AMAZON COM INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. 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, tariff and trade policies, 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. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results or outcomes to differ significantly from management’s expectations, are described in greater detail in Item 1A of Part II, “Risk Factors.” For additional information, see Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our 2024 Annual Report on Form 10-K. Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent liabilities in the consolidated financial statements and accompanying notes. Critical accounting estimates are those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the Company. Based on this definition, we have identified the critical accounting estimates addressed below. We also have other key accounting policies, which involve the use of estimates, judgments, and assumptions that are significant to understanding our results. For additional information, see Item 8 of Part II, “Financial Statements and Supplementary Data — Note 1 — Description of Business, Accounting Policies, and Supplemental Disclosures” of our 2024 Annual Report on Form 10-K and Item 1 of Part I, “Financial Statements — Note 1 — Accounting Policies and Supplemental Disclosures,” of this Form 10-Q. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments, or conditions. Inventories Inventories, consisting of products available for sale, are primarily accounted for using the first-in first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. 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, 2025, we would have recorded an additional cost of sales of approximately $430 million. In addition, we enter into supplier commitments for certain electronic device components and certain products. These commitments are based on forecasted customer demand. If we reduce these commitments, we may incur additional costs. Income Taxes We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, administrative practices, principles, and interpretations in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. In addition, our actual and forecasted earnings are subject to 22 Table of Contents change due to economic, political, and other conditions and significant judgment is required in determining our ability to use our deferred tax assets. Our effective tax rates could be affected by numerous factors, such as changes in our business operations, acquisitions, investments, entry into new businesses and geographies, intercompany transactions, the relative amount of our foreign earnings, including earnings being lower than anticipated in jurisdictions where we have lower statutory rates and higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize related tax benefits, the applicability of special tax regimes, changes in foreign exchange rates, changes in our stock price, changes to our forecasts of income and loss and the mix of jurisdictions to which they relate, changes in our deferred tax assets and liabilities and their valuation, changes in the laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions. In addition, a number of countries have enacted or are actively pursuing changes to their tax laws applicable to corporate multinationals. We are also currently subject to tax controversies in various jurisdictions, and these jurisdictions may assess additional income tax liabilities against us. Developments in an audit, investigation, or other tax controversy could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods. We regularly assess the likelihood of an adverse outcome resulting from these proceedings to determine the adequacy of our tax accruals. Although we believe our tax estimates are reasonable, the final outcome of audits, investigations, and any other tax controversies could be materially different from our historical income tax provisions and accruals. Liquidity and Capital Resources Cash flow information is as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, Twelve Months Ended June 30, 2024 2025 2024 2025 2024 2025 Cash provided by (used in): Operating activities $ 25,281 $ 32,515 $ 44,270 $ 49,530 $ 107,952 $ 121,137 Investing activities (22,138) (39,424) (40,000) (69,227) (64,354) (123,569) Financing activities (4,490) (2,539) (5,746) (2,586) (21,440) (8,652) 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 $101.2 billion and $93.2 billion as of December 31, 2024 and June 30, 2025. Amounts held in foreign currencies were $25.5 billion and $19.9 billion as of December 31, 2024 and June 30, 2025. Our foreign currency balances include British Pounds, Canadian Dollars, Euros, Indian Rupees, and Japanese Yen. Cash provided by (used in) operating activities was $25.3 billion and $32.5 billion for Q2 2024 and Q2 2025, and $44.3 billion and $49.5 billion for the six months ended June 30, 2024 and 2025. 