Amazon.com, Inc. (AMZN) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reflects strong performance in AWS, advertising growth, and strategic investments in AI and robotics. Despite high CapEx, Amazon's initiatives like Trainium and Project Rainier are well-received, showing potential for future growth. The Q&A section highlights high demand for Trainium and strategic grocery expansion, though some uncertainties remain. Overall, positive financial metrics, optimistic guidance, and strategic partnerships suggest a positive stock movement.

Key Financial Performance

Revenue $180.2 billion, up 12% year-over-year, excluding the impact from foreign exchange rates. Growth attributed to strong performance across business segments.

Operating Income $17.4 billion, would have been over $21 billion excluding $2.5 billion for an FTC settlement and $1.8 billion for estimated severance costs.

Trailing 12-month Free Cash Flow $14.8 billion. No specific year-over-year change or reasons mentioned.

AWS Revenue $33 billion, up 20.2% year-over-year, marking the largest growth rate in 11 quarters. Growth driven by strong demand for AI and core services.

AWS Backlog $200 billion by Q3 quarter end. No year-over-year comparison provided.

North America Segment Revenue $106.3 billion, an increase of 11% year-over-year. Growth attributed to sharp pricing, broad selection, and fast delivery speeds.

International Segment Revenue $40.9 billion, an increase of 10% year-over-year, excluding the impact of foreign exchange. Growth attributed to similar factors as North America.

Worldwide Paid Units Grew 11% year-over-year. No specific reasons mentioned.

Third-Party Seller Unit Mix 62%, up 200 basis points from Q3 of last year. Growth attributed to generative AI capabilities improving seller listings.

Advertising Revenue $17.7 billion, up 22% year-over-year. Growth driven by strong demand for full funnel advertising and partnerships with platforms like Netflix and Spotify.

AWS Operating Income $11.4 billion. Growth attributed to increased demand and efficiencies, though margins impacted by depreciation from new data center investments.

Cash CapEx $34.2 billion in Q3, with $89.9 billion spent year-to-date. Investments primarily in AWS, custom silicon, and fulfillment/transportation networks.

Net Income $21.2 billion, includes a pretax gain of $9.5 billion related to investment in Anthroopic. No year-over-year comparison provided.

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Operating Highlights

AWS Growth: AWS reaccelerated to 20.2% year-over-year growth, the largest in 11 quarters, with a $132 billion annualized run rate. New AI tools like SageMaker, Bedrock, and AgentCore were launched to simplify AI deployment and agent creation. AgentCore's SDK has been downloaded over 1 million times.

AI Innovations: AWS launched tools like Kiro for coding, Transform for migration, and Quick Suite for business insights. These tools have significantly reduced manual effort and costs for customers.

Amazon Connect: Amazon Connect reached a $1 billion annualized revenue run rate, handling 12 billion minutes of AI-driven customer interactions in the last year.

Rural Delivery Expansion: Amazon committed over $4 billion to expand its rural delivery network in the U.S., increasing access to same-day and next-day delivery by 60%.

Prime Day Performance: Amazon had its biggest Prime Day ever, with customers saving billions across 35 categories.

Fulfillment Network: Amazon improved inventory placement, reducing U.S. inbound lead time by nearly 4 days and enhancing delivery speeds.

Generative AI for Sellers: Over 1.3 million sellers used Amazon's generative AI capabilities to create high-quality listings, improving customer traction.

AI and Custom Silicon Investments: Amazon invested heavily in AI and custom silicon, including Trainium chips, with plans to double power capacity by 2027.

Advertising Partnerships: Amazon partnered with Netflix, Spotify, and SiriusXM to expand its advertising reach, integrating premium ad inventory into its DSP.

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Risk or Challenges

Fluctuations in foreign exchange rates: The company's results are inherently unpredictable and may be materially affected by fluctuations in foreign exchange rates, which could impact financial performance.

Global economic and geopolitical conditions: Changes in global economic and geopolitical conditions, including recessionary fears, inflation, and interest rates, could adversely affect customer demand and spending.

