Amazon.com Inc (AMZN) — Q3 2023 Earnings Call Transcript

Hello and welcome to our Q3 2023 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 2022. Our comments and responses to your questions reflect management's views as of today, October 26, 2023, 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 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. And now, I'll turn the call over to Andy.

Thanks, Dave. Today, we're reporting $143.1 billion in revenue, up 11% year-over-year; $11.2 billion in operating income, up 343% year-over-year or $8.7 billion; and $20.2 billion in trailing 12-month free cash flow adjusted for equipment finance leases which is up $41.7 billion versus the comparable period last year. We continue to be encouraged by the progress we're making in lowering our cost to serve, improving our customer experiences and investing for future growth. I'll start with our stores business. Our move earlier this year from a single national fulfillment network in the U.S. to 8 distinct regions represented one of the most significant changes to our fulfillment network in our history. This change has gone more smoothly and made more impact than we optimistically expected. And you can see the benefits in many forms. Regional fulfillment clusters with higher local in-stock levels and optimized connections between fulfillment centers and delivery stations mean shorter distances and fewer touches to get items to customers. Shorter travel distances and fewer touches mean lower cost to serve. But perhaps most importantly, shorter distances and fewer touches mean that customers are getting their shipments faster. We remain on pace to deliver the fastest delivery speeds for Prime customers in our 29-year history. And as I talked about last quarter, we know how important speed of delivery is to customer satisfaction and buying behavior. A good example is the significant growth we're seeing in consumables and everyday essentials. When customers are getting items as quickly and conveniently as they are now from Amazon, they're going to consider us more frequently for more of their shopping needs. As we've shared the last few quarters, we've re-evaluated every part of our fulfillment network over the last year. The first substantial rearchitecture centered on the regionalization change. We obviously like the results but don't think we fully realize all the benefits yet and we continue to make steady improvements in fine-tuning the placement algorithms to enable even more in-region fulfillment and to further increase consolidation into fewer shipments. We've also identified several substantial changes to our inbound processes that we believe could have a significant impact on our cost to serve and speed of delivery. We have a long way before being out of ideas to improve cost and speed. The team is really humming on this and I'm proud of the way they're inventing and executing together. Moving to AWS and our investments in generative AI. AWS revenue grew 12% year-over-year in Q3, with $919 million of incremental quarter-over-quarter revenue and now has the annualized revenue run rate of $92 billion. AWS' year-over-year growth rate continued to stabilize in Q3. And while we still saw elevated cost optimization relative to a year ago, it's continued to attenuate as more companies transition to deploying net new workloads. Companies have moved more slowly in an uncertain economy in 2023 to complete deals. But we're seeing the pace and volume of closed deals pick up and we're encouraged by the strong last couple of months of new deals signed. For perspective, we signed several new deals in September with an effective date in October that won't show up in any GAAP reported number for Q3 but the collection of which is higher than our total reported deal volume for all of Q3. Deal signings are always lumpy and the revenue happens over several years but we like the recent deal momentum we're seeing. Top of mind for most companies continues to be generative AI. As I mentioned last quarter, we think about generative AI as having 3 macro layers, each of which is very large in each of which we're investing. A few updates there. At the lowest layer is the compute to train large language models, or LLMs and produce inferences or predictions. The key to this compute is the chip inside it. As we've shared, we've been working on custom silicon for training and inference with our Trainium and Inferentia chips, respectively. Recently, we announced that leading LLM maker Anthropic chose AWS as its primary cloud provider and will use Trainium and Inferentia to build, train and deploy its future LLMs. As part of this partnership, AWS and Anthropic will collaborate on the future development of Trainium and Inferentia technology. We believe this collaboration will be helpful in continuing to accelerate the price performance advantages that Trainium and Inferentia deliver for customers. In the middle layer which