What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-04-28 compared with 2022-10-28 · 85 added, 107 removed, 211 unchanged (48% of the section changed)

5 unchanged sentences

Forward-looking statements reflect management’s current expectations and are inherently uncertain.

Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in global economic conditions and customer spending, inflation, interest rates, regional labor market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products and services sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income or other taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of claims, litigation, government investigations, and other proceedings, fulfillment, sortation, delivery, and data center optimization, risks of inventory management, variability in demand, the degree to which we enter into, maintain, and develop commercial agreements, proposed and completed acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput and productivity.

In addition, global economic and geopolitical conditions and additional or unforeseen effects from the COVID-19 pandemic amplify many of these risks.

Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates, changes in global economic conditions and customer demand and spending, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products and services sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income or other taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of claims, litigation, government investigations, and other proceedings, fulfillment, sortation, delivery, and data center optimization, risks of inventory management, variability in demand, the degree to which we enter into, maintain, and develop commercial agreements, proposed and completed acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput and productivity.

In addition, global economic and geopolitical conditions and additional or unforeseen circumstances, developments, or events may give rise to or amplify many of these risks.

These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results or outcomes to differ significantly from management’s expectations, are described in greater detail in Item 1A of Part II, “Risk Factors.”

For additional information, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our 2022 Annual Report on Form 10-K.

Critical Accounting Judgments

Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes.

The SEC has defined a company’s critical accounting policies as the ones that are most important to the portrayal of the company’s financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

Based on this definition, we have identified the critical accounting policies and judgments addressed below.

Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the Company.

Based on this definition, we have identified the critical accounting estimates addressed below.

We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results.

5 unchanged sentences

These assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future.

As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of September 30, 2022, we would have recorded an additional cost of sales of approximately $405 million.

As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of March 31, 2023, we would have recorded an additional cost of sales of approximately $390 million.

In addition, we enter into supplier commitments for certain electronic device components and certain products.

7 unchanged sentences

change due to economic, political, and other conditions and significant judgment is required in determining our ability to use our deferred tax assets.

Our effective tax rates could be affected by numerous factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in foreign currency exchange rates, changes in our stock price, changes to our forecasts of income and loss and the mix of jurisdictions to which they relate, changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions.

Our effective tax rates could be affected by numerous factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in foreign exchange rates, changes in our stock price, changes to our forecasts of income and loss and the mix of jurisdictions to which they relate, changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions.

In addition, a number of countries have enacted or are actively pursuing changes to their tax laws applicable to corporate multinationals.

6 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30, Twelve Months Ended

September 30,

March 31, Twelve Months Ended

2022 2023 2022 2023

3 unchanged sentences

Financing activities 1,990 6,354 11,757 14,082

Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair value, were $96.0 billion and $58.7 billion as of December 31, 2021 and September 30, 2022.

Amounts held in foreign currencies were $22.7 billion and $11.6 billion as of December 31, 2021 and September 30, 2022.

Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair value, were $70.0 billion and $64.4 billion as of December 31, 2022 and March 31, 2023.

Amounts held in foreign currencies were $18.3 billion and $13.3 billion as of December 31, 2022 and March 31, 2023.

Our foreign currency balances include British Pounds, Canadian Dollars, Euros, and Japanese Yen.

Cash provided by (used in) operating activities was $7.3 billion and $11.4 billion for Q3 2021 and Q3 2022, and $24.2 billion and $17.6 billion for the nine months ended September 30, 2021 and 2022.

Our operating cash flows result primarily from cash received from our consumer, seller, developer, enterprise, and content creator customers, and advertisers, offset by cash payments we make for products and services, employee compensation, payment processing and related transaction costs, operating leases, and interest payments on our long-term obligations.

Cash provided by (used in) operating activities was $(2.8) billion and $4.8 billion for Q1 2022 and Q1 2023.

Cash received from our customers and other activities generally corresponds to our net sales.

Because consumers primarily use credit cards to buy from us, our receivables from consumers settle quickly.

The decrease in operating cash flow for the trailing twelve months ended September 30, 2022, compared to the comparable prior year period, was primarily due to changes in working capital, as well as changes in net income (loss), excluding non-cash expenses.

