What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-07 compared with 2024-02-02 · 58 added, 52 removed, 291 unchanged (27% of the section changed)

98 unchanged sentences

Cash provided by (used in) investing activities was $(49.8) billion and $(94.3) billion in 2023 and 2024, with the variability caused primarily by purchases, sales, and maturities of marketable securities and cash capital expenditures.

Cash capital expenditures were $58.3 billion, and $48.1 billion in 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, which investments we expect to increase in 2024.

Cash capital expenditures were $48.1 billion, and $77.7 billion in 2023 and 2024, 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 increase in 2025, primarily driven by investments in technology infrastructure.

We made cash payments, net of acquired cash, related to acquisition and other investment activity of $5.8 billion and $7.1 billion in 2023 and 2024.

We funded the acquisitions of MGM Holdings Inc.

in 2022 and 1Life Healthcare, Inc.

We funded the acquisition of 1Life Healthcare, Inc.

(One Medical) in 2023 with cash on hand.

In 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.

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

In Q1 2024, we invested $2.75 billion in a second convertible note.

In Q4 2024, we entered into an agreement and invested $1.3 billion in a third convertible note, and will invest an additional $2.7 billion by Q4 2025.

Cash provided by (used in) financing activities was $(15.9) billion and $(11.8) billion in 2023 and 2024.

Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term-debt of $18.1 billion and $5.1 billion in 2023 and 2024.

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 $53.0 billion and $34.0 billion in 2022 and 2023.

Cash outflows from financing activities resulted from payments of short-term debt, and other, long-term debt, finance leases, and financing obligations of $34.0 billion and $17.0 billion in 2023 and 2024.

Property and equipment acquired under finance leases was $642 million and $854 million in 2023 and 2024.

We had no borrowings outstanding under the two unsecured revolving credit facilities or the commercial paper programs, we had $682 million of borrowings outstanding under the secured revolving credit facility, and the entire amount of the term loan has been repaid as of December 31, 2023.

We had no borrowings outstanding under the two unsecured revolving credit facilities or the commercial paper programs as of December 31, 2024.

See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 6 — Debt” for additional information.

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

Our federal tax provision included a partial accelerated depreciation deduction election for 2021, and a full election for 2022 and 2023.

Our federal tax provision included accelerated depreciation deductions for 2022, 2023, and 2024.

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

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(federal and state) and foreign income taxes (net of refunds) totaled $11.2 billion and $12.3 billion for 2023 and 2024.

As of December 31, 2022 and 2023, restricted cash, cash equivalents, and marketable securities were $365 million and $503 million.

As of December 31, 2023 and 2024, restricted cash, cash equivalents, and marketable securities were $503 million and $3.5 billion.

See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 6 — Debt” and “Financial Statements and Supplementary Data — Note 7 — Commitments and Contingencies” for additional discussion of our principal contractual commitments, as well as our pledged assets.

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See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 10 — Segment Information.”

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, changes in fuel, utility, and food costs, interest rates, and economic outlook 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 Q1 2024.

Macroeconomic factors, including changes in inflation and interest rates, global economic and geopolitical developments, and the development and adoption of technologies and services, including artificial intelligence, have direct and indirect impacts on our results of operations that are difficult to isolate and quantify.

These could affect customer demand for our products and services, our ability to predict growth needs, expenses, and the benefits we gain from new technologies.

We expect some or all of them to continue to impact our operations into Q1 2025.

Net sales include product and service sales.

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Consolidated $ 574,785 $ 637,959

Year-over-year Percentage Growth (Decline):

Year-over-year Percentage Growth:

North America 12 % 10 %

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Sales increased 11% in 2024, compared to the prior year.

Changes in foreign exchange rates reduced net sales by $71 million in 2023.

Changes in foreign exchange rates reduced net sales by $2.3 billion in 2024.

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

North America sales increased 10% in 2024, compared to the prior year.

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.

The sales growth primarily reflects increased unit sales, including sales 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 fast shipping offers.

Changes in foreign exchange rates reduced North America net sales by $462 million in 2024.

International sales increased 9% in 2024, compared to the prior year.

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.

Changes in foreign exchange rates increased International net sales by $88 million in 2023.

The sales growth primarily reflects increased unit sales, including sales 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 fast shipping offers.

Changes in foreign exchange rates reduced International net sales by $1.8 billion in 2024.

AWS sales increased 19% in 2024, compared to the prior year.

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

Operating Income (Loss)

Operating income (loss) by segment is as follows (in millions):

Year Ended December 31,

Operating Income (Loss)

North America $ (2,847) $ 14,877

International (7,746) (2,656)

AWS 22,841 24,631

Consolidated $ 12,248 $ 36,852

Operating income was $12.2 billion and $36.9 billion for 2022 and 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 2023, as compared to the operating loss in the prior year, is primarily due to increased unit sales and increased advertising sales, partially offset by increased shipping and fulfillment costs and increased technology and infrastructure costs.

The decrease in International operating loss in absolute dollars in 2023, compared to the prior year, is primarily due to increased unit sales and increased advertising sales, partially offset by increased fulfillment and shipping costs and increased technology and infrastructure costs.

Changes in foreign exchange rates positively impacted operating loss by $246 million in 2023.

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

Changes in foreign exchange rates positively impacted operating income by $220 million in 2023.

Operating Expenses

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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 2023, compared to the prior year, 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 reduced cost of sales by $254 million in 2023.

The increase in cost of sales in 2024, compared to the prior year, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by fulfillment network efficiencies, including lower transportation costs.

Changes in foreign exchange rates reduced cost of sales by $1.7 billion in 2024.