we think of as large language models as a service, we recently introduced general availability for Amazon Bedrock which offers customers access to leading LLMs from third-party providers like Anthropic, Stability AI, Coherent AI, 21 as well as from Amazon's own LLMs called Titan, where customers can take those models, customize them using their own data but without leaking that data back into the generalized LLM, have access to the same security, access control and features that they run the rest of their applications within AWS all through a managed service. In the last couple of months, we've announced the imminent addition of Meta's Llama 2 model to Bedrock, the first time it's being made available through a fully managed service. Also through our expanded collaboration with Anthropic, customers will gain access to future Anthropic models through Bedrock with exclusive early access to unique features, model customization and the ability to fine-tune the models. And Bedrock has added several new compelling features, including the ability to create agents which can be programmed to accomplish tasks like answering questions or automating workflows. In these early days of generative AI, companies are still learning which models they want to use which models they use for what purposes and which model sizes they should use to get the latency and cost characteristics they desire. In our opinion, the only certainty is that there will continue to be a high rate of change. Bedrock helps customers with this fluidity, allowing them to rapidly experiment with move between model types and sizes and enabling them to pick the right tool for the right job. The customer reaction to Bedrock has been very positive and the general availability has buoyed that further. Bedrock is the easiest way to build and scale enterprise-ready generative AI applications and a real game changer for developers and companies trying to get value out of this new technology. And the top layer which are the applications that run the LLMs, our generative AI coding companion Amazon CodeWhisperer has gotten a lot of early traction and got a lot more powerful recently with the launch of its new customization capability. The number one enterprise request for coding companions has been wanting these companions to be familiar with customers' proprietary codebases. It's not just having code companions trained in open source code; companies want the equivalent of a long-time senior engineer who knows their codebase well. That's what CodeWhisperer just launched, another first of its kind out there in its current form and customers are excited about it. A few last comments on AWS's generative AI work. As you can tell, we're focused on doing what we've always done for customers: taking technology that can transform customer experiences and businesses but that can be complex and expensive and democratizing it for customers of all sizes and technical abilities. It's also worth remembering that customers want to bring the models to their data, not the other way around. And much of that data resides in AWS as the clear market segment leader in cloud infrastructure. We're innovating and delivering at a rapid rate and our approach is resonating with customers. The number of companies building generative AI apps in AWS is substantial and growing very quickly, including Adidas, Booking.com, Bridgewater, Clariant, GoDaddy, LexisNexis, Merck, Royal Philips and United Airlines, to name a few. We are also seeing success with generative AI start-ups like Perplexity.ai who chose to go all in with AWS, including running future models in Trainium and Inferentia. And the AWS team has a lot of new capabilities to share with its customers at its upcoming AWS re:Invent conference. Beyond AWS, all of our significant businesses are working on generative AI applications to transform their customer experiences. There are too many for me to name on this call but a few examples include, in our stores business, we're using generative AI to help people better discover products they want to more easily access the information needed to make decisions. We use generative AI models to forecast inventory we need in our various locations and to derive optimal last mile transportation routes for drivers to employ. We're also making it much easier for our third-party sellers to create new product pages by entering much less information and letting the models do the rest. In advertising, we just launched a generative AI image generation tool, where all brands need to do is upload a product photo and description to quickly create unique lifestyle images that will help customers discover products they love. And in Alexa, we've built a much more expansive LLM and previewed the early version of this. Apart from being a more intelligent version of herself, Alexa's new conversational AI capabilities include the ability to make multiple requests at once as well as more natural