Overall traders will find this quarter disappointing.

Unit growth this quarter of +14% disappointed. Sales guidance for 2019Q1 was disappointing relative to estimates while the 2019Q1 EBIT guide was in-line. Also per the call, 2019 is shaping up to be an investment year similar to 2016/17 and Prime Video investment is sure to continue to be substantial (e.g., LOTR is coming).

On the positive side Amazon did explain away gross margin weakness this quarter relative to prior quarters (it was mix-driven) and Amazon’s fastest growing segments (AWS, advertising, and subscriptions) are also its highest margin segments. Long-term Amazon’s growth opportunity is arguably unrivalled in absolute terms.

Anyone have thoughts on this one?

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Q&A:
* Units grew +14% this quarter
– Doesn’t include some of Amazon’s fastest growing areas like subscription services, AWS, advertising, and Whole Foods
– “We feel good about the growth in the quarter”

* Prime’s accounting change
– Last quarter stated that Amazon anticipated a “$300MM headwind” this quarter due to the accounting change

* Advertising
– Ad enhancements: brands reports, placements, improved campaign manager features
– Looking for ways to improve the usability of tools for advertisers

* India
– “We are evaluating the changes” – Amazon does not think that coming changes help customers and businesses that sell on Amazon but Amazon “feels good about the longer-term prospects in India”

* Marketing
– Up 110bps as a percentage of sales each year – includes AWS sales and marketing
– Headcount +14% year-on-year in 2018 (+28% organically in 2017)
– Technology teams, sales & marketing, and AWS were predominant areas of headcount additions

* Prime Members
– Record sign-ups this quarter

* 2018 in perspective
– In 2016 and 2017 Amazon grew square footage by greater than 30% each year
– In 2018 Amazon grew square footage 15%

* Capital – primarily infrastructure capital – grew +10% in 2018 vs. +69% in 2017.
– “In a lot of ways 2018 was about banking the efficiencies of investments in people, warehouses, and infrastructure” made in 2016 and 2017
– “Not prepared to give a capital investment forecast for 2019 yet”

* Gross margin
– +180bps year-on-year
– AWS +46% ex-FX a driver, 3P and ad dollars a tailwind
– Outbound shipping costs, higher Amazon Fulfilled Units and higher use of Amazon logistics weighed on gross margin, as well as devices

* International ex-FX: +15% in Q3 and +19% in Q4; but if Amazon adjusts for Diwali timing international %growth was relatively flat Q3 to Q4

* “We are not quantifying the Prime Video spend today” but it has been increasing and “we expect it to increase further in 2019”

* Amazon stores:
– Comping 5 additional days of Whole Foods in 2017Q4
– Online orders is counted in the online stores revenue component
– If you adjust for both, Whole Foods revenue grew +6% year-on-year apples-apples

* Other revenue:
– +97% growth this quarter
– “The largest component is advertising” and we are comping a period of rapid growth last year but are “continuing to see strong adoption across Amazon vendors, sellers, advertisers, authors”