What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-04 compared with 2023-04-28 · 90 added, 77 removed, 219 unchanged (43% of the section changed)

20 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 March 31, 2023, we would have recorded an additional cost of sales of approximately $390 million.

As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of June 30, 2023, we would have recorded an additional cost of sales of approximately $385 million.

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

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Three Months Ended

March 31, Twelve Months Ended

June 30, Six Months Ended

June 30, Twelve Months Ended

2022 2023 2022 2023 2022 2023

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Financing activities 4,626 (6,539) 6,616 (185) 740 2,917

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 $(2.8) billion and $4.8 billion for Q1 2022 and Q1 2023.

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 $64.0 billion as of December 31, 2022 and June 30, 2023.

Amounts held in foreign currencies were $18.3 billion and $14.8 billion as of December 31, 2022 and June 30, 2023.

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

Cash provided by (used in) operating activities was $9.0 billion and $16.5 billion for Q2 2022 and Q2 2023, and $6.2 billion and $21.3 billion for the six months ended June 30, 2022 and 2023.

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.

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

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.

The increase in operating cash flow for the trailing twelve months ended June 30, 2023, compared to the comparable prior year period, was 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 $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.

Cash provided by (used in) investing activities was $(12.1) billion and $(9.7) billion for Q2 2022 and Q2 2023, and $(11.2) billion and $(25.5) billion for the six months ended June 30, 2022 and 2023, with the variability caused primarily by purchases, sales, and maturities of marketable securities.

Cash capital expenditures were $14.1 billion and $10.4 billion during Q2 2022 and Q2 2023, and $27.8 billion and $23.5 billion for the six months ended June 30, 2022 and 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 made cash payments, net of acquired cash, related to acquisition and other investment activity of $259 million and $316 million during Q2 2022 and Q2 2023, and $6.6 billion and $3.8 billion for the six months ended June 30, 2022 and 2023.

We funded the acquisitions of MGM Holdings Inc.

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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.

Cash provided by (used in) financing activities was $4.6 billion and $(6.5) billion for Q2 2022 and Q2 2023, and $6.6 billion and $(185) million for the six months ended June 30, 2022 and 2023.

Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term debt of $17.7 billion and $4.4 billion for Q2 2022 and Q2 2023, and $31.4 billion and $17.2 billion for the six months ended June 30, 2022 and 2023.

Cash outflows from financing activities resulted from repurchases of common stock in 2022, payments of short-term debt, and other, long-term debt, finance leases, and financing obligations of $13.1 billion and $10.9 billion in Q2 2022 and Q2 2023, and $24.8 billion and $17.4 billion for the six months ended June 30, 2022 and 2023.

Property and equipment acquired under finance leases was $61 million and $240 million during Q2 2022 and Q2 2023, and $227 million and $248 million for the six months ended June 30, 2022 and 2023.

We had no borrowings outstanding under the two unsecured revolving credit facilities, $4.4 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 June 30, 2023.

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

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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.

Cash taxes paid (net of refunds) were $3.1 billion and $3.7 billion for Q2 2022 and Q2 2023, and $3.6 billion and $4.4 billion for the six months ended June 30, 2022 and 2023.

As of December 31, 2022 and June 30, 2023, restricted cash, cash equivalents, and marketable securities were $365 million and $538 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.

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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.

In addition, changes in 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.

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Product sales represent revenue from the sale of products and related shipping fees and digital media content where we record revenue gross.

Service sales primarily represent third-party seller fees, which includes commissions and any related fulfillment and shipping fees, AWS sales, advertising services, Amazon Prime membership fees, and certain digital content subscriptions.

Net sales information is as follows (in millions):

Three Months Ended

June 30, Six Months Ended

2022 2023 2022 2023

North America $ 74,430 $ 82,546 $ 143,674 $ 159,427

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International (12) 10 (9) 5

AWS 33 12 35 14

Consolidated 7 11 7 10

Year-over-year Percentage Growth, excluding the effect of foreign exchange rates:

Year-over-year Percentage Growth (Decline), excluding the effect of foreign exchange rates:

North America 10 % 11 % 9 % 11 %

International (1) 10 0 10

AWS 33 12 35 14

Consolidated 10 11 10 11

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International 22 22 24 22

AWS 16 17 16 17

Consolidated 100 % 100 % 100 % 100 %

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.

Sales increased 11% in Q2 2023, and 10% for the six months ended June 30, 2023 compared to the comparable prior year periods.

Changes in foreign exchange rates reduced net sales by $285 million for Q2 2023, and by $2.7 billion for the six months ended June 30, 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 11% in Q1 2023 compared to the comparable prior year period.