and conversational requests without having to use specific phrases. We continue to be convicted that the vision of being the world's best personal assistant is a compelling and viable one and that Alexa has a good chance to be one of the long-term winners in this arena. Every one of our businesses is building generative AI applications to change what's possible for customers and we have a lot more to come. We're also encouraged by the progress we're making in our newer initiatives. Just to name a few, we're pleased with what we're seeing in Prime Video. Prime Video continues to be an integral part of the Prime value proposition where it's often one of the top 2 drivers of customers signing up for Prime. We also have increasing conviction that Prime Video can be a large and profitable business in its own right as we continue to invest in compelling exclusive content for Prime members and also offer the best selection of premium streaming video content anywhere with our marketplace offering, including channels for customers who can subscribe to channels like Max, Paramount+, BET Plus and MGM+, as well as our broad transaction video-on-demand selection. As we continue to invest in compelling content, beginning in early 2024, Prime Video shows and movies will include limited advertisements. We aim to have meaningfully fewer ads than linear TV and other streaming TV providers. If customers prefer an ad-free option, we plan to offer that for an additional $2.99 per month for U.S. members. There is still a lot of work to be done in innovation ahead but we're excited about our future on Prime Video. We're seeing progress on a number of our investments that expand our ability to serve more consumers and sellers in their e-commerce missions. Our emerging international stores continue to improve their customer experiences and profitability and are on a strong trajectory. Both consumers and sellers are excited about Buy with Prime, which enables third-party sellers with direct-to-consumer websites to offer Amazon Prime members the same fast payments and delivery options they receive on Amazon.com. We recently announced the capability for sellers to integrate Buy with Prime with their Shopify account, making it easier for Shopify merchants to manage their businesses with inventory pricing and promotions automatically synced in one place. And we're seeing very positive early response from sellers to Supply Chain by Amazon, a fully automated set of supply chain services where Amazon can pick up inventory from manufacturing facilities around the world, ship it across borders, handle customs clearance and ground transportation, store inventory in bulk, manage replenishment across Amazon and other sales channels and deliver directly to customers, all without sellers having to worry about managing their supply chain. Our healthcare team is continuing to make healthcare easier for people to access. The Amazon Pharmacy customer experience has significantly evolved this year and customers are responding to that both in their purchasing behavior and qualitative feedback. We built RXPass for customers to get unlimited supplies of eligible medications for $5 per month, meaningfully reducing the cost for customers to get insulin and diabetes products and partnered with Blue Shield of California to offer a first-of-its-kind model to provide more affordable pharmacy care to its 4.8 million members, providing fast and free delivery of prescription medications and 24/7 access to pharmacists. We remain convinced that we can be part of the solution of making healthcare a better customer experience. And our low Earth orbit satellite initiative Project Kuiper, which aims to bring fast, affordable broadband to underserved communities around the world, took a meaningful step forward in the last few weeks with the successful launch of 2 prototype satellites. We will use this multi-month mission to test our satellites and network from space and collect data ahead of the planned start of satellite production later this year. I'd like to close by thanking our teams around the world who are gearing up for 2 of our most significant events across the company. First, our annual AWS re:Invent conference that begins on November 27. The team is excited to share a lot of new capabilities with customers and provide an array of opportunities for builders to learn and connect with one another. And on the stores side, we've already kicked off what will be our 29th holiday shopping season. Prime Big Deal Days held earlier this month was our most successful October holiday kick-off event ever, with Prime members saving more than $1 billion across hundreds and millions of items sold. Just as we do all year long, we aim to make our customers' lives easier and better every day and there's no time where it's more important to us that we deliver on this mission than during the busy holiday shopping season. With that, I'll turn it over to Brian.

