Youssef Houssaini Squali
Analyst at Truist Securities
Thanks, Dave. Today, we're reporting $143.1 billion in revenue, up 11% year-over-year billion in operating income, up 343% year-over-year or $8.7 billion and $20.2 billion in trailing 12-month free cash flow adjusted for equipment finance leases which is up $41.7 billion versus the comparable period last year. We continue to be encouraged by the progress we're making in lowering our cost to serve, improving our customer experiences and investing for future growth. I'll start with our stores business. Our move earlier this year from a single national fulfillment network in the U.S. to eight distinct regions represented one of the most significant changes to our fulfillment network in our history. This change has gone more smoothly and made more impact than we optimistically expected. And you can see the benefits in many forms. Regional fulfillment clusters with higher local in-stock levels and optimize connections between fulfillment centers and delivery stations mean shorter distances and fewer touches to get items to customers. Shorter travel distances and fewer touches mean lower cost to serve. But perhaps most importantly, shorter distances and fewer touches mean that customers are getting their shipments faster.
We remain on pace to deliver the fastest delivery speeds for prime customers in our 29-year history. And as I talked about last quarter, we know how important speed of delivery is to customer satisfaction and buying behavior. A good example is the significant growth we're seeing in consumables and everyday essentials. When customers are getting items as quickly and conveniently as they are now from Amazon, they're going to consider us more frequently for more of their shopping needs. As we've shared the last few quarters, we've reevaluated every part of our fulfillment network over the last year. The first substantial rearchitecture centered on the regionalization change. We obviously like the results, but don't think we fully realize all the benefits yet and we continue to make steady improvements in fine-tuning the placement algorithms to enable even more in-region fulfillment and to further increase consolidation into fewer shipments. We've also identified several substantial changes to our inbound processes that we believe could have a significant impact on our cost to serve and speed of delivery. We have a long way before being out of ideas to improve cost and speed.
The team is really humming on this, and I'm proud of the way they're inventing and executing together. Moving to AWS and our investments in generative AI. AWS revenue grew 12% year-over-year in Q3, with $919 million of incremental quarter-over-quarter revenue and now is the annualized revenue run rate of $92 billion. AWS' year-over-year growth rate continued to stabilize in Q3. And while we still saw elevated cost optimization relative to a year ago, it's continued to attenuate as more companies transition to deploying net new workloads. Companies have moved more slowly in an uncertain economy in 2023 to complete deals. But we're seeing the pace and volume of closed deals pick up, and we're encouraged by the strong last couple of months of new deals signed. For perspective, we signed several new deals in September with an effective date in October that won't show up in any GAAP reported number for Q3, but the collection of which is higher than our total reported deal volume for all of Q3. Deal signings are always lumpy and the revenue happens over several years, but we like the recent deal momentum we're seeing. Top of mind for most companies continues to be generative AI. As I mentioned last quarter, we think about generative AI as having three macro layers each of which is very large in each of which we're investing. A few updates there.
And the lowest layer is the compute to train large language models or LLM and produce inferences or predictions. The key to this compute is the chip inside it, as we've shared, we've been working on custom silicon for training and inference with our Tranium and influential chips, respectively. Recently, we announced the leading LLM maker anthropic chose AWS as its primary cloud provider. And we'll use trainium training and inferential to build, trade and deploy future LLMs. As part of this partnership, AWS and Anthropic will collaborate on the future development of training and inferential technology. We believe this collaboration will be helpful in continuing to accelerate the price performance advantages that training and inferential deliver for customers. In the middle layer, which we think of as large language models as a service, we recently introduced general availability for Amazon Bedrock, which offers customers access to leading LLMs from third-party providers like anthropics, stability AI, coherent AI 21 as well as from Amazon's own LLM called Titan, where customers can take those models, customize them using their own data, but without leaking that data back into the generalized LLM have access to the same security, access control and features that they run the rest of their applications with in AWS all through a managed service.
In the last couple of months, we've announced the imminent addition of Meta's Llama two model to Bedrock the first time it's being made available through a fully managed service. Also through our expanded collaboration with Anthropic, customers will gain access to future anthropic models through bedrock with exclusive early access to unique features model customization and the ability to fine-tune the models. And Bedrock has added several new compelling features, including the ability to create agents which can be programmed to accomplish tasks like answering questions or automating workflows. In these early days of generative AI, companies are still learning which models they want to use, which models they use for what purposes and which model sizes they should use to get the latency and cost characteristics they desire. In our opinion, the only certainty is that there will continue to be a high rate of change. Bedrock helps customers with this fluidity, allowing them to rapidly experiment with move between model types and sizes and enabling them to pick the right tool for the right job. The customer reaction to Bedrock has been very positive and the general availability is buoyed that further.
Bedrock is the easiest way to build and scale enterprise-ready generative AI applications and a real game changer for developers and companies trying to get value out of this new technology. And the top layer, which are the applications that run the LLMs, per generative AI coding companion Amazon Code Whisper has gotten a lot of early traction and got a lot more powerful recently with the launch of its new customization capability. The number one enterprise request for coding companions has been wanting these companions to be familiar with customers' proprietary code bases is not just having code companions trained and open source code, companies want the equivalent of a long-time senior engineer who knows their code base well. That's what Code Whisper just launched, another first of its kind out there in its current forum and customers are excited about it. few asks comments on AWS's generative AI work. As you can tell, we're focused on doing what we've always done for customers, taking technology that can transform customer experiences and businesses, but they can be complex and expensive and democratizing it for customers of all sizes and technical abilities. It's also worth remembering that customers want to bring the models to their data, not the other way around. And much of that data resides in AWS as the clear market segment leader in cloud infrastructure.