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, 2025, compared to the comparable prior year period, was due to an increase in net income, 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 $(22.1) billion and $(39.4) billion for Q2 2024 and Q2 2025, and $(40.0) billion and $(69.2) billion for the six months ended June 30, 2024 and 2025, with the variability caused primarily by purchases, sales, and maturities of marketable securities and cash capital expenditures. Cash capital expenditures were $16.4 billion and $31.4 billion during Q2 2024 and Q2 2025, and $30.3 billion and $55.6 billion for the six months ended June 30, 2024 and 2025, 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, both of which we expect to increase in 2025. We made cash payments, net of acquired cash, related to acquisition and other investment activity of $571 million and $1.7 billion during Q2 2024 and Q2 2025, and $3.9 billion and $1.7 billion for the six months ended June 30, 2024 and 2025, which primarily reflect investments in convertible notes from Anthropic, including $1.3 billion we invested in Q2 2025. Furthermore, we will invest an additional $1.4 billion in another convertible note by Q4 2025. 23 Table of Contents Cash provided by (used in) financing activities was $(4.5) billion and $(2.5) billion for Q2 2024 and Q2 2025, and $(5.7) billion and $(2.6) billion for the six months ended June 30, 2024 and 2025. Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term debt of $525 million and $2.1 billion for Q2 2024 and Q2 2025, and $863 million and $4.7 billion for the six months ended June 30, 2024 and 2025. Cash outflows from financing activities resulted from payments of short-term debt, and other, long-term debt, finance leases, and financing obligations of $5.0 billion and $4.6 billion for Q2 2024 and Q2 2025, and $6.6 billion and $7.2 billion for the six months ended June 30, 2024 and 2025. Property and equipment acquired under finance leases was $181 million and $937 million during Q2 2024 and Q2 2025, and $223 million and $991 million for the six months ended June 30, 2024 and 2025. We had no borrowings outstanding under the two unsecured revolving credit facilities or the commercial paper programs as of June 30, 2025. See Item 1 of Part I, “Financial Statements — Note 5 — Debt” for additional information. Certain foreign subsidiary earnings and losses are subject to current U.S. taxation and the subsequent repatriation of those earnings is not subject to tax in the U.S. We intend to invest substantially all of our foreign subsidiary earnings, as well as our capital in our foreign subsidiaries, indefinitely outside of the U.S. in those jurisdictions in which we would incur significant, additional costs upon repatriation of such amounts. Our U.S. taxable income is reduced by accelerated depreciation deductions and the resulting U.S. tax liability is reduced by tax credits, primarily related to the U.S. federal research and development credit. The 2025 Tax Act makes changes to the U.S. corporate income tax, including reinstating the option to claim 100% accelerated depreciation deductions on qualified property, with retroactive application beginning January 20, 2025 and immediate expensing of domestic research and development costs, with retroactive application beginning January 1, 2025. While we are still evaluating the full extent of the 2025 Tax Act’s impact, we expect these changes to significantly reduce U.S. cash taxes we pay in 2025. Cash paid for U.S. (federal and state) and foreign income taxes (net of refunds) totaled $5.7 billion and $4.8 billion for Q2 2024 and Q2 2025, and $6.2 billion and $5.6 billion for the six months ended June 30, 2024 and 2025. As of December 31, 2024 and June 30, 2025, restricted cash, cash equivalents, and marketable securities were $3.5 billion and $3.7 billion. 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. Additionally, we have purchase obligations and open purchase orders, including for inventory and capital expenditures, that support normal operations and are primarily due in the next twelve months. These purchase obligations and open purchase orders are generally cancellable in full or in part through the contractual provisions. We believe that cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, as well as our borrowing arrangements, will be sufficient to meet our anticipated operating cash needs for at least the next twelve months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. See Item 1A of Part II, “Risk Factors.” We continually evaluate opportunities to sell additional equity or debt securities, obtain credit facilities, obtain finance and operating lease arrangements, enter into financing obligations, repurchase common stock, pay dividends, or repurchase, refinance, or otherwise restructure our debt for strategic reasons or to further strengthen our financial position. The sale of additional equity or convertible debt securities would be dilutive to our shareholders. In addition, we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services, capital infrastructure, and technologies, which might affect our liquidity requirements or cause us to secure additional financing, or issue additional equity or debt securities. There can be no assurance that additional credit lines or financing instruments will be available in amounts or on terms acceptable to us, if at all. In addition, economic conditions and actions by policymaking bodies are contributing to changing interest rates and significant capital market volatility, which, along with any increases in our borrowing levels, could increase our future borrowing costs. 