Thanks, Andy. Overall, we saw a strong performance in the third quarter. Worldwide revenue was $143.1 billion, representing an increase of 11% year-over-year, excluding the impact of foreign exchange and approximately $100 million above the top end of our guidance range. We saw our highest quarterly worldwide operating income ever, which was $11.2 billion for the quarter, an increase of $8.7 billion year-over-year from $2.7 billion above the high end of our guidance range. North America revenue was $87.9 billion, an increase of 11% year-over-year. And international revenue was $32.1 billion, an increase of 11% year-over-year, excluding foreign exchange. During the quarter, we held our biggest Prime Day event ever with Prime members purchasing more than 375 million items worldwide and saving more than $2.5 billion on millions of deals across the Amazon store. Outside of Prime Day, we continue to see strong demand across everyday essentials, including categories like beauty, health, and personal care. From a customer behavior standpoint, we still see customers remaining cautious about price, trading down where they can and seeking out deals, coupled with lower spending on discretionary items. Building on the momentum from last quarter, we set another record for delivery speed. For the year-to-date period through the third quarter, we have delivered at the fastest speeds ever in the United States. These improvements in delivery speeds have been a key driver of growth and are resulting in increased purchase frequency by our Prime members. Third-party sellers grew at 18% year-over-year, excluding foreign exchange, primarily driven by selection expansion and growing adoption of our optional services for sellers, including Fulfillment by Amazon and paid account management and more. During the quarter, we hosted Amazon Accelerate, our annual seller conference, where we launched a number of new innovations and product developments for our sellers, including Supply Chain by Amazon. We also continue to see durable growth in advertising which grew 25% year-over-year, excluding foreign exchange, primarily driven by sponsored products as we lean into machine learning to improve the relevancy of the ads we show our customers and enhance our measurement capabilities on behalf of advertisers. We have seen strong improvement in our profitability. North America operating income was $4.3 billion, an increase of $4.7 billion year-over-year, resulting in an operating margin of 4.9%, up 100 basis points quarter-over-quarter. Since North America operating margins bottomed out in Q1 of 2022, we have now seen 6 consecutive quarters of improvement, resulting in a cumulative improvement of over 700 basis points over these past 6 quarters. The third quarter marked the second full quarter of regionalization within the U.S. and we're pleased with the early results. Regionalization has allowed us to simplify the network by reducing the number of line-haul lanes, increasing volume within existing line-haul lanes, and adding more direct fulfillment center to delivery station connections. We have also been focused on optimizing inventory placement in a new regionalized network which when coupled with the simplification mentioned earlier, is helping contribute to an overall reduction in cost to serve. Additionally, in the quarter, we saw benefits from lower inflation, primarily within line haul, ocean, and rail shipping rates which were partially offset by higher fuel prices. While we are encouraged by the improvements in operating profit, we still see a lot of opportunity in front of us. In international, we were closer to breakeven during the quarter with an operating loss of $95 million. This was an improvement of $2.4 billion year-over-year. This improvement was primarily driven by lowering our cost to serve through higher productivity, decreased inflationary pressures, and improvements in leverage across our established and emerging international countries as we continue to focus on customer inputs and improve efficiencies within our operations. Moving to AWS; revenues were $23.1 billion, an increase of 12% year-over-year. On a quarter-over-quarter basis, we added more than $900 million of revenue in AWS as customers are continuing to shift their focus towards driving innovation and bringing new workloads to the cloud. Similar to what we shared last quarter, while optimization still remains a headwind, we've seen the rate of new cost optimization slow down in AWS and we are encouraged by the strength of our customer pipeline. Customers are excited about our approach to generative AI, with several new announcements made during the quarter, including a strategic collaboration with Anthropic, opening Amazon Bedrock up to general availability, adding Meta's Llama 2 model to Bedrock in the near future, and new customization capabilities of CodeWhisperer. AWS remains a clear cloud infrastructure leader with a significant leadership position in the number of customers, the size of our partner ecosystem, our breadth of functionality, and the strongest operational performance in the industry. When we look at the fundamentals of the business, we believe we are in a good position to drive future growth as the rates of cost optimization slow down. AWS operating income was $7 billion, an increase of $1.6 billion year-over-year. Our operating margin for the quarter was 30.3%. This is an improvement of approximately 600 basis points quarter-over-quarter, primarily driven by increased leverage on our head count costs. Shifting to free cash flow. On a trailing 12-month basis, free cash flow adjusted for finance leases was $20.2 billion, an improvement of $41.7 billion year-over-year. The largest driver of the improvement in free cash flow is our increased operating income which we're seeing across all 3 of our segments. Key drivers of this improvement include reductions in our cost to serve, continued advertising growth, and improved leverage on our fixed costs. We are also seeing improvements in working capital, notably with our inventory efficiency as we improve our inventory placement. Now, let's turn to our capital investments. We define our capital investments as a combination of CapEx plus equipment finance leases. These investments were $50 billion for the trailing 12-month period ended September 30, down from $60 billion in the comparable prior year period. For the full year 2023, we expect capital investments to be approximately $50 billion compared to $59 billion in 2022. We expect fulfillment and transportation CapEx to be down year-over-year, partially offset by increased infrastructure CapEx to support growth of our AWS business, including additional investments related to generative AI and large language model efforts. As we head into the fourth quarter, we are ready to make this a great holiday season for our customers. Looking at our operations network, our inventory is the best positioned it's ever been heading into the holiday season, enabling us to serve customers with fast delivery speeds from their local regions. We continue to believe putting customers first is the only reliable way to create lasting value for our shareholders. With that, let's move on to questions.