Working capital at any specific point in time is subject to many variables, including variability in demand, inventory management and category expansion, the timing of cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates.

The increase in operating cash flow for the trailing twelve months ended March 31, 2023, compared to the comparable prior year period, was primarily due to changes in net income (loss), excluding non-cash expenses, and changes in working capital.

Working capital at any specific point in time is subject to many variables, including variability in demand, inventory management and category expansion, the timing of cash receipts and payments, customer and vendor payment terms, and fluctuations in foreign exchange rates.

Cash provided by (used in) investing activities corresponds with cash capital expenditures, including leasehold improvements, incentives received from property and equipment vendors, proceeds from asset sales, cash outlays for acquisitions, investments in other companies and intellectual property rights, and purchases, sales, and maturities of marketable securities.

Cash provided by (used in) investing activities was $(14.8) billion and $(15.6) billion for Q3 2021 and Q3 2022, and $(45.6) billion and $(26.8) billion for the nine months ended September 30, 2021 and 2022, with the variability caused primarily by purchases, sales, and maturities of marketable securities.

Cash capital expenditures were $14.8 billion and $15.0 billion during Q3 2021 and Q3 2022, and $38.9 billion and $42.9 billion for the nine months ended September 30, 2021 and 2022, which primarily reflect investments in technology infrastructure (the majority of which is to support AWS business growth) and in additional capacity to support our fulfillment network.

We expect to continue these investments over time, with increased spending on technology infrastructure and decreased spending on our fulfillment network in 2022.

We made cash payments, net of acquired cash, related to acquisition and other investment activity of $654 million and $885 million during Q3 2021 and Q3 2022, and $1.6 billion and $7.5 billion for the nine months ended September 30, 2021 and 2022.

We funded the

acquisition of MGM Holdings Inc.

with cash on hand.

We expect to fund the acquisitions of 1Life Healthcare, Inc.

(One Medical) and iRobot Corporation with cash on hand.

Cash provided by (used in) financing activities was $(2.8) billion and $3.0 billion for Q3 2021 and Q3 2022, and $9.4 billion and $9.6 billion for the nine months ended September 30, 2021 and 2022.

Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term debt of $2.4 billion and $12.4 billion for Q3 2021 and Q3 2022, and $24.1 billion and $43.9 billion for the nine months ended September 30, 2021 and 2022.

Cash outflows from financing activities resulted from repurchases of common stock, payments of short-term debt, and other, long-term debt, finance leases, and financing obligations of $5.1 billion and $9.4 billion in Q3 2021 and Q3 2022, and $14.7 billion and $34.2 billion for the nine months ended September 30, 2021 and 2022.

Property and equipment acquired under finance leases was $1.7 billion and $131 million during Q3 2021 and Q3 2022, and $5.5 billion and $358 million for the nine months ended September 30, 2021 and 2022.

We had no borrowings outstanding under the Credit Agreement, $11.7 billion of borrowings outstanding under the Commercial Paper Programs, and $1.0 billion of borrowings outstanding under our Credit Facility as of September 30, 2022.

Cash provided by (used in) investing activities was $906 million and $(15.8) billion for Q1 2022 and Q1 2023, with the variability caused primarily by purchases, sales, and maturities of marketable securities.

Cash capital expenditures were $13.7 billion and $13.1 billion during Q1 2022 and Q1 2023, which primarily reflect investments in technology infrastructure (the majority of which is to support AWS business growth) and in additional capacity to support our fulfillment network.

We expect cash capital expenditures to decrease in 2023, primarily due to lower spending on our fulfillment network.

We made cash payments, net of acquired cash, related to acquisition and other investment activity of $6.3 billion and $3.5 billion during Q1 2022 and Q1 2023.

We funded the acquisitions of MGM Holdings Inc.

in 2022 and One Medical in 2023 with cash on hand.

We expect to fund the acquisition of iRobot Corporation with cash on hand.

Cash provided by (used in) financing activities was $2.0 billion and $6.4 billion for Q1 2022 and Q1 2023.

Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term debt of $13.7 billion and $12.8 billion for Q1 2022 and Q1 2023.