Shipping costs were $89.5 billion and $95.8 billion in 2023 and 2024.

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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 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.

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 2023, compared to the prior year, is primarily due to increased sales and investments in our fulfillment network, partially offset by fulfillment network efficiencies.

Changes in foreign exchange rates increased fulfillment costs by $52 million in 2023.

The increase in fulfillment costs in 2024, compared to the prior year, is primarily due to increased sales and investments in our fulfillment network, partially offset by fulfillment network efficiencies.

Changes in foreign exchange rates reduced fulfillment costs by $223 million in 2024.

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 2023, compared to the prior year, is primarily due to an increase in spending on infrastructure and 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.

The increase in technology and infrastructure costs in 2024, compared to the prior year, is primarily due to an increase in spending on infrastructure, partially offset by decreased 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 a reduction in depreciation and amortization expense from our change in the estimated useful life of our servers.

Changes in foreign exchange rates reduced technology and infrastructure costs by $244 million in 2024.

We currently expense the majority of the costs associated with the development of our satellite network for global broadband service (including production, launch, and payroll costs, and launch services deposits upon launch).

We will capitalize certain of these costs once the service achieves commercial viability, including sales to customers.

Sales and Marketing

Sales and marketing costs include advertising and payroll and related expenses for personnel engaged in marketing and selling activities, including sales commissions related to AWS.

We direct customers to our stores primarily through a number of marketing channels, such as our sponsored search, social and online advertising, third-party customer referrals, television advertising, and other initiatives.

We direct customers to our stores primarily through a number of marketing channels, such as our sponsored search, third-party customer referrals, social and online advertising, television advertising, and other initiatives.

Our marketing costs are largely variable, based on growth in sales and changes in rates.

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 2023, compared to the prior year, 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 2024, compared to the prior year, is primarily due to decreased payroll and related expenses for personnel engaged in marketing and selling activities, partially offset by increased advertising expenses.

Changes in foreign exchange rates reduced sales and marketing costs by $263 million in 2024.

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

General and administrative costs were $11.9 billion and $11.8 billion during 2022 and 2023, and were primarily related to payroll and related expenses and professional fees.

The decrease in general and administrative costs in 2024, compared to the prior year, is primarily due to a decrease in payroll and related expenses.

Other Operating Expense (Income), Net

Other operating expense (income), net was $1.3 billion and $767 million during 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.

Other operating expense (income), net was $767 million and $763 million during 2023 and 2024, and was primarily related to asset impairments and the amortization of intangible assets.

Operating Income (Loss)

Operating income (loss) by segment is as follows (in millions):

Year Ended December 31,

Operating Income (Loss)

North America $ 14,877 $ 24,967

International (2,656) 3,792

AWS 24,631 39,834

Consolidated $ 36,852 $ 68,593

Operating income was $36.9 billion and $68.6 billion for 2023 and 2024.

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.

For more information on the operating expenses that impact segment operating income, see “Operating Expenses” and the descriptions of operating expense line item changes on pages 25 to 27, and “Note 10 — Segment Information” on page 65.

The increase in North America operating income in 2024, compared to the prior year, is primarily due to increased unit sales and increased advertising sales, partially offset by increased fulfillment and shipping costs.

The International operating income in 2024, as compared to the operating loss in the prior year, is primarily due to increased unit sales and increased advertising sales, partially offset by increased shipping and fulfillment costs.

Changes in foreign exchange rates did not significantly impact operating income in 2024.

The increase in AWS operating income in 2024, compared to the prior year, is primarily due to increased sales, decreased payroll and related expenses, and a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers, partially offset by spending on technology infrastructure that was primarily driven by additional investments to support AWS business growth.

Changes in foreign exchange rates positively impacted operating income by $240 million in 2024.

Interest Income and Expense

Our interest income was $989 million and $2.9 billion during 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 was $2.9 billion and $4.7 billion during 2023 and 2024, primarily due to a higher average balance of invested funds at prevailing rates.

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

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.

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Other Income (Expense), Net

Other income (expense), net was $(16.8) billion and $938 million during 2022 and 2023.

Other income (expense), net was $938 million and $(2.3) billion during 2023 and 2024.

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 in 2022 and 2023 is a marketable equity securities valuation gain (loss) of $(12.7) billion and $797 million from our equity investment in Rivian.

Included in other income (expense), net in 2023 and 2024 is a marketable equity securities valuation gain (loss) of $797 million and $(1.6) billion from our equity investment in Rivian.

Our effective tax rate is subject to significant variation due to several factors, including variability in our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate, intercompany transactions, the applicability of special tax regimes, changes in how we do business, acquisitions, investments, developments in tax controversies, changes in our stock price, changes in our deferred tax assets and liabilities and their valuation, foreign currency gains (losses), changes in statutes, regulations, case law, and 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, and relative changes of expenses or losses for which tax benefits are not recognized.

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• Net sales are expected to be between $151.0 billion and $155.5 billion, or to grow between 5% and 9% compared with first quarter 2024.

This guidance anticipates a favorable impact of approximately 40 basis points from foreign exchange rates.

This guidance anticipates an unusually large, unfavorable impact of approximately $2.1 billion, or 150 basis points, from foreign exchange rates.

Also, as a reminder, in first quarter 2024 the impact from Leap Year added approximately $1.5 billion in net sales.

• Operating income is expected to be between $14.0 billion and $18.0 billion, compared with $15.3 billion in first quarter 2024.

This guidance includes approximately $0.9 billion lower depreciation expense due to an increase in the estimated useful life of our servers beginning on January 1, 2024.

• 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-K

Item 7. Management’s Discussion and Analysis