I'll ask about AWS. I guess the first question is, as you look forward in the fourth quarter, you mentioned you've signed some new deals. Are you seeing less cost optimization as you look forward? Or do you think it will be similar to Q3? And then second, you couldn't help but notice the big margin improvement in AWS all the way back to where you were 7 quarters ago. Could you talk about the drivers and sustainability of those margins?

Yes, Justin. This is Andy. AWS grew 12% year-over-year, showing a continued stabilization in our growth rate. We added $919 million in revenue quarter-over-quarter, which is challenging to compare across different companies due to varying disclosure practices. However, it appears to be the largest absolute growth among our competitors. We are observing higher customer optimization levels compared to last year, although this is decreasing from recent quarters. Notably, not all customer optimization involves shutting down workloads; many are leveraging enhanced price-performance capabilities in AWS. For example, the adoption of Graviton-based EC2 instances, our custom chips designed to improve CPU performance, has significantly increased. Graviton offers 40% better price performance than leading x86 processors, contributing to its growth. Additionally, many customers are shifting from hourly on-demand rates to longer-term savings plans. These optimizations are beneficial for customers both in the short and long term, as well as for us. Although we see a decrease in optimization efforts, I remain optimistic about AWS's medium to long-term outlook due to our superior functionality, expansive partner ecosystem, and stronger security and operational performance relative to competitors. Customers have recognized our commitment to supporting them during these challenging times, which builds trust. We operate a $92 billion revenue run rate business, and with 90% of global IT spending still on-premises, we expect significant growth as that shifts. Furthermore, the emerging generative AI opportunity is promising, potentially generating tens of billions in revenue for AWS in the coming years. Our approach to this space is unique and well-received by customers, as evidenced by the growing number of companies building generative AI workloads on our platform. While it's difficult to compare growth rates directly, our momentum in the generative AI market is impressive. The deals we've recently closed reflect our competitive advantages, including functionality, ecosystem, operational performance, security, and customer care, along with our vision for generative AI technology. I'm confident there is substantial growth ahead for AWS.

And Justin, regarding your question about AWS margins, the margin improved by 600 basis points quarter-over-quarter, resulting in an income increase of $1.6 billion for AWS, primarily due to our headcount reductions in Q2 and ongoing slowness in hiring and rehiring for open positions. We have also implemented significant cost control in non-people categories, including infrastructure and discretionary costs. Additionally, natural gas prices and other energy costs have declined a bit in Q3. As we have historically mentioned, the operating margin for AWS will fluctuate from quarter to quarter, and this is a prime example of that.

Can you just talk more about how the regional fulfillment network is exceeding your expectations? And then also, how does that support your confidence in moving North America beyond mid-single-digit margin levels? And then just perhaps on generative AI, obviously, a lot of innovation here. You talked about a number of different customers running early workloads. How should we think about the timing, just to drive some tangible monetization there?

I’ll begin by addressing the regionalization. This was a major transformation for our network, involving multiple dimensions and risks. The team did an excellent job planning thoroughly for this change. With our placement algorithms, we achieved higher regional local in-stock levels than we expected. However, until we connected all parts, we made several adjustments to how we interacted with fulfillment centers, sortation centers, and delivery stations. By connecting fulfillment centers directly with delivery stations, we were able to reduce transportation distances more than we anticipated and deliver items to customers much quicker. One key concern when implementing such a significant change is the potential for splitting shipments, which could lead to fewer items per box. We navigated this issue well during the design phase, resulting in improved performance. Overall, we're seeing reduced transportation distances and faster deliveries, which encourages customers to consider ordering more items. This is evident in our notable growth rates in everyday essentials and consumables; customers prefer same-day or next-day delivery over longer wait times. Regarding generative AI, we’ve been surprised by the rapid growth of our business in this area. It’s already a substantial segment for us, though many companies are still in the initial stages of exploring its potential. I believe the cloud market is also early in its development, with a significant portion of global IT spending still on-premises, which will likely shift in the next decade. This perspective suggests that we are still in the early days of generative AI. Many companies are experimenting with various prototype models, and developments are advancing quickly on the training side with technologies like Trainium and Inferentia, as well as application building with Bedrock. Companies are trying to determine the best models for large-scale production, often discovering that larger models can be more expensive and result in greater latency than expected. As they experiment with different models and sizes, they seek the right balance of cost and response time for their specific needs. Bedrock is particularly beneficial, as it allows customers to leverage a range of third-party and Amazon language models in various sizes while making it easy to transition workloads as needed.

