Amazon CEO Jassy’s Shareholder Letter Insights

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Amazon’s Growth and Success

Amazon has been considerably doing well since last year. Now, it is doing even better with money and made customers happy. Andy Jassy in the letter released to shareholder says, ‘We also have new ideas and chances to grow. Our business is doing better than last year. We made 12% more money this year.

Amazon has more money to use now. The shareholder letter highlights a remarkable 12% year-over-year growth in Amazon’s total revenue. Moreover, the operational income and free cash flow have seen dramatic improvements. As per the shareholder letter Amazon went from losing $12.8 billion in 2022 to having $35.5 billion in 2023. So, basically, they are making more money, and their business is growing fast.

Further, the report underscores the enthusiastic response from customers to their relentless focus on selection, price, and convenience in stores business. ‘In our stores, customers like our many choices, good prices, and it is easy to shop. We have the most things to buy online. Last year, we added many new products and brands.

‘We had a big sale on Black Friday and Cyber Monday. It was our biggest sale ever. In 2023, customers saved almost $24 billion on deals and coupons, which is 70% more than last year. This shows that people save money shopping on Amazon and it is good for our business.’

Amazon’s Efficiency Gains

In 2023, Amazon lowered their cost to serve for the first time since 2018. In the US, it went down by more than 45 cents per unit. This is exciting because inflation has been high. Even with high inflation, Amazon reduced costs and became more efficient. This led to bigger profit margins.

Amazon plans to keep lowering their cost to serve in 2024 and beyond. They want to be faster and more efficient in delivering packages. This means Amazon will likely keep growing their profit margins in the long term.

Looking at Amazon’s financials, their operating cash flow went up a lot in the past 18 months. They made $85 billion in the past year. Their gross margin also grew from 22.7% in 2012 to about 47% now. Their operating cash flow margin is about 15%, which is not yet at an all-time high.

As Amazon keeps finding ways to be more efficient and grow their business, their profit margins will probably keep going up.

Amazon’s Global Expansion and Growth

The shareholder letter says that Amazon is growing in countries like India, Brazil, Australia, Mexico, the Middle East, and Africa. In late 2023, Mexico became a place where Amazon made money. Amazon believes these places will keep growing and make money later on.

Right now, growing in these places costs Amazon money. But in the future, they will help make more money.

Amazon also talks about its advertising business. It made $47 billion in 2023, growing 24% from the year before. This is amazing because it’s growing faster than Google and Meta’s ad businesses. Amazon has many parts of its business that make billions of dollars and grow quickly.

Next, they talk about AWS (Amazon Web Services). In 2023, companies wanted to save money because of the unsure economy. AWS helped them use the cloud better and save money with tools like Graviton chips.

‘Our CPU chips give about 40% better value than other top x86 processors. S3 intelligent tiering uses AI to find less-used objects and store them in cheaper storage layers. Savings plans offer lower prices for longer commitments.’

This work lowered short-term money but helped their customers. They liked it and it should be good for them and AWS in the long run. By the end of 2023, they saw cost optimization as well.

AWS Customer Loyalty Strategy

In 2023, customers wanted to save money, and AWS helped them do that. This made AWS’s money grow slower than Google and Azure. But Amazon cares about its customers, so they worked hard to help them save. This makes the customers like Amazon more. Even though AWS made less money at first, it will help keep their customers for a long time.

Now, customers are done saving money and are ready to spend more with AWS. They are making bigger deals for longer times. This means AWS will keep its customers and make more money in the future.

Amazon Prime Video wants to be a big and successful business on its own. Streaming businesses have a lot of competition and don’t make much profit. Netflix is doing well, but many others are not. Prime Video believes it can make money and be successful in the long run.

Amazon Eyes Satellite Internet Market

There’s a cool product mentioned in the shareholder letter. ‘In October, we reached a big goal for Project Kuiper. We sent two test satellites into space and made sure all important parts worked well. This doesn’t usually happen on the first try. Kuiper’s goal is to give fast internet to 400 to 500 million homes that don’t have it, using low Earth orbit satellites.’

What does this sound like? It seems like Amazon wants to compete with Elon Musk’s Starlink. It’s great that Amazon is taking on Starlink and getting into the satellite business. This could make a lot of money in the future.

It might not help Amazon’s business soon, but it is a big chance to make money. Many people in the world don’t have fast internet or any internet at all. These satellites can be faster than the wires we use now. Big companies might want to use them to be faster. This could be a big chance for Amazon and Starlink to make money in the future.

Starlink is far ahead of Amazon right now, but it’s good that there is competition. It means Starlink won’t control everything.

Amazon says 2023 was a good year, and they are thankful for their teams who helped customers. They did a lot of inventing, working together, and thinking in new ways across Amazon. Everyone at Amazon thinks they can do more to make customers’ lives better and easier. There is still a lot of room for growth in their businesses.

Amazon is still growing a lot. They have more work to do. Many people think Amazon is very creative. They have many new ideas and can keep growing.

People ask, “What is Amazon’s next big thing?” They have Marketplace, Prime, and AWS. But what comes after that? A better question might be, “What new building blocks is Amazon making for great customer experiences?”

Exploring Generative AI Advances

In 2022, ChatGPT got lots of attention. But there are three distinct layers in Generative AI that we should know. The bottom layer is about making Foundation Models (FMs). Developers and companies need two things: powerful chips for training and prediction, and software to build the models. Most FMs use NVIDIA chips, but they can be hard to find and expensive. So, people want better options for these AI chips.

Amazon listened and made their own AI chips called Tranium and Inferentia. Other big companies like Apple, Google, Microsoft, and Meta also started making their own AI chips. They all spent lots of money on NVIDIA chips before, but now they want to lower costs by making their own.

They want chips that work just right for them. This is interesting to see how this is going to play out for NVIDIA over the longer term, because there was kind of a supply shortage of chips that were able to process and handle AI and Gen AI.

Andy talks about a middle layer for customers. They can use an existing FM and add their own data. Amazon Bedrock helps with this. It makes it easy to build and grow Gen AI applications. Many customers are using Bedrock.

The second layer helps businesses create their own Gen AI models. Amazon gives them the tools to do this.

The top layer is for making Gen AI applications for people to use. Examples are Rufus, a smart shopping helper, and a better Alexa. There are also tools for making ads with images, words, and videos.

So, the top layer of Gen AI helps businesses create new things. The middle layer helps them grow and change their own AI models.

Democratizing AI with AWS

Amazon talks about three layers of AWS services. These services help make AI easy for everyone to use. This way, any person or business can improve their work with AI.

Amazon’s goal is to help the world use AI better. They still have a long way to go, though. Most people still shop in stores and use on-premise technology. But Amazon thinks AI will be a big change, maybe even bigger than the internet.

AI will bring many good things to businesses and people. It is yet to know how big the impact will be. However, Amazon wants to make sure more people can use AI for their own work.

Amazon’s Growth and Dominance

Amazon seems to keep growing fast and make more money in the future. Their advertising and AWS businesses are very profitable. As they grow, Amazon’s overall profits will also grow. This means the company will have more cash to use for other things.

Amazon has a very strong moat, which means it’s hard for other companies to compete with them. Their moat might be one of the strongest ever, similar to CP Rail. Because of this, it would be difficult for any other company to beat Amazon in what they do.

Amazon has built an amazing worldwide network. No other company can make one like it and compete with Amazon. So, they are safe from other companies taking their place.

Amazon’s business is not expensive today and it is good to hold it for a long time. The best way to measure Amazon’s value is by using the price to operating cash flow. Right now, this number is about 22.7, while its long-term average is 27. This means Amazon is not too expensive compared to its history.