After Amazon (AMZN) reported earnings for the first quarter of 2024 that beat expectations on Amazon Web Services (AWS) and advertising revenue growth, executives spoke in the company’s earnings call Tuesday about the impact artificial intelligence (AI) could have on Amazon’s business going forward, as well as the rollout of ads on Prime Video, among other things.
Many of Amazon CEO Andy Jassy’s comments mirrored things he wrote in his annual letter to shareholders earlier this month, including optimism around AI and the progress Amazon has made in regionalizing its storage network.
Other topics that Jassy and CFO Brian Olsavsky touched on included the growth of Amazon’s grocery segment, the launch of new versions of Amazon Fresh stores, and a smaller concept Whole Foods set to open in New York City later this year called Whole Foods Market Daily Shop.
AI Boosts AWS Revenue
Jassy said that over 100,000 of Amazon’s selling partners have used at least one of the company’s generative AI applications, like the ability to input a URL to a product on the company’s own website to have Amazon’s AI generate details for the product’s page to be sold on Amazon.
Like in his shareholder letter, Jassy said the company has a number of potential revenue streams for generative AI, from Amazon Bedrock, which allows companies to build their own generative AI applications using existing foundation models, to Amazon Q, the AI-powered assistant that can be used for a variety of business and coding purposes that Amazon announced was available to AWS users earlier Tuesday.
Jassy said there is a “very large opportunity in front of us” to continue growing AWS revenue, both in terms of its role in building and running generative AI applications, as well as the continued shift of companies hosting their data on the cloud rather than on physical servers.
AI Investments Expected To Pay Off in Long Run
Like executives of other tech companies that reported earnings over the last week including Meta (META), Microsoft (MSFT), and Google parent Alphabet (GOOGL), Jassy and Olsavsky assured investors that they see opportunities for the costs of investing in AI to pay off down the line.
“We don’t spend the capital without very clear signals that we can monetize it in this way,” Jassy said.
They also indicated the costs of AI investment are expected to decrease over time in a shift from those associated with training the large language models (LLMs) that power products like Amazon Q to focus on the costs of running the models, with occasional training updates.
‘Encouraged’ by Early Response to Prime Video Ads
While the company didn’t provide specific numbers related to the revenue Prime Video ads generated in the first quarter since they were introduced, Jassy said the company is “encouraged by the early response.”
In an effort to raise revenue, Prime Video with ads became the default option for users in the U.S., U.K., and other regions in the first quarter of the year, with the shift expected to extend to more markets later in the year. An ad-free option for Amazon Prime members in the U.S. costs an additional $2.99 per month.
Jassy wrote in his shareholder letter that he believes Prime Video can be a large and profitable business on its own, and said Tuesday that the platform is a “significant opportunity” for Prime Video to help grow Amazon’s advertising revenue in the long term.
Regionalization Has Made Deliveries Faster
Amazon has shifted its product storage model over the last year, dividing its warehouse network across the U.S. into regions, allowing many items to be shipped shorter distances, supporting faster deliveries.
Jassy said that in March, nearly 60% of Prime orders were delivered the same day or in one day, as the company also expands its network of “same day” warehouses, which store thousands of the most commonly ordered items.
Jassy and Olsavsky said the company is seeing progress in its international segments approaching profitability as well, and that lessons the company is learning from regionalization efforts in the U.S. and Europe could be translatable to other regions.
Amazon shares were 1.2% higher at $177.16 in extended trading as of 8:20 p.m. ET Tuesday following the company’s earnings call.