active customer accounts exceed 300 million in prior quarter, but the CFO, Brian Olsavsky mentioned that they aren’t going to update that number. Prime Now experienced greater expansion, but more specifically Europe in Q2’16. So, expansion in Prime is mostly driven by roll out of new localized experiences like groceries, or through partnerships in product delivery.

Heath Terry from Goldman Sachs asked about AWS margins for Q3’16 (looked for greater clarity about the margins). The CFO, Brian Olsavsky mentioned that they don’t give margins by segmentation. However, the CFO did mention that Capex won’t step-up considerably despite the regional expansion of new datacenters geographically.

Brian Nowak from Morgan Stanley asked some questions regarding the Amazon Echo, and uplift from purchase behavior. He also asked about AWS margins in the first half of FY’16. Olsavsky mentioned that Echo was opened up to the application developer community with some of the larger developers creating more unique experiences. The CFO didn’t provide exact unit shipment figures. Olsavsky pointed out better utilization of data center resources, and also anticipated q/q fluctuation of gross margins but also implied continued y/y margin expansion.

Mark Mahaney from RBC Capital Markets asked about revenue growth acceleration in North America/International retail. Olsavsky, mentioned that the flywheel of prime, low prices, expansive catalogue via FBA (fulfillment by Amazon), additional Prime Benefits, and low shipment prices reasserts Amazon's dominance as an e-tailer. The CFO reiterated the durable advantage is intact.

Yusuf Squali from Cantor Fitzgerald asked about operating margins, and asked whether investment intensity decline is implicit of better D&A (depreciation and amortization) trends translating into higher gross/operating margins. He also asked about Prime Video momentum. Olsavsky was kind of vague, but mentioned that original content will triple year on year, Prime Video is expected to launch in India with both original and local content. Fixed expenses remained constant, which translated into better margins as revenue reached the very high-end of the expected range. The company is very focused on efficiency, but is also willing to invest (vague commentary on Capex/Opex), but overall the company’s transition toward margin expansion and cost leverage is implicit of sustained profitability on the P&L statement.

Justin Post from Merrill Lynch asked about Prime growth potential in USA, and customer accounts. The management team, reasserted that they can’t provide customer figures. But, Olsavsky mentioned that there’s a lot of potential for Prime Expansion in the United States despite heightened penetration. However, the degree to which it impacts Amazon shareholders isn’t exactly clear, as the optimism doesn’t really lend itself to quantifiable figures.

Ross Sandler from Deutsche Bank asked about logistics for moving products, and maritime licenses. Sandler also asked specifically about logistical steps going forward. Darren mentioned that they’re trialing drone technologies in the UK. The company didn’t provide any additional commentary on the oceangoing/maritime licenses.

Eric Sheridan from UBS asked about 1H’16 to 2H’16 gross margin trends, AWS video content spend and Chinese geography. The CFO mentions that Chinese growth is relatively stable, and is competitive via the Amazon global store. However, Amazon's presence in China is nascent, so the impact on results isn't very meaningful. The CFO mentioned that content spend will double from 2015, but data on 2015 content spend wasn't disclosed. We're left with rumored figures, but essentially investors can anticipate content spend of $3 to $5 billion this year, based on rumored reports and analyst estimates.

The CFO was asked about India investment, and Italy investment of roughly 450 million Euros worth by Ron Victor Josey from JMP Securities. That being the case, the management team mentioned that they’re committed to India and the initial results from India were fairly promising. No disclosure on geographic revenues within India, but they mentioned that they’re strategically repositioning the business logistics to match the needs of the Indian market, and the impending launch of Prime in India. However, they were extremely vague on why investment levels were so concentrated in Italy as opposed to other EU markets.

Like usual, the management team at Amazon provided just enough information to keep analysts/investors excited. But, specific metrics were broadly dismissed, as management remains fairly secretive on much of the operating performance in some of its newer product categories, or new geographies. I still like the stock however, due to sustained improvements in operating performance, which I will detail in my earnings response article.