Cash outflows from financing activities resulted from repurchases of common stock,

payments of short-term debt, and other, long-term debt, finance leases, and financing obligations of $11.8 billion and $6.4 billion in Q1 2022 and Q1 2023.

Property and equipment acquired under finance leases was $166 million and $8 million during Q1 2022 and Q1 2023.

We had no borrowings outstanding under the two unsecured revolving credit facilities, $7.8 billion of borrowings outstanding under the commercial paper programs, $972 million of borrowings outstanding under our Credit Facility, and $8.0 billion of borrowings outstanding under the Term Loan as of March 31, 2023.

See Item 1 of Part I, “Financial Statements — Note 5 — Debt” for additional information.

3 unchanged sentences

in those jurisdictions in which we would incur significant, additional costs upon repatriation of such amounts.

taxable income is reduced by tax benefits relating to excess stock-based compensation deductions and accelerated depreciation deductions and increased by the impact of capitalized research and development expenses.

tax rules provide for enhanced accelerated depreciation deductions by allowing the election of full expensing of qualified property, primarily equipment, through 2022.

Effective January 1, 2022, research and development expenses are required to be capitalized and amortized for U.S.

taxable income is reduced by accelerated depreciation deductions and increased by the impact of capitalized research and development expenses.

tax rules provide for enhanced accelerated depreciation deductions by allowing us to expense a portion of qualified property, primarily equipment.

These enhanced deductions are scheduled to phase out annually from 2023 through 2026.

Additionally, effective January 1, 2022, research and development expenses are required to be capitalized and amortized for U.S.

tax purposes, which delays the deductibility of these expenses.

Cash taxes paid (net of refunds) were $750 million and $742 million for Q3 2021 and Q3 2022, and $3.4 billion and $4.3 billion for the nine months ended September 30, 2021 and 2022.

As of December 31, 2021 and September 30, 2022, restricted cash, cash equivalents, and marketable securities were $260 million and $231 million.

As a result, we expect the cash taxes we pay in 2023 to increase significantly.

Cash taxes paid (net of refunds) were $453 million and $619 million for Q1 2022 and Q1 2023.

As of December 31, 2022 and March 31, 2023, restricted cash, cash equivalents, and marketable securities were $365 million and $391 million.

See Item 1 of Part I, “Financial Statements — Note 4 — Commitments and Contingencies” and “Financial Statements — Note 5 — Debt” for additional discussion of our principal contractual commitments, as well as our pledged assets.

7 unchanged sentences

There can be no assurance that additional credit lines or financing instruments will be available in amounts or on terms acceptable to us, if at all.

In addition, economic conditions and actions by policymaking bodies are contributing to rising interest rates, which, along with increases in our borrowing levels, could increase our future borrowing costs.

In addition, economic conditions and actions by policymaking bodies are contributing to rising interest rates and significant capital market volatility, which, along with increases in our borrowing levels, could increase our future borrowing costs.

Results of Operations

3 unchanged sentences

See Item 1 of Part I, “Financial Statements — Note 8 — Segment Information.”

Macroeconomic factors, including increased inflation and interest rates, the prolonged COVID-19 pandemic, global supply chain constraints, and global economic and geopolitical developments, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify.

These factors contributed to increases in our operating costs during Q3 2022, particularly across our North America and International segments, primarily due to a return to more normal, seasonal demand volumes in relation to our fulfillment network fixed costs, increased transportation and utility costs, and increased wage rates.

In addition, rising fuel, utility, and food costs, rising interest rates, and recessionary fears may impact customer demand.

Macroeconomic factors, including inflation, increased interest rates, significant capital market and supply chain volatility, and global economic and geopolitical developments, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify.

In addition, rising fuel, utility, and food costs, rising interest rates, and recessionary fears may impact customer demand and our ability to forecast consumer spending patterns.

We also expect the current macroeconomic environment and enterprise customer cost optimization efforts to impact our AWS revenue growth rates.

We expect some or all of these factors to continue to impact our operations into Q2 2023.

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2022 2021 2022

North America $ 69,244 $ 76,881

5 unchanged sentences

International (6) 1

AWS 39 27 36 32

Consolidated 7 9

2 unchanged sentences

International 0 9

AWS 39 28 36 32

Consolidated 9 11

2 unchanged sentences

International 25 23

AWS 15 16 13 16

Consolidated 100 % 100 %

Sales increased 15% in Q3 2022, and 10% for the nine months ended September 30, 2022 compared to the comparable prior year periods.