24 Table of Contents Results of Operations We have organized our operations into three segments: North America, International, and AWS. These segments reflect the way the Company evaluates its business performance and manages its operations. See Item 1 of Part I, “Financial Statements — Note 8 — Segment Information.” Overview Macroeconomic factors, including changes in inflation and interest rates, global economic and geopolitical developments, including unpredictable shifts in global tariff and trade policies, 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 predict, isolate, and quantify. These could affect customer demand for our products and services, our ability to forecast growth needs, expenses, and benefits from new technologies. We expect some or all of them to continue to impact our operations into Q3 2025. Net Sales Net sales include product and service sales. 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 media content subscriptions. Net sales information is as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2024 2025 2024 2025 Net Sales: North America $ 90,033 $ 100,068 $ 176,374 $ 192,955 International 31,663 36,761 63,598 70,274 AWS 26,281 30,873 51,318 60,140 Consolidated $ 147,977 $ 167,702 $ 291,290 $ 323,369 Year-over-year Percentage Growth: North America 9 % 11 % 11 % 9 % International 7 16 8 10 AWS 19 17 18 17 Consolidated 10 13 11 11 Year-over-year Percentage Growth, excluding the effect of foreign exchange rates: North America 9 % 11 % 11 % 10 % International 10 11 10 9 AWS 19 17 18 17 Consolidated 11 12 12 11 Net Sales Mix: North America 61 % 60 % 60 % 60 % International 21 22 22 22 AWS 18 18 18 18 Consolidated 100 % 100 % 100 % 100 % Sales increased 13% in Q2 2025, and 11% for the six months ended June 30, 2025 compared to the comparable prior year periods. Changes in foreign exchange rates increased net sales by $1.5 billion for Q2 2025, but did not significantly impact net sales for the six months ended June 30, 2025. 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 2025, and 9% for the six months ended June 30, 2025 compared to the comparable prior year periods. 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 $169 million for Q2 2025, and by $582 million for the six months ended June 30, 2025. 25 Table of Contents International sales increased 16% in Q2 2025, and 10% for the six months ended June 30, 2025 compared to the comparable prior year periods. 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 increased International net sales by $1.7 billion for Q2 2025, and by $696 million for the six months ended June 30, 2025 . AWS sales increased 17% in Q2 2025, and 17% for the six months ended June 30, 2025 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. Operating Expenses Information about operating expenses is as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2024 2025 2024 2025 Operating Expenses: Cost of sales $ 73,785 $ 80,809 $ 146,418 $ 157,785 Fulfillment 23,566 25,976 45,883 50,569 Technology and infrastructure 22,304 27,166 42,728 50,160 Sales and marketing 10,512 11,416 20,174 21,179 General and administrative 3,041 2,965 5,783 5,593 Other operating expense (income), net 97 199 325 507 Total operating expenses $ 133,305 $ 148,531 $ 261,311 $ 285,793 Year-over-year Percentage Growth (Decline): Cost of sales 6 % 10 % 7 % 8 % Fulfillment 11 10 9 10 Technology and infrastructure 2 22 1 17 Sales and marketing (2) 9 (4) 5 General and administrative (5) (3) (7) (3) Other operating expense (income), net (34) 108 (12) 56 Percent of Net Sales: Cost of sales 49.9 % 48.2 % 50.3 % 48.8 % Fulfillment 15.9 15.5 15.8 15.6 Technology and infrastructure 15.1 16.2 14.7 15.5 Sales and marketing 7.1 6.8 6.9 6.5 General and administrative 2.1 1.8 2.0 1.7 Other operating expense (income), net 0.1 0.1 0.1 0.2 Cost of Sales 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 Q2 2025 and for the six months ended June 30, 2025, 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, including lower transportation costs. Changes in foreign exchange rates increased cost of sales by $898 million for Q2 2025, but did not significantly impact cost of sales for the six months ended June 30, 2025. Shipping costs were $22.0 billion and $23.4 billion in Q2 2024 and Q2 2025, and $43.8 billion and $45.9 billion for the six months ended June 30, 2024 and 2025. 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. 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. We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, 26 Table of Contents 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 infrastructure” as we leverage a shared infrastructure that supports both our internal technology requirements and external sales to AWS customers. Fulfillment 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. 