Thanks for taking my question. I have two, one on AWS, one on the retail business. On AWS AI Andy, I recognize you have a pretty multipronged AI approach. But just could you talk us through sort of one or two of the early generative AI products where you're seeing the most early demand and interest? And as you talk to customers, are there still hurdles or pain points that you're not quite serving in your product suite you look to solve and innovate on over the next couple of years in AI? And then the second one, you made a lot of steps on the regionalization of warehouses and making it more efficient. Where are you on robotics in the warehouses? And how should we think about the potential impact of that to drive profitability even higher?

On the AI side, if you are looking for some of our products that have gained early traction, I would highlight Bedrock. Customers are excited about Bedrock, as it simplifies the development of generative AI applications. For many years, people have been intrigued by machine learning and AI, but about six years ago, we saw significant advancements that made it easier for everyday developers to work with AI, thanks to improved economics, scalable compute, storage, and tools like SageMaker. Generative AI has further advanced this, but it remains challenging to determine the right models to use and how to employ them effectively while ensuring quality, safety, and optimal costs and experiences. Many customers lack deep AI expertise, and Bedrock alleviates much of the complexity involved in these decisions, driving excitement and broad usage among customers. Additionally, the partnership with leaders like Anthropic, offering our customers exclusive early access to models and customization tools, has resulted in considerable interest and usage around Bedrock. Regarding our chips, Trainium and Inferentia, there is currently a shortage of GPUs in the industry, making our chips very appealing due to their better price performance and availability. We have effectively managed supply and ordering. For instance, Anthropic's choice to train their LLM model on Trainium and use Inferentia is a significant endorsement. Similarly, Perplexity.ai's decision to use our chips for all their training and inference further illustrates their growing appeal. CodeWhisperer is another significant advancement, enabling engineers to bypass repetitive tasks, markedly improving developer productivity. The addition of a feature to customize for individual code bases has excited customers. In terms of AI services, there remains a lot of potential to explore. While Bedrock simplifies the use of AI, there is still demand for automated solutions that can analyze large datasets and facilitate inquiries within developer environments. We expect continued innovation and announcements at events like re:Invent in the coming months. On the robotics front, we have made substantial investments over the years, which have greatly enhanced our productivity, cost efficiency, and safety. These initiatives are set to yield results in 2024 and 2025, further contributing to cost effectiveness, productivity, and safety within our fulfillment services.

Maybe one follow-up on AWS and one on the ads business. Andy, would love your perspective. The cloud optimization theme started in the second half of '22 when there were a lot of macro concerns. And then the AI theme really only sort of came to the forefront in the last 8 or 9 months. What's your perspective on how turning the calendar into 2024 and there being a new IT budget cycle could possibly lead us to put the optimization theme in the background and some of the AI theme come more to the forefront when there might be more distinct budgeting around AI as a theme? That would be number one. And then in your ads business, you're approaching a $50 billion run rate and it's compounding in the mid-20s. What are you most excited about on the initiative front to continue to build scale both on Amazon properties and possibly off Amazon as a broader digital advertising player?