Tariff and trade policies: Tariff and trade policies could impact the company's operations and financial results.

Regional labor market constraints: Constraints in regional labor markets could pose challenges to operational efficiency and cost management.

Supply chain and capacity expansion: The company is heavily investing in capacity expansion, including data centers and custom silicon, which could strain resources and impact margins if demand does not materialize as expected.

Legal and regulatory challenges: The company incurred a $2.5 billion charge related to a legal settlement with the Federal Trade Commission, highlighting ongoing regulatory scrutiny.

Severance costs and restructuring: The company faced $1.8 billion in severance costs for role eliminations, indicating challenges in workforce management and restructuring.

AWS capacity and investment risks: AWS is undergoing significant capacity expansion, including investments in AI and custom silicon. While demand is strong, these investments could pressure margins and carry risks if demand slows.

Advertising revenue dependency: The company’s advertising revenue is growing but remains subject to market conditions and competition, which could impact future growth.

Fulfillment and transportation network: The company is investing heavily in its fulfillment and transportation network, including rural delivery expansion. These investments could face challenges in achieving cost efficiency and operational scalability.

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Guidance & Outlook

AWS Growth and Capacity Expansion: AWS is reaccelerating growth, achieving a 20.2% year-over-year increase, the largest in 11 quarters. Backlog grew to $200 billion, and AWS is adding significant capacity, including 3.8 gigawatts of power in the past 12 months, with plans to double capacity by 2027. Project Rainier, a massive AI compute cluster, is now online, and AWS expects to accommodate more customers with Trainium3 chips. Bedrock is being built to become the largest inference engine globally, with potential to rival EC2 in scale.

AI and Agent Development: AWS is heavily investing in AI, launching tools like SageMaker, Bedrock, Strands, and AgentCore to simplify and enhance AI deployment. These tools are expected to drive significant customer adoption and operational efficiencies. For example, AgentCore has already been downloaded over 1 million times, and tools like Transform have saved customers substantial time and resources.

Retail and Delivery Innovations: Amazon is expanding its rural delivery network, committing over $4 billion to reach more communities. Same-day and next-day delivery services are being extended, with plans to cover more rural areas by year-end. AI-powered shopping tools like Rufus and Amazon Lens are driving customer engagement and sales, with Rufus projected to deliver over $10 billion in incremental annualized sales.

Advertising Growth: Amazon's advertising revenue grew 22% year-over-year to $17.6 billion. Partnerships with platforms like Netflix and Spotify are expanding ad inventory, and AI-driven tools are streamlining the creative process for advertisers. Live sports advertising is also gaining traction, with significant upfront commitments for 2025-2026.

Capital Expenditures and Investments: Amazon plans to spend approximately $125 billion in cash CapEx for 2025, with an increase expected in 2026. Investments are focused on AI, custom silicon, and fulfillment and transportation networks to support long-term growth and operational efficiency.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:How is Amazon addressing its capacity constraints in AWS and what is the demand for Trainium outside major customers?

A:Amazon has added 3.8 gigawatts of capacity in the last year, with another gigawatt plus expected in Q4, and plans to double its overall capacity by 2027. Trainium2 is fully subscribed, with revenue growing 150% quarter-over-quarter. Trainium3 is expected to preview at the end of the year, with broader availability in early 2026. Demand for Trainium is high due to its 30-40% price performance advantage, attracting both large and medium-sized customers.

Q:What are the key hurdles for Trainium3 adoption and how does it compare to third-party chips?

A:Amazon maintains multiple chip options, including a strong relationship with NVIDIA. Trainium3 is expected to be 40% better in price performance than Trainium2, which already outperforms other GPU options. Key hurdles include delivering the chip in volume, improving the software ecosystem, and building credibility through projects like Project Rainier.

Q:What is the architecture of Project Rainier and its potential expansion beyond Anthropic?

