What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-08-04 · 82 added, 66 removed, 243 unchanged (38% 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 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.

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, cloud services, and new and emerging technologies, 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.

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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 June 30, 2023, we would have recorded an additional cost of sales of approximately $385 million.

As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of September 30, 2023, we would have recorded an additional cost of sales of approximately $375 million.

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

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Three Months Ended

June 30, Six Months Ended

June 30, Twelve Months Ended

September 30, Nine Months Ended

September 30, Twelve Months Ended

September 30,

2022 2023 2022 2023 2022 2023

3 unchanged sentences

Financing activities 3,016 (8,948) 9,632 (9,133) 6,532 (9,047)

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 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 $64.2 billion as of December 31, 2022 and September 30, 2023.

Amounts held in foreign currencies were $18.3 billion and $13.7 billion as of December 31, 2022 and September 30, 2023.

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

Cash provided by (used in) operating activities was $11.4 billion and $21.2 billion for Q3 2022 and Q3 2023, and $17.6 billion and $42.5 billion for the nine months ended September 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 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.

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

Cash provided by (used in) investing activities was $(15.6) billion and $(11.8) billion for Q3 2022 and Q3 2023, and $(26.8) billion and $(37.2) billion for the nine months ended September 30, 2022 and 2023, with the variability caused primarily by purchases, sales, and maturities of marketable securities and cash capital expenditures.

Cash capital expenditures were $15.0 billion and $11.3 billion during Q3 2022 and Q3 2023, and $42.9 billion and $34.8 billion for the nine months ended September 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 $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.

We made cash payments, net of acquired cash, related to acquisition and other investment activity of $885 million and $1.6 billion during Q3 2022 and Q3 2023, and $7.5 billion and $5.5 billion for the nine months ended September 30, 2022 and 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 $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.

In Q3 2023, we invested $1.25 billion in a note from Anthropic, PBC, which is convertible into equity.

We have an agreement that expires in Q1 2024 to invest up to an additional $2.75 billion in a second convertible note.

Cash provided by (used in) financing activities was $3.0 billion and $(8.9) billion for Q3 2022 and Q3 2023, and $9.6 billion and $(9.1) billion for the nine months ended September 30, 2022 and 2023.

Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term debt of $12.4 billion and $216 million for Q3 2022 and Q3 2023, and $43.9 billion and $17.4 billion for the nine months ended September 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 $9.4 billion and $9.2 billion in Q3 2022 and Q3 2023, and $34.2 billion and $26.5 billion for the nine months ended September 30, 2022 and 2023.

Property and equipment acquired under finance leases was $131 million and $183 million during Q3 2022 and Q3 2023, and $358 million and $431 million for the nine months ended September 30, 2022 and 2023.

We had no borrowings outstanding under the two unsecured revolving credit facilities, $567 million of borrowings outstanding under the commercial paper programs, $972 million of borrowings outstanding under our Credit Facility, and $5.0 billion of borrowings outstanding under the Term Loan as of September 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 $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.

Cash taxes paid (net of refunds) were $742 million and $2.6 billion for Q3 2022 and Q3 2023, and $4.3 billion and $7.0 billion for the nine months ended September 30, 2022 and 2023.

As of December 31, 2022 and September 30, 2023, restricted cash, cash equivalents, and marketable securities were $365 million and $476 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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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2023 2022 2023

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Consolidated 15 13 10 11

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

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

North America 20 % 11 % 13 % 11 %

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Consolidated 100 % 100 % 100 % 100 %

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.

Sales increased 13% in Q3 2023, and 11% for the nine months ended September 30, 2023 compared to the comparable prior year periods.

Changes in foreign exchange rates increased net sales by $1.4 billion for Q3 2023, and reduced net sales by $1.3 billion for the nine months ended September 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 Q2 2023, and 11% for the six months ended June 30, 2023 compared to the comparable prior year periods.

North America sales increased 11% in Q3 2023, and 11% for the nine months ended September 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 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.

International sales increased 16% in Q3 2023, and 9% for the nine months ended September 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.

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 $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.

Changes in foreign exchange rates increased International net sales by $1.4 billion for Q3 2023, and reduced International net sales by $1.1 billion for the nine months ended September 30, 2023.

AWS sales increased 12% in Q3 2023, and 13% for the nine months ended September 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

September 30, Nine Months Ended

September 30,

2022 2023 2022 2023

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Consolidated $ 2,525 $ 11,188 $ 9,511 $ 23,643

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.

Operating income increased from $2.5 billion in Q3 2022 to $11.2 billion in Q3 2023, and increased from $9.5 billion for the nine months ended September 30, 2022 to $23.6 billion for the nine months ended September 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 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.

The North America operating income in Q3 2023, as compared to the operating loss in the comparable prior year period, is primarily due to increased unit sales and increased advertising sales, partially offset by increased shipping and fulfillment costs.

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

Changes in foreign exchange rates negatively impacted operating income by $27 million for Q3 2023, and positively impacted operating income by $7 million for the nine months ended September 30, 2023.

The decrease in International operating loss in absolute dollars in Q3 2023, compared to the comparable prior year period, is primarily due to increased unit sales and increased advertising sales.

The decrease in International operating loss in absolute dollars for the nine months ended September 30, 2023, compared to the comparable prior year period, 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 $228 million for Q3 2023, and by $86 million for the nine months ended September 30, 2023.