On the AWS side, I believe that in 2024, much of the initial optimization opportunities were taken advantage of in 2023. While there will still be some optimization, the significant opportunities typically arise when there is a large existing infrastructure and numerous applications built on a platform. We're already observing a decline in optimization focus over recent months, and this trend will likely continue. More companies are shifting their focus to new initiatives. Over the next few years, I expect to see many companies not only explore new generative AI workloads but also pursue transformations from on-premises setups to cloud solutions. This shift was delayed in 2023 as companies adopted a more conservative spending approach amid economic uncertainties. As we move forward, I anticipate that companies will resume their planned transformations, collaborating with systems integrators and us, while also ramping up the deployment of generative AI applications that they have been prototyping. On the advertising front, there are several exciting developments. Despite economic challenges affecting most advertising-heavy companies, we have seen resilience in our lower-funnel ad products, like sponsored products, even as firms exercise caution with spending on top-of-funnel products. Our owned and operated platforms attract significant volumes of advertisers, and e-commerce activity continues robustly. For instance, our Thursday Night Football is performing excellently in its second season, with ratings up significantly compared to last year, contributing to better advertising performance. This is a valuable property as it engages around 13 million viewers weekly. Our advertising strength also stems from our investment in machine learning experts who optimize algorithms for relevant sponsored results, enhancing ad performance. Advertisers are more likely to allocate budgets to solutions that deliver strong volume and results, which gives us a competitive edge. Looking ahead, we are still in the early stages of strategically integrating advertising into video, audio, and grocery sectors. We have begun to externalize some of our products, like sponsored products, to third-party websites, including Pinterest, Hearst Newspapers, and BuzzFeed. While we are still growing in this area, we are committed to delivering an excellent customer experience.

Okay. On those AWS deals Andy, that you talked about in the September quarter, was there something different about those deals, different industry, different verticals, different geographic markets? Or is it just kind of a resumption of kind of the deal flow that you've had in years past? So that's the first question. And secondly, Brian, international. Is international finally at a point where it can be sustainably profitable going forwards, maybe except for the seasonally challenged March quarter? Have you wrung out enough efficiencies and gotten enough scales? And the oldest markets there are big enough and scalable enough and profitable enough that it offsets the newer countries? Have you finally reached that point?

First, thank you for your question about international. The quarter fell just short of breakeven, which does mark a shift from past trends. There are several factors at play internationally. In established markets like the U.K., Germany, Japan, and France, we are profitable and have a solid track record. We're focused on price selection and convenience while expanding our retail base by adding sellers and vendors, scaling our advertising, and improving the cost structure of our operations. Most of our operational productivity initiatives are currently U.S.-focused, excluding regionalization, but we're addressing these elements globally as well, and customer response has been positive. Over the last six years, we've introduced ten new countries. Historically, it takes time for these markets to reach profitability; for instance, the U.S. took about nine years to achieve that. Each new country is on its unique path towards growth, scale, and profitability. We plan to continue investing internationally, particularly in enhancing Prime benefits and developing our fulfillment and transportation networks to better cater to our customers. While I cannot guarantee that we have permanently reached a breakeven point for profitability, the trends indicate positive progress, and we aim to accelerate that journey across all countries, especially the emerging markets.

The AWS deals represent a diverse range of industries and locations, rather than being concentrated in a single area. Some of these represent significant first-time contracts from customers, while others involve substantial expansions of existing agreements, whereby customers are increasing their usage of AWS from around 20% to 50% of their workloads. Additionally, there are several large public sector deals that we have executed recently, but these won't have an immediate impact as they unfold over time as we assist customers in transitioning their workloads to AWS. It's not a single factor driving these movements, and while I wish I could pinpoint exactly why we are seeing an uptick, I believe that historically deal volume has varied and doesn't align neatly with the calendar year. However, in 2023, we have noticed that the time required to close deals has lengthened. This likely reflects the cautious mindset many companies have adopted in response to economic uncertainty; organizations are involving more stakeholders and are focusing more on optimizing existing costs rather than pursuing new migrations or deals. Recently, we have observed a trend where companies are beginning to look ahead again. We’ve received a number of deals in the past couple of months that had been under discussion for some time and, despite expectations for quicker closures, took longer than anticipated. This indicates a shift in how companies are approaching future opportunities.

Thanks for joining us today for 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 look forward to talking with you again next quarter.