We're innovating and delivering at a rapid rate and our approach is resonating with customers. The number of companies building generative AI apps and AWS is substantial and growing very quickly, including Adidas, Booking.com, Bridgewater, Clarient, GoDaddy, Lexus Nexus, Merck, Royal Philips and United Airlines, name a few. We are also seeing success with generative AI start-ups like perplexity AI who chose to go all in with AWS, including running future models in trainium and Inferentia. And the AWS team has a lot of new capabilities to share with its customers at its upcoming AWS Reinvent Conference. Beyond AWS, all of our significant businesses are working on generative AI applications to transform their customer experiences. There are too many for me to name on this call, but a few examples include, in our stores business, we're using generative AI to help people better discover products they want to more easily access the information needed to make decisions. We use generative AI models to forecast inventory we need in our various locations and to derive optimal last mile transportation routes for drivers to employ. We're also making it much easier for our third-party sellers to create new product pages by entering much less information and getting the models to the rest.
In advertising, we just launched a generative AI image generation tool, where all brands need to do is upload a product photo and description to quickly create unique lifestyle images that will help customers discover products they love. And in Alexa, we built a much more expansive LLM and previewed the early version of this. Apart from being a more intelligent version of herself, Alexa's new conversational AI capabilities include the ability to make multiple requests at once as well as more natural and conversational requests without having to use specific phrases. We continue to be convicted that the vision of being the world's best personal assistant is a compelling and viable one and that Alexa has a good chance to be one of the long-term winners in this arena. Every one of our businesses is building generative AI applications to change what's possible for customers, and we have a lot more to come. We're also encouraged by the progress we're making in our newer initiatives, just to name a few. We're pleased with what we're seeing in Prime Video. Prime Video continues to be an integral part of the prime value proposition where it's often one of the top two drivers of customers signing up for Prime.
We also have increasing conviction that Prime video can be a large and profitable business in its own right as we continue to invest in compelling exclusive content for prime members but also offer the best selection of premium streaming video content anywhere with our marketplace offering, including channels for customers who subscribe to channels like MAX, Paramount+, BET+ and MGM+, as well as our broad transaction video-on-demand selection. As we continue to invest in compelling content, beginning in early 2024, Prime video shows and movies will include limited advertisements. We aim to have meaningfully fewer ads than linear TV and other streaming TV providers. If customers prefer and add free option, we plan to offer that for an additional $2.99 per month for U.S. members. There is still a lot of work to be done in innovation ahead, but we're excited about our future on Prime Video. We're seeing progress on a number of our investments that expand our ability to serve more consumers and sellers in their e-commerce missions. Our emerging international stores continue to improve their customer experiences and profitability and our strong trajectory.
Both consumers and sellers are excited about Buy with Prime which enables third-party sellers with direct-to-consumer websites to offer Amazon Prime members the same fast payments and delivery options they receive on Amazon or comp. We recently announced the capability for sellers to integrate Buy with Prime with their Shopify account making it easier for Shopify merchants to manage their businesses with inventory pricing and promotions automatically synced in one place. And we're seeing very positive early response from sellers to supply chain by Amazon. A fully automated set of supply chain services, where Amazon can pick up inventory from manufacturing facilities around the world, ship it across borders, handle customs clearance and ground transportation, store inventory in bulk, manage replenishment across Amazon and other sales channels and deliver directly to customers, all without sellers having to worry about managing their supply chain.
Our health care team is continuing to make health care easier for people to access. The Amazon Pharmacy customer experience has significantly evolved this year, and customers are responding that both in their purchasing behavior and qualitative feedback. We built RX task for customers to get unlimited supply of eligible medications for $5 per month, meaningfully reduce the cost for customers to get insulin and diabetes products and partnered with Blue Shield of California to offer a first-of-its-kind model to provide more affordable pharmacy care to its 4.8 million members, providing fast and free delivery of prescription medications and 24/7 access to pharmacists. We remain convinced that we can be part of the solution of making health care a better customer experience. And our low earth orbit satellite initiative Project Kiper, which aims to bring fast, affordable broadband to underserved communities around the world took a meaningful step forward in the last few weeks with the successful launch of two prototype satellites.
We will use this multi-month mission to test our satellites and network from space and collect data ahead of the planned start of satellite production later this year. I'd like to close by thanking our teams around the world who are gearing up for two of our most significant events across the company. First, our annual AWS Reinvent conference that begins on November 27. The team is excited to share a lot of new capabilities with customers, provide an array of opportunities for builders to learn and connect with one another. And on the store side, we've already kicked off what will be our 29th holiday shopping season. Prime big deal days held earlier this month was our most successful October holiday kickoff event ever, with Prime members saving more than $1 billion across hundreds and millions of items sold. Just as we do all year long, we aim to make our customers' lives easier and better every day, and there's no time where it's more important to us that we deliver on this mission and during the busy holiday shopping season. With that, I'll turn it over to Brian.