North America sales increased 11% in Q2 2023, and 11% for the six months ended June 30, 2023 compared to the comparable prior year periods.

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 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.

International sales increased 10% in Q2 2023, and 5% for the six months ended June 30, 2023 compared to the comparable prior year periods, 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 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.

Changes in foreign exchange rates reduced International net sales by $180 million for Q2 2023, and by $2.4 billion for the six months ended June 30, 2023.

AWS sales increased 12% in Q2 2023, and 14% for the six months ended June 30, 2023 compared to the comparable prior year periods.

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

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Three Months Ended

June 30, Six Months Ended

2022 2023 2022 2023

Operating Income (Loss)

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Consolidated $ 3,317 $ 7,681 $ 6,986 $ 12,455

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

Operating income increased from $3.3 billion in Q2 2022 to $7.7 billion in Q2 2023, and increased from $7.0 billion for the six months ended June 30, 2022 to $12.5 billion for the six months ended June 30, 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 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.

The North America operating income in Q2 2023 and for the six months ended June 30, 2023, as compared to the operating loss in the comparable prior year periods, is primarily due to increased unit sales and increased advertising sales, partially offset by increased technology and infrastructure costs, increased shipping and fulfillment costs, and growth in certain operating expenses.

Changes in foreign exchange rates negatively impacted operating income by $7 million for Q2 2023, and positively impacted operating income by $34 million for the six months ended June 30, 2023.

The decrease in International operating loss in absolute dollars in Q2 2023 and for the six months ended June 30, 2023, compared to the comparable prior year periods, is primarily due to increased unit sales and increased advertising sales, partially offset by increased fulfillment and shipping costs, increased technology and infrastructure costs, and growth in certain operating expenses.

Changes in foreign exchange rates positively impacted operating loss by $32 million for Q2 2023, and negatively impacted operating loss by $142 million for the six months ended June 30, 2023.

The decrease in AWS operating income in absolute dollars in Q2 2023 and for the six months ended June 30, 2023, compared to the comparable prior year periods, 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 $79 million for Q2 2023, and by $351 million for the six months ended June 30, 2023.

Operating Expenses

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Three Months Ended

June 30, Six Months Ended

2022 2023 2022 2023

Operating expenses:

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Fulfillment 20,342 21,305 40,613 42,210

Technology and content 14,842 20,450

Technology and infrastructure 18,072 21,931 32,914 42,381

Sales and marketing 10,086 10,745 18,406 20,917

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Total operating expenses $ 117,917 $ 126,702 $ 230,692 $ 249,286

Year-over-year Percentage Growth (Decline):

Year-over-year Percentage Growth:

Cost of sales 4 % 4 % 5 % 3 %

Fulfillment 15 5 19 4

Technology and content 19 38

Technology and infrastructure 30 21 25 29

Sales and marketing 34 7 34 14

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Fulfillment 16.8 15.9 17.1 16.1

Technology and content 12.7 16.1

Technology and infrastructure 14.9 16.3 13.8 16.2

Sales and marketing 8.3 8.0 7.7 8.0

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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 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.

The increase in cost of sales in absolute dollars in Q2 2023 and for the six months ended June 30, 2023, compared to the comparable prior year periods, 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 $208 million for Q2 2023, and by $1.8 billion for the six months ended June 30, 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 $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.

Shipping costs, which include sortation and delivery centers and transportation costs, were $19.3 billion and $20.5 billion in Q2 2022 and Q2 2023, and $38.9 billion and $40.4 billion for the six months ended June 30, 2022 and 2023.

We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing our fulfillment network, negotiating better terms with our suppliers, and achieving better operating efficiencies.

We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers.

Costs to operate our AWS segment are primarily classified as “Technology and content” as we leverage a shared infrastructure that supports both our internal technology requirements and external sales to AWS customers.

Costs to operate our AWS segment are primarily classified as “Technology and infrastructure” as we leverage a shared infrastructure that supports both our internal technology requirements and external sales to AWS customers.

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 infrastructure.” 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 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.

The increase in fulfillment costs in absolute dollars in Q2 2023 and for the six months ended June 30, 2023, compared to the comparable prior year periods, is primarily due to increased sales, partially offset by fulfillment network efficiencies.

Changes in foreign exchange rates reduced fulfillment costs by $35 million for Q2 2023, and by $431 million for the six months ended June 30, 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.

We regularly evaluate our facility requirements.

Technology and Content

Technology and content costs include payroll and related expenses for employees involved in the research and development of new and existing products and services, development, design, and maintenance of our stores, curation and display of products and services made available in our online stores, and infrastructure costs.