Changes in foreign currency exchange rates impacted net sales by $(5.0) billion for Q3 2022 and by $(10.5) billion for the nine months ended September 30, 2022.

Sales increased 9% in Q1 2023 compared to the comparable prior year period.

Changes in foreign exchange rates reduced net sales by $2.4 billion for Q1 2023.

For a discussion of the effect of foreign exchange rates on sales growth, see “Effect of Foreign Exchange Rates” below.

North America sales increased 20% in Q3 2022, and 13% for the nine months ended September 30, 2022 compared to the comparable prior year periods.

The sales growth primarily reflects increased unit sales, including sales by third-party sellers, and advertising sales.

North America sales increased 11% in Q1 2023 compared to the comparable prior year period.

The sales growth primarily reflects increased unit sales, primarily by third-party sellers, advertising sales, and subscription services.

Increased unit sales were driven largely by our continued focus on price, selection, and convenience for our customers, including from our shipping offers.

International sales decreased 5% in Q3 2022, and 8% for the nine months ended September 30, 2022, compared to the comparable prior year periods, primarily due to the impact of foreign currency exchange rates, partially offset by increased unit sales, including sales by third-party sellers, advertising sales, and subscription services.

International sales increased 1% in Q1 2023 compared to the comparable prior year period, primarily due to increased unit sales, primarily by third-party sellers, advertising sales, and subscription services, partially offset by the impact of changes in

foreign exchange rates.

Increased unit sales were driven largely by our continued focus on price, selection, and convenience for our customers, including from our shipping offers.

Changes in foreign currency exchange rates impacted International net sales by $(4.9) billion for Q3 2022, and by $(10.2) billion for the nine months ended September 30, 2022 .

AWS sales increased 27% in Q3 2022, and 32% for the nine months ended September 30, 2022 compared to the comparable prior year periods.

Changes in foreign exchange rates reduced International net sales by $2.3 billion for Q1 2023.

AWS sales increased 16% in Q1 2023 compared to the comparable prior year period.

The sales growth primarily reflects increased customer usage, partially offset by pricing changes, primarily driven by long-term customer contracts.

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2022 2021 2022

Operating Income (Loss)

3 unchanged sentences

Consolidated $ 3,669 $ 4,774

Operating income decreased from $4.9 billion in Q3 2021 to $2.5 billion in Q3 2022, and decreased from $21.4 billion for the nine months ended September 30, 2021 to $9.5 billion for the nine months ended September 30, 2022.

Operating income increased from $3.7 billion in Q1 2022 to $4.8 billion in Q1 2023.

We believe that operating income is a more meaningful measure than gross profit and gross margin due to the diversity of our product categories and services.

The North America operating loss in Q3 2022, as compared to the operating income in the comparable prior year period, is primarily due to increased shipping and fulfillment costs, due in part to increased investments in our fulfillment network and increased transportation costs, and growth in certain operating expenses, partially offset by increased unit sales, including sales by third-party sellers, and advertising sales.

The North America operating loss for the nine months ended September 30, 2022, as compared to the operating income in the comparable prior year period, is primarily due to increased shipping and fulfillment costs, due in part to increased investments in our fulfillment network, increased transportation costs, increased wage rates and incentives, and fulfillment network inefficiencies, and growth in certain operating expenses, partially offset by increased unit sales, including sales by third-party sellers, and advertising sales.

Changes in foreign exchange rates positively impacted operating income (loss) by $95 million for Q3 2022, and by $198 million for the nine months ended September 30, 2022.

The increase in International operating loss in absolute dollars in Q3 2022, compared to the comparable prior year period, is primarily due to increased shipping and fulfillment costs, due in part to increased investments in our fulfillment network and increased transportation costs, and growth in certain operating expenses, partially offset by increased unit sales, including sales by third-party sellers, and advertising sales.