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 Q2 2025 and for the six months ended June 30, 2025, compared to the comparable prior year periods, 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 $227 million for Q2 2025, but did not significantly impact fulfillment costs for the six months ended June 30, 2025. 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 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 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 infrastructure costs in Q2 2025, compared to the comparable prior year period, is primarily due to an increase in spending on infrastructure, including depreciation and amortization, 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 for the six months ended June 30, 2025, compared to the comparable prior year period, is primarily due to an increase in spending on infrastructure, including depreciation and amortization, 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. Changes in foreign exchange rates increased technology and infrastructure costs by $138 million for Q2 2025, but did not significantly impact technology and infrastructure costs for the six months ended June 30, 2025. 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. See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our 2024 Annual Report on Form 10-K for a discussion of how management views advances in technology and the importance of innovation. 27 Table of Contents 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, 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 Q2 2025 and for the six months ended June 30, 2025, compared to the comparable prior year periods, is primarily due to increased advertising expenses, partially offset by decreased 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 decrease in general and administrative costs in Q2 2025 and for the six months ended June 30, 2025, compared to the comparable prior year periods, is primarily due to a decrease in payroll and related expenses. Other Operating Expense (Income), Net Other operating expense (income), net was $97 million and $199 million for Q2 2024 and Q2 2025, and $325 million and $507 million for the six months ended June 30, 2024 and 2025, and was primarily related to asset impairments and the amortization of intangible assets. Operating Income Operating income by segment is as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2024 2025 2024 2025 Operating Income North America $ 5,065 $ 7,517 $ 10,048 $ 13,358 International 273 1,494 1,176 2,511 AWS 9,334 10,160 18,755 21,707 Consolidated $ 14,672 $ 19,171 $ 29,979 $ 37,576 Operating income increased from $14.7 billion in Q2 2024 to $19.2 billion in Q2 2025, and increased from $30.0 billion for the six months ended June 30, 2024 to $37.6 billion for the six months ended June 30, 2025. 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 26 to 28, and “Note 8 — Segment Information” on page 18. The increase in North America operating income in Q2 2025 and for the six months ended June 30, 2025, compared to the comparable prior year periods, is primarily due to increased unit sales and increased advertising sales, partially offset by increased fulfillment, technology and infrastructure, and shipping costs. The increase in International operating income in Q2 2025 and for the six months ended June 30, 2025, 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. Changes in foreign exchange rates positively impacted operating income by $338 million for Q2 2025, and by $282 million for six months ended June 30, 2025. The increase in AWS operating income in Q2 2025, compared to the comparable prior year period, is primarily due to increased sales, partially offset by spending on technology infrastructure that was primarily driven by additional investments to support AWS business growth. The increase in AWS operating income for the six months ended June 30, 2025, compared to the comparable prior year period, is primarily due to increased sales and decreased payroll and related expenses, partially offset by spending on technology infrastructure that was primarily driven by additional investments to support AWS business growth. Changes in foreign exchange rates negatively impacted operating income by $139 million for Q2 2025, but did not significantly impact operating income for the six months ended June 30, 2025. 