The increase in AWS operating income in absolute dollars in Q3 2023, compared to the comparable prior year period, is primarily due to increased sales and cost structure productivity, partially offset by spending on technology infrastructure, which was primarily driven by additional investments to support AWS business growth.

The decrease in AWS operating income in absolute dollars for the nine months ended September 30, 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 negatively impacted operating income by $69 million for Q3 2023, and positively impacted operating income by $282 million for the nine months ended September 30, 2023.

Operating Expenses

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Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2023 2022 2023

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Total operating expenses $ 124,576 $ 131,895 $ 355,268 $ 381,181

Year-over-year Percentage Growth:

Year-over-year Percentage Growth (Decline):

Cost of sales 12 % 7 % 7 % 4 %

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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 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.

The increase in cost of sales in absolute dollars in Q3 2023 and for the nine months ended September 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 and lower transportation rates.

Changes in foreign exchange rates increased cost of sales by $818 million for Q3 2023, and reduced cost of sales by $1.0 billion for the nine months ended September 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 $19.3 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.

Shipping costs, which include sortation and delivery centers and transportation costs, were $19.9 billion and $21.8 billion in Q3 2022 and Q3 2023, and $58.8 billion and $62.2 billion for the nine months ended September 30, 2022 and 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, and we offer additional services.

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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 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.

The increase in fulfillment costs in absolute dollars in Q3 2023 and for the nine months ended September 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 increased fulfillment costs by $249 million for Q3 2023, and reduced fulfillment costs by $182 million for the nine months ended September 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.

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These costs are allocated to segments based on usage.

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.

The increase in technology and infrastructure costs in absolute dollars in Q3 2023, compared to the comparable prior year period, is primarily due to an increase in spending on infrastructure.

The increase in technology and infrastructure costs in absolute dollars for the nine months ended September 30, 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 infrastructure.

Changes in foreign exchange rates increased technology and infrastructure costs by $87 million for Q3 2023, and reduced technology and infrastructure costs by $312 million for the nine months ended September 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 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.

The decrease in sales and marketing costs in absolute dollars in Q3 2023, compared to the comparable prior year period, is primarily due to lower marketing spend.

The increase in sales and marketing costs in absolute dollars for the nine months ended September 30, 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 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.

The decrease in general and administrative costs in absolute dollars in Q3 2023, compared to the comparable prior year period, is primarily due to a decrease in payroll and related expenses.

The increase in general and administrative costs in absolute dollars for the nine months ended September 30, 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 $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.

Other operating expense (income), net was $165 million and $244 million for Q3 2022 and Q3 2023, and $504 million and $613 million for the nine months ended September 30, 2022 and 2023, and was primarily related to asset impairments for physical store closures in 2022 and for fulfillment network facilities and physical store closures in 2023, and the amortization of intangible assets.

Interest Income and Expense

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.

Our interest income was $277 million and $776 million during Q3 2022 and Q3 2023, and $544 million and $2.0 billion for the nine months ended September 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 $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.

Interest expense was $617 million and $806 million during Q3 2022 and Q3 2023, and $1.7 billion and $2.5 billion for the nine months ended September 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 $(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.

Other income (expense), net was $759 million and $1.0 billion during Q3 2022 and Q3 2023, and $(13.4) billion and $649 million for the nine months ended September 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 $(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.

Included in other income (expense), net is a marketable equity securities valuation gain (loss) of $1.1 billion and $1.2 billion in Q3 2022 and Q3 2023, and $(10.4) billion and $926 million for the nine months ended September 30, 2022 and 2023, from our equity investment in Rivian.

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.

Our income tax provision for the nine months ended September 30, 2023 was $4.1 billion, which included $175 million of net discrete tax expense.

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 June 30, 2022 and 2023 (in millions):

Twelve Months Ended

September 30,

Net cash provided by (used in) operating activities $ 39,665 $ 71,654

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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 June 30, 2022 and 2023 (in millions):

Twelve Months Ended

September 30,

Net cash provided by (used in) operating activities $ 39,665 $ 71,654

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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 June 30, 2022 and 2023 (in millions):

Twelve Months Ended

September 30,

Net cash provided by (used in) operating activities $ 39,665 $ 71,654

8 unchanged sentences

___________________

(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.

(1) For the twelve months ended September 30, 2022 and 2023, this amount relates to equipment included in “Property and equipment acquired under finance leases, net of remeasurements and modifications” of $1,966 million and $748 million.

(2) For the twelve months ended September 30, 2022 and 2023, this amount relates to property included in “Principal repayments of finance leases” of $8,561 million and $5,245 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 June 30, Six Months Ended June 30,

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

2022 2023 2022 2023

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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 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.”

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.

We provided guidance on October 26, 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 October 26, 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, cloud services, and new and emerging technologies, as well as those outlined in Item 1A of Part II, “Risk Factors.”

Fourth Quarter 2023 Guidance

• Net sales are expected to be between $160.0 billion and $167.0 billion, or to grow between 7% and 12% compared with fourth quarter 2022.

This guidance anticipates a favorable impact of approximately 40 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.

• Operating income is expected to be between $7.0 billion and $11.0 billion, compared with $2.7 billion in fourth 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