The International operating loss for the nine months ended September 30, 2022, as compared to the operating income in the comparable prior year period, is primarily due to increased shipping and fulfillment costs, due in part to increased investments in our fulfillment network, increased transportation costs, and increased wage rates and incentives, and growth in certain operating expenses, partially offset by increased advertising sales.

Changes in foreign exchange rates negatively impacted operating income (loss) by $216 million for Q3 2022, and by $526 million for the nine months ended September 30, 2022.

The increase in AWS operating income in absolute dollars in Q3 2022 and for the nine months ended September 30, 2022, compared to the comparable prior year periods, is primarily due to increased sales and cost structure productivity, including a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers and networking equipment, partially offset by increased payroll and related expenses and spending on technology infrastructure, all of which were primarily driven by additional investments to support AWS business growth.Changes in foreign exchange rates positively impacted operating income by $478 million for Q3 2022, and by $976 million for the nine months ended September 30, 2022.

The North America operating income in Q1 2023, as compared to the operating loss in the comparable prior year period, is primarily due to increased unit sales, primarily by third-party sellers, and increased advertising sales, partially offset by increased technology and content costs, increased fulfillment and shipping costs, and growth in certain operating expenses.

Changes in foreign exchange rates positively impacted operating income by $41 million for Q1 2023.

The decrease in International operating loss in absolute dollars in Q1 2023, compared to the comparable prior year period, is primarily due to increased unit sales, primarily by third-party sellers, and increased advertising sales, partially offset by increased technology and content costs, increased fulfillment and shipping costs, and growth in certain operating expenses.

Changes in foreign exchange rates negatively impacted operating loss by $174 million for Q1 2023.

The decrease in AWS operating income in absolute dollars in Q1 2023, compared to the comparable prior year period, is primarily due to increased payroll and related expenses and spending on technology infrastructure, both of which were primarily driven by additional investments to support AWS business growth, partially offset by increased sales.

Changes in foreign exchange rates positively impacted operating income by $272 million for Q1 2023.

Operating Expenses

1 unchanged sentence

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2022 2021 2022

Operating expenses:

22 unchanged sentences

Cost of sales primarily consists of the purchase price of consumer products, inbound and outbound shipping costs, including costs related to sortation and delivery centers and where we are the transportation service provider, and digital media content costs where we record revenue gross, including video and music.

The increase in cost of sales in absolute dollars in Q3 2022, compared to the comparable prior year period, is primarily due to increased product and shipping costs resulting from increased sales, increased investments in our fulfillment network, increased transportation costs, and increased wage rates.

The increase in cost of sales in absolute dollars for the nine months ended September 30, 2022, compared to the comparable prior year period, is primarily due to increased product and shipping costs resulting from increased sales, increased investments in our fulfillment network, increased transportation costs, increased wage rates and incentives, and fulfillment network inefficiencies.

Changes in foreign exchange rates reduced cost of sales by $3.6 billion for Q3 2022, and by $7.4 billion for the nine months ended September 30, 2022.

The increase in cost of sales in absolute dollars in Q1 2023, compared to the comparable prior year period, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by fulfillment network efficiencies.

Changes in foreign exchange rates reduced cost of sales by $1.6 billion for Q1 2023.

Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our customers.

Shipping costs, which include sortation and delivery centers and transportation costs, were $18.1 billion and $19.9 billion in Q3 2021 and Q3 2022, and $53.0 billion and $58.8 billion for the nine months ended September 30, 2021 and 2022.

Shipping costs, which include sortation and delivery centers and transportation costs, were $19.6 billion and $19.9 billion in Q1 2022 and Q1 2023.

We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, we use more expensive shipping methods, including faster delivery, and we offer additional services.

3 unchanged sentences

Fulfillment costs primarily consist of those costs incurred in operating and staffing our North America and International fulfillment centers, physical stores, and customer service centers and payment processing costs.

While AWS payment processing and related transaction costs are included in “Fulfillment,” AWS costs are primarily classified as “Technology and content.” Fulfillment costs as a percentage of net sales may vary due to several factors, such as payment processing and related transaction costs, our level of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled, the extent to which third party sellers utilize Fulfillment by Amazon services, timing of fulfillment network and physical store expansion, the extent we utilize fulfillment services provided by third parties, mix of products and services sold, and our ability to affect customer service contacts per unit by implementing improvements in our operations and enhancements to our customer self-service features.