28 Table of Contents Interest Income and Expense Our interest income was $1.2 billion and $1.1 billion during Q2 2024 and Q2 2025, and $2.2 billion for the six months ended June 30, 2024 and 2025, 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. Interest expense was $589 million and $516 million during Q2 2024 and Q2 2025, and $1.2 billion and $1.1 billion for the six months ended June 30, 2024 and 2025, 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 $(18) million and $1.1 billion during Q2 2024 and Q2 2025, and $(2.7) billion and $3.9 billion for the six months ended June 30, 2024 and 2025. The primary components of other income (expense), net are related to equity securities valuations and adjustments, equity warrant valuations, foreign currency, and reclassification adjustments for gains (losses) on available-for-sale debt securities. The net gain of $1.1 billion in Q2 2025 is primarily from equity warrant valuations. The net loss of $(2.7) billion for the six months ended June 30, 2024 is primarily from the marketable securities loss from our equity investment in Rivian. The net gain of $3.9 billion for the six months ended June 30, 2025 is primarily from the reclassification adjustment for the gain on available-for-sale debt securities from the portion of our convertible notes investments in Anthropic that were converted to nonvoting preferred stock during the three months ended March 31, 2025. Income Taxes Our income tax provision for the six months ended June 30, 2024 was $4.2 billion, which included $1.9 billion of net discrete tax benefits primarily attributable to excess tax benefits from stock-based compensation. Our income tax provision for the six months ended June 30, 2025 was $7.2 billion, which included $753 million of net discrete tax benefits primarily attributable to excess tax benefits from stock-based compensation. See Item 1 of Part I, “Financial Statements — Note 7 — Income Taxes” for additional information. Non-GAAP Financial Measures Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other SEC regulations define and prescribe the conditions for use of certain non-GAAP financial information. Free cash flow and the effect of foreign exchange rates on our consolidated statements of operations meet the definition of non-GAAP financial measures. Free Cash Flow Our financial focus is on long-term, sustainable growth in free cash flow. We provide a free cash flow measure because we believe it provides additional perspective on the impact of acquiring property and equipment with cash. 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, 2024 and 2025 (in millions): Twelve Months Ended June 30, 2024 2025 Net cash provided by (used in) operating activities $ 107,952 $ 121,137 Purchases of property and equipment, net of proceeds from sales and incentives (54,979) (102,953) Free cash flow $ 52,973 $ 18,184 Net cash provided by (used in) investing activities $ (64,354) $ (123,569) Net cash provided by (used in) financing activities $ (21,440) $ (8,652) Free cash flow has limitations as it omits certain components of the overall cash flow statement and does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not incorporate the portion of payments representing principal reductions of debt or cash payments for business acquisitions. Additionally, our mix of property and equipment acquisitions with cash or other financing options may change over time. Therefore, we believe it is important to view free cash flow only as a complement to our entire consolidated statements of cash flows. 29 Table of Contents Effect of Foreign Exchange Rates Information regarding the effect of foreign exchange rates, versus the U.S. Dollar, on our net sales, operating expenses, and operating income is provided to show reported period operating results had the foreign exchange rates remained the same as those in effect in the comparable prior year period. The effect on our net sales, operating expenses, and operating income from changes in our foreign exchange rates versus the U.S. Dollar is as follows (in millions): Three Months Ended June 30, Six Months Ended June 30, 2024 2025 2024 2025 As Reported Exchange Rate Effect (1) At Prior Year Rates (2) As Reported Exchange Rate Effect (1) At Prior Year Rates (2) As Reported Exchange Rate Effect (1) At Prior Year Rates (2) As Reported Exchange Rate Effect (1) At Prior Year Rates (2) Net sales $ 147,977 $ 1,041 $ 149,018 $ 167,702 $ (1,515) $ 166,187 $ 291,290 $ 1,205 $ 292,495 $ 323,369 $ (75) $ 323,294 Operating expenses 133,305 1,070 134,375 148,531 (1,362) 147,169 261,311 1,306 262,617 285,793 131 285,924 Operating income 14,672 (29) 14,643 19,171 (153) 19,018 29,979 (101) 29,878 37,576 (206) 37,370 ___________________ (1) Represents the change in reported amounts resulting from changes in foreign exchange rates from those in effect in the comparable prior year period for operating results. (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. 30 Table of Contents Guidance We provided guidance on July 31, 2025, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of July 31, 2025, 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, tariff and trade policies, 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.” Third Quarter 2025 Guidance • Net sales are expected to be between $174.0 billion and $179.5 billion, or to grow between 10% and 13% compared with third quarter 2024. This guidance anticipates a favorable impact of approximately 130 basis points from foreign exchange rates. • Operating income is expected to be between $15.5 billion and $20.5 billion, compared with $17.4 billion in third quarter 2024. • This guidance assumes, among other things, that no additional business acquisitions, restructurings, or legal settlements are concluded. 31 Table of Contents