Technology and Infrastructure

Technology and infrastructure costs include payroll and related expenses for employees involved in the research and development of new and existing products and services, development, design, and maintenance of our stores, curation and display of products and services made available in our online stores, and infrastructure costs.

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, 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.

Our technology and content investment and capital spending projects often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems and operations.

We expect spending in technology and content to increase over time as we continue to add employees and technology infrastructure.

We seek to invest efficiently in numerous areas of technology and infrastructure 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.

Our technology and infrastructure investment and capital spending projects often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems and operations.

We expect spending in technology and infrastructure to increase over time as we continue to add employees and infrastructure.

These costs are allocated to segments based on usage.

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.

The increase in technology and infrastructure costs in absolute dollars in Q2 2023 and for the six months ended June 30, 2023, 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 infrastructure.

Changes in foreign exchange rates reduced technology and infrastructure costs by $95 million for Q2 2023, and by $399 million for the six months ended June 30, 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.

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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 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.

The increase in sales and marketing costs in absolute dollars in Q2 2023 and for the six months ended June 30, 2023, compared to the comparable prior year periods, 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 Q1 2023, compared to the comparable prior year period, is primarily due to an increase in payroll and related expenses.

The increase in general and administrative costs in absolute dollars in Q2 2023 and for the six months ended June 30, 2023, compared to the comparable prior year periods, is primarily due to an increase in payroll and related expenses.

Other Operating Expense (Income), Net

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.

Other operating expense (income), net was $90 million and $146 million for Q2 2022 and Q2 2023, and $339 million and $369 million for the six months ended June 30, 2022 and 2023, and was primarily related to asset impairments for physical store closures in 2022 and for fulfillment network facilities in 2023, and the amortization of intangible assets.

Interest Income and Expense

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 was $159 million and $661 million during Q2 2022 and Q2 2023, and $267 million and $1.3 billion for the six months ended June 30, 2022 and 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 marketable debt 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 $472 million and $823 million during Q1 2022 and Q1 2023, and was primarily related to debt and finance leases.

Interest expense was $584 million and $840 million during Q2 2022 and Q2 2023, and $1.1 billion and $1.7 billion for the six months ended June 30, 2022 and 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 $(8.6) billion and $(443) million during Q1 2022 and Q1 2023.

Other income (expense), net was $(5.5) billion and $61 million during Q2 2022 and Q2 2023, and $(14.1) billion and $(382) million for the six months ended June 30, 2022 and 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 $(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.

Included in other income (expense), net is a marketable equity securities valuation gain (loss) of $(3.9) billion and $187 million in Q2 2022 and Q2 2023, and $(11.5) billion and $(280) million for the six months ended June 30, 2022 and 2023, from our equity investment in Rivian.

Our income tax benefit for the six months ended June 30, 2022 was $2.1 billion, which included $3.2 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 six months ended June 30, 2023 was $1.8 billion, which included $306 million of net discrete tax benefits.

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

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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 March 31, 2022 and 2023 (in millions):

Twelve Months Ended

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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 March 31, 2022 and 2023 (in millions):

Twelve Months Ended

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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 March 31, 2022 and 2023 (in millions):

Twelve Months Ended

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___________________

(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.

(1) For the twelve months ended June 30, 2022 and 2023, this amount relates to equipment included in “Property and equipment acquired under finance leases, net of remeasurements and modifications” of $3,579 million and $696 million.

(2) For the twelve months ended June 30, 2022 and 2023, this amount relates to property included in “Principal repayments of finance leases” of $9,789 million and $5,705 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.

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Dollar is as follows (in millions):

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2023 2022 2023

Reported Exchange

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Effect (1) At Prior

Reported Exchange

Effect (1) At Prior

Rates (2) As Reported Exchange

Effect (1) At Prior

Net sales $ 121,234 $ 3,599 $ 124,833 $ 134,383 $ 285 $ 134,668 $ 237,678 $ 5,440 $ 243,118 $ 261,741 $ 2,721 $ 264,462

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(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 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.

We provided guidance on August 3, 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 August 3, 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 $2.0 billion and $5.5 billion, compared with $3.3 billion in second quarter 2022.

Third Quarter 2023 Guidance

• Net sales are expected to be between $138.0 billion and $143.0 billion, or to grow between 9% and 13% compared with third quarter 2022.

This guidance anticipates a favorable impact of approximately 120 basis points from foreign exchange rates.

• Operating income is expected to be between $5.5 billion and $8.5 billion, compared with $2.5 billion in third quarter 2022.

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

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What changed 10-Q

Item 2. Management’s Discussion and Analysis