While AWS payment processing and related transaction costs are included in “Fulfillment,” AWS costs are primarily classified as “Technology and content.”

Fulfillment costs as a percentage of net sales may vary due to several factors, such as payment processing and related transaction costs, our level of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled, the extent to which third-party sellers utilize Fulfillment by Amazon services, timing of fulfillment network and physical store expansion, the extent we utilize fulfillment services provided by third parties, mix of products and services sold, and our ability to affect customer service contacts per unit by implementing improvements in our operations and enhancements to our customer self-service features.

Additionally, sales by our sellers have higher payment processing and related transaction costs as a percentage of net sales compared to our retail sales because payment processing costs are based on the gross purchase price of underlying transactions.

The increase in fulfillment costs in absolute dollars in Q3 2022, compared to the comparable prior year period, is primarily due to increased investments in our fulfillment network and variable costs corresponding with increased product and service sales volume and inventory levels.

The increase in fulfillment costs in absolute dollars for the nine months ended September 30, 2022, compared to the comparable prior year period, is primarily due to increased investments in our fulfillment network and variable costs corresponding with increased product and service sales volume and inventory levels, and increased wage rates and incentives.

Changes in foreign exchange rates reduced fulfillment costs by $810 million for Q3 2022, and by $1.7 billion for the nine months ended September 30, 2022.

The increase in fulfillment costs in absolute dollars in Q1 2023, compared to the comparable prior year period, is primarily due to increased sales, partially offset by fulfillment network efficiencies.

Changes in foreign exchange rates reduced fulfillment costs by $396 million for Q1 2023.

We seek to expand our fulfillment network to accommodate a greater selection and in-stock inventory levels and to meet anticipated shipment volumes from sales of our own products as well as sales by third parties for which we provide the fulfillment services.

3 unchanged sentences

Infrastructure costs include servers, networking equipment, and data center related depreciation and amortization, rent, utilities, and other expenses necessary to support AWS and other Amazon businesses.

Collectively, these costs reflect the investments we make in order to offer a wide variety of products and services to our customers.

Collectively, these costs reflect the investments we make in order to offer a wide variety of products and services to our customers, including expenditures related to initiatives to build and deploy innovative and efficient software and electronic devices and the development of a satellite network for global broadband service and autonomous vehicles for ride-hailing services.

We seek to invest efficiently in numerous areas of technology and content so we may continue to enhance the customer experience and improve our process efficiency through rapid technology developments, while operating at an ever increasing scale.

2 unchanged sentences

These costs are allocated to segments based on usage.

The increase in technology and content costs in absolute dollars in Q3 2022 and for the nine months ended September 30, 2022, compared to the comparable prior year periods, is primarily due to increased payroll and related costs associated with technical teams responsible for expanding our existing products and services and initiatives to introduce new products and service offerings, and an increase in spending on technology infrastructure, partially offset by a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers and networking equipment.

The increase in technology and content costs in absolute dollars in Q1 2023, compared to the comparable prior year period, is primarily due to increased payroll and related costs associated with technical teams responsible for expanding our existing products and services and initiatives to introduce new products and service offerings, and an increase in spending on technology infrastructure.

Changes in foreign exchange rates reduced technology and content costs by $304 million for Q1 2023.

See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our 2022 Annual Report on Form 10-K for a discussion of how management views advances in technology and the importance of innovation.

See Item 1 of Part I, “Financial Statements — Note 1 — Accounting Policies and Supplemental Disclosures — Use of Estimates” for additional information on the change in estimated useful lives of our servers and networking equipment.

Sales and Marketing

3 unchanged sentences

To the extent there is increased or decreased competition for these traffic sources, or to the extent our mix of these channels shifts, we would expect to see a corresponding change in our marketing costs.

The increase in sales and marketing costs in absolute dollars in Q3 2022 and for the nine months ended September 30, 2022, compared to the comparable prior year periods, is primarily due to increased payroll and related expenses for personnel engaged in marketing and selling activities and higher marketing spend.

The increase in sales and marketing costs in absolute dollars in Q1 2023, compared to the comparable prior year period, is primarily due to increased payroll and related expenses for personnel engaged in marketing and selling activities.

