The Information's TITV
00:10:50 · Akash Pasricha, Patrick Moorhead, Ken Gawrelski
[00:10:50] S0: Right. But just very quickly, you talked about AMD, but what about all the other chip companies that inevitably do rely on the same memory in many cases? [00:11:00] S1: Yeah. So I think NVIDIA has taken care of substrates. They were in there first, cut deals, even two chains deep with the Japanese sub suppliers of substrates. I think they're going to be fine. I think a lot of folks who are tied into TSMC are gonna be are gonna be, are gonna be good on wafers. I mean, there's never gonna be enough. TSMC says it's sold out until 2028, and NVIDIA is is talking about the same thing. So the industry doesn't have enough, and it probably won't have enough even data center memory until 2030. [00:11:40] S0: Great. Well, I want to thank you for coming on. That is Patrick Moorhead from Moor Insights and Strategy here on TITV. Thanks. AWS revenue continued to accelerate in Amazon's third quarter, but the rest of Amazon's business segments, like its online marketplace and advertising, decelerated, in some cases dramatically. Here to discuss the results is Ken Gawrelski, Managing Director, Senior Internet Analyst at Wells Fargo. Ken, welcome to the show. It's great to have you here. [00:12:13] S2: Thanks so much for having me.
00:12:13 · Ken Gawrelski, Akash Pasricha
[00:12:13] S2: Thanks so much for having me. [00:12:14] S0: Okay. So we're going to get to AWS in a second here, but I want to talk about the rest of the business here because the numbers were staggering here. So 2% growth in online stores compared to 15% last quarter. That seemed to flow through the rest of the result too. Six percentage point decline in third party seller services. Advertising was less than half of the growth rate. What do you make of these numbers? [00:12:43] S2: Yeah. So look, I think it's helpful to keep it in perspective, which is there was a big shift. There was Prime Day shifted to 2Q from 3Q this year. That had an impact on those numbers. I would actually say if you adjusted for Prime Day shift, if you look at the retail revenues overall, QQ, 3Q, quite consistent between 1011% underlying growth. And if you... And you... And I would take another step and say, you look at fourth quarter and the implied guidance, suggests another consistent quarter, 10 to 11% growth. I'll I'll touch on advertising, which you you you discussed. Advertising was a bit weaker in this quarter, maybe even a bit weaker than we expected. I think some of that is Prime Day shifts. I think there were some other events that impacted that. I think importantly, Amazon is talking about about reaccelerating advertising growth to the high teens in the fourth quarter. So I think I would... In perspective, I think looking at two q, three q together, I would say the numbers on the retail side and even advertising were quite healthy.
00:14:00 · Akash Pasricha
[00:14:00] S0: Right. And so what you're talking about here is basically normalizing the fact that Q2 may have been a bit stronger because Prime Day was shifted into Q2, and so that's the average of the two quarters basically that you're taking. Advertising is kind of interesting though, because I look at what we've seen with the other hyperscalers... Well, not hyperscaler, the other advertising giants, I should say, reporting their results. I mean, Google's came in light. Meta, on the other hand, spoke very confidently about how AI was helping it keep that advertising business strong. Why isn't Amazon seeing those tailwinds? Are they seeing the tailwinds? What's your assessment there?
00:14:45 · Ken Gawrelski
[00:14:45] S2: Yeah. So, I would agree with your assessment. Meta was blowout on advertising. Right? Really strong result in three q and then calling for an acceleration in four q. I mean, a really fantastic execution at at Meta on the core advertising business. On the other hand, Google search weaker and and notably also YouTube weaker. The YouTube one really perplexes us, frankly, because there's some political tailwinds as well, and YouTube does capture some of that as those political dollars. We're surprised. On search, I would just say for Google, it's a bit of a different, in our view, a bit idiosyncratic. And what I mean is that's really AI overviews and an impact to the number of paid clicks we're seeing, the amount of real advertising we're seeing, not the amount of engagement. In fact, I would argue that the engagement on search is as healthy as it's ever been. So, getting to Amazon on the advertising side, we really think of it as quite healthy. If you think about Amazon advertising outpacing retail GMV or transaction value, I I think that's that's quite the achievement. And it has been doing so for quite some time. We are now reaching about 7% of of of total retail sales volume is now allocated to advertising. So, advertising as a percentage of retail sales, that's a pretty high level. That's best in class in the industry. So, we would expect over time it will mature.
00:16:31 · Akash Pasricha
[00:16:31] S0: But I guess my question is, all of the investments that Amazon is making into these data centers and this backend AI infrastructure that Meta is saying is making it easier for them to target customers, etcetera. I mean, I just feel like we should be seeing a little more from Amazon in advertising acceleration because of that. They didn't even really talk about it at all on the call.
00:17:00 · Ken Gawrelski
[00:17:00] S2: Well, I do think that they alluded to some of the advertiser innovations they have forthcoming. I do believe that they... So that there's a real difference here. You think about the innovation that Meta is seeing and their investments in GPUs and in in their internal models driving better performance. It's really two pieces. One is better targeting. Right? And that's better ad relevance and better targeting. That clearly Amazon is right in Amazon's wheelhouse. Amazon will do more of that. They do some of that now. We should expect they will be able to see those same kind of efficiencies and innovation. On the other hand, the other side of this is the audience side, which is meta is driving better... Driving better context or content recommendations. The idea is when you're on Instagram, instead of watching nine reels, you're watching the tenth. How how do they make that tenth reel so compelling to you that they increase your usage by 11% during that session? That... That's the part that Amazon does not play in. Right? Because it does have Prime Video, but that's a that's a different ballgame. What we're really talking about is advertising on the retail platform. So they can't really do much to increase their supply the same way Meta is on its content recommendations. What Amazon can do is really improve the ad relevance the