A:Project Rainier uses Trainium2 chips in a large cluster (500,000 chips, scaling to 1 million). It showcases AWS's infrastructure capabilities and Trainium2's performance and price advantages. While specific to Anthropic, other customers are interested in similar large-scale Trainium deployments, especially with Trainium3.

Q:What is Amazon's strategy for groceries and its impact on physical stores?

A:Amazon's grocery business, excluding Whole Foods and Fresh, generates over $100 billion in gross merchandise sales annually. The company is expanding same-day delivery for perishables to 2,300 cities by year-end, which is changing grocery shopping habits. Amazon continues to experiment with physical formats but sees significant potential in its same-day perishables delivery model.

Q:How does Amazon view headcount and organizational structure?

A:Recent headcount adjustments are driven by cultural goals rather than financial or AI-related reasons. Amazon aims to operate like a startup by reducing layers, increasing ownership, and moving quickly. This approach is seen as critical during a period of significant technological transformation.

Q:What is Amazon's investment in robotics and its impact on operations?

A:Amazon has over 1 million robots in its fulfillment network and continues to invest heavily in robotics. Robotics improve safety, productivity, speed, and cost efficiency, allowing human workers to focus on problem-solving. Amazon envisions a future where robots and humans work together in a complementary manner.

Q:What is Amazon's perspective on agentic commerce and its future potential?

A:Amazon sees agentic commerce as transformative for e-commerce, making online shopping more interactive and personalized. Efforts include Rufus and Buy for Me features, as well as partnerships with third-party agents. Challenges include improving customer experience and ensuring accurate personalization and delivery estimates.

Q:What is driving AWS growth and how important are AI workloads and AgentCore?

A:AWS growth is driven by both core infrastructure and AI workloads, including training, inference, and custom silicon like Trainium. AgentCore provides secure, scalable building blocks for enterprises to deploy AI agents, which is resonating with customers. Enterprises are also accelerating their shift from on-premises to cloud infrastructure.

Q:What is driving growth in Amazon's advertising business?

A:Amazon's advertising growth is fueled by a robust full-funnel offering, including Prime Video, live sports, and sponsored products. The demand-side platform (DSP) has improved significantly, with partnerships like Roku, Netflix, and Spotify enhancing its capabilities. Video advertising and the shift from physical to online retail also contribute to growth.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the disaggregation of AWS growth between core infrastructure and AI workloads, as well as the exact contributions of DSP and Prime Video to advertising growth. Additionally, while discussing agentic commerce, management acknowledged current challenges but did not provide concrete solutions or timelines for improvement.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

AMZN Transcript

Amazon.com, Inc. (AMZN) Q3 2025 Earnings Call Transcript

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Amazon's earnings call reflects strong financial performance, with significant revenue and operating income growth. The Q&A reveals potential risks, like tariffs and AWS supply constraints, but also highlights Amazon's strategic investments in AI and new products like Alexa+ and Project Kuiper. Despite some uncertainties, the optimistic guidance for Q3 and positive developments in international segments suggest a favorable outlook. The lack of detailed guidance on tariffs and AWS constraints is a concern, but overall, the sentiment is positive, expecting a stock price increase of 2% to 8%.

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The earnings call reveals strong financial performance with a 10% increase in revenue and a 20% rise in operating income. AWS and advertising revenues show robust growth, and AI investments indicate future potential. However, the lack of a share buyback program and regulatory risks slightly dampen the outlook. Overall, the positive guidance and strategic initiatives suggest a stock price increase of 2% to 8% over the next two weeks.

Amazon.com, Inc. (AMZN) Q1 2025 Earnings Call Transcript

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Amazon's earnings call highlights strong financial performance with significant revenue and operating income growth. AWS and advertising revenue are growing robustly, and the company is investing in AI and infrastructure. Although there are concerns about tariffs and supply chain issues, management's optimistic guidance and strategic focus on diversification and efficiency are reassuring. The absence of a share repurchase program is a minor drawback. Overall, the positive financial metrics and strategic initiatives suggest a positive stock price movement over the next two weeks.

AMZN Slides

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