While costs associated with Amazon Prime membership benefits and other shipping offers are not included in sales and marketing expense, we view these offers as effective worldwide marketing tools, and intend to continue offering them indefinitely.

General and Administrative

The increase in general and administrative costs in absolute dollars in Q3 2022 and for the nine months ended September 30, 2022, compared to the comparable prior year periods, is primarily due to increases in payroll and related expenses and professional fees.

The increase in general and administrative costs in absolute dollars in Q1 2023, compared to the comparable prior year period, is primarily due to an increase in payroll and related expenses.

Other Operating Expense (Income), Net

Other operating expense (income), net was $(11) million and $165 million for Q3 2021 and Q3 2022, and $38 million and $504 million for the nine months ended September 30, 2021 and 2022, and was primarily related to impairments of property and equipment and operating leases in 2022 and the amortization of intangible assets.

Other operating expense (income), net was $249 million and $223 million for Q1 2022 and Q1 2023, and was primarily related to asset impairments for physical store closures in Q1 2022 and for fulfillment network facilities in Q1 2023, and the amortization of intangible assets.

Interest Income and Expense

Our interest income was $119 million and $277 million during Q3 2021 and Q3 2022, and $330 million and $544 million for the nine months ended September 30, 2021 and 2022.

Our interest income was $108 million and $611 million during Q1 2022 and Q1 2023, primarily due to an increase in prevailing rates.

We generally invest our excess cash in AAA-rated money market funds and investment grade short- to intermediate-term fixed income securities.

Our interest income corresponds with the average balance of invested funds based on the prevailing rates, which vary depending on the geographies and currencies in which they are invested.

Interest expense was $493 million and $617 million during Q3 2021 and Q3 2022, and $1.3 billion and $1.7 billion for the nine months ended September 30, 2021 and 2022, and was primarily related to debt and finance leases.

Interest expense was $472 million and $823 million during Q1 2022 and Q1 2023, and was primarily related to debt and finance leases.

See Item 1 of Part I, “Financial Statements — Note 3 — Leases and Note 5 — Debt” for additional information.

Other Income (Expense), Net

Other income (expense), net was $(163) million and $759 million during Q3 2021 and Q3 2022, and $2.8 billion and $(13.4) billion for the nine months ended September 30, 2021 and 2022.

Other income (expense), net was $(8.6) billion and $(443) million during Q1 2022 and Q1 2023.

The primary components of other income (expense), net are related to equity securities valuations and adjustments, equity warrant valuations, and foreign currency.

Included in other income (expense), net is a marketable equity securities valuation gain (loss) of $1.1 billion in Q3 2022, and $(10.4) billion for the nine months ended September 30, 2022, from our equity investment in Rivian.

Our income tax provision for the nine months ended September 30, 2021 was $4.2 billion, which included $1.7 billion of net discrete tax benefits primarily attributable to excess tax benefits from stock-based compensation and audit-related developments.

Our income tax benefit for the nine months ended September 30, 2022 was $2.0 billion, which included $3.3 billion of net discrete tax benefits primarily attributable to a valuation loss related to our equity investment in Rivian.

Included in other income (expense), net is a marketable equity securities valuation gain (loss) of $(7.6) billion and $(467) million in Q1 2022 and Q1 2023, from our equity investment in Rivian.

Our income tax benefit for the three months ended March 31, 2022 was $1.4 billion, which included $2.1 billion of net discrete tax benefits primarily attributable to a valuation loss related to our equity investment in Rivian.

Our income tax provision for the three months ended March 31, 2023 was $948 million, which included $48 million of net discrete tax expense.

See Item 1 of Part I, “Financial Statements — Note 7 — Income Taxes” for additional information.

4 unchanged sentences

Free Cash Flow

Free cash flow is cash flow from operations reduced by “Purchases of property and equipment, net of proceeds from sales and incentives.” The following is a reconciliation of free cash flow to the most comparable GAAP cash flow measure, “Net cash provided by (used in) operating activities,” for the trailing twelve months ended September 30, 2021 and 2022 (in millions):

Twelve Months Ended

September 30,

Net cash provided by (used in) operating activities $ 39,324 $ 54,330

5 unchanged sentences

Free cash flow less principal repayments of finance leases and financing obligations is free cash flow reduced by “Principal repayments of finance leases” and “Principal repayments of financing obligations.” Principal repayments of finance leases and financing obligations approximates the actual payments of cash for our finance leases and financing obligations.

The following is a reconciliation of free cash flow less principal repayments of finance leases and financing obligations to the most comparable GAAP cash flow measure, “Net cash provided by (used in) operating activities,” for the trailing twelve months ended September 30, 2021 and 2022 (in millions):

Twelve Months Ended

September 30,

Net cash provided by (used in) operating activities $ 39,324 $ 54,330

9 unchanged sentences

In this measure, equipment acquired under finance leases is reflected as if these assets had been purchased with cash, which is not the case as these assets have been leased.

The following is a reconciliation of free cash flow less equipment finance leases and principal repayments of all other finance leases and financing obligations to the most comparable GAAP cash flow measure, “Net cash provided by (used in) operating activities,” for the trailing twelve months ended September 30, 2021 and 2022 (in millions):

Twelve Months Ended

September 30,

Net cash provided by (used in) operating activities $ 39,324 $ 54,330

8 unchanged sentences

___________________

(1) For the twelve months ended September 30, 2021 and 2022, this amount relates to equipment included in “Property and equipment acquired under finance leases, net of remeasurements and modifications” of $8,149 million and $1,966 million.

(2) For the twelve months ended September 30, 2021 and 2022, this amount relates to property included in “Principal repayments of finance leases” of $11,271 million and $8,561 million.

(1) For the twelve months ended March 31, 2022 and 2023, this amount relates to equipment included in “Property and equipment acquired under finance leases, net of remeasurements and modifications” of $5,160 million and $517 million.

(2) For the twelve months ended March 31, 2022 and 2023, this amount relates to property included in “Principal repayments of finance leases” of $10,534 million and $6,544 million.

All of these free cash flows measures have limitations as they omit certain components of the overall cash flow statement and do not represent the residual cash flow available for discretionary expenditures.

7 unchanged sentences

Dollar is as follows (in millions):

Three Months Ended September 30, Nine Months Ended September 30,

2021 2022 2021 2022

Reported Exchange

Effect (1) At Prior

Rates (2) As Reported Exchange

Effect (1) At Prior

Three Months Ended March 31,

Reported Exchange

8 unchanged sentences

(2) Represents the outcome that would have resulted had foreign exchange rates in the reported period been the same as those in effect in the comparable prior year period for operating results.

We provided guidance on October 27, 2022, in our earnings release furnished on Form 8-K as set forth below.

These forward-looking statements reflect Amazon.com’s expectations as of October 27, 2022, and are subject to substantial uncertainty.

Our results are inherently unpredictable and may be materially affected by many factors, such as uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market and global supply chain constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, as well as those outlined in Item 1A of Part II, “Risk Factors.” This guidance reflects our estimates as of October 27, 2022 regarding the impacts of the COVID-19 pandemic on our operations as well as the effect of other factors discussed above.

Fourth Quarter 2022 Guidance

• Net sales are expected to be between $140.0 billion and $148.0 billion, or to grow between 2% and 8% compared with fourth quarter 2021.

We provided guidance on April 27, 2023, in our earnings release furnished on Form 8-K as set forth below.

These forward-looking statements reflect Amazon.com’s expectations as of April 27, 2023, and are subject to substantial uncertainty.

Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the Internet, online commerce, and cloud services, as well as those outlined in Item 1A of Part II, “Risk Factors.”

Second Quarter 2023 Guidance

• Net sales are expected to be between $127.0 billion and $133.0 billion, or to grow between 5% and 10% compared with second quarter 2022.

This guidance anticipates an unfavorable impact of approximately 30 basis points from foreign exchange rates.

• Operating income is expected to be between $0 and $4.0 billion, compared with $3.5 billion in fourth quarter 2021.

• Operating income is expected to be between $2.0 billion and $5.5 billion, compared with $3.3 billion in second quarter 2022.

• This guidance assumes, among other things, that no additional business acquisitions, restructurings, or legal settlements are concluded.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis