Good day, everyone, and welcome to the Amazon dotcom Q4 2015 Financial Results Teleconference. At this time, all participants are in a listen only mode. After the presentation, we will conduct a question and answer session. Today's call is being recorded. For opening remarks, I will be turning the call over to the Director of Investor
call. Joining us today is Brian Olsavsky, our CFO. We will be available for questions after our prepared remarks. The following discussion and responses to your questions reflect management's views as of today, January 28, 2016 only, and will include forward looking statements. Actual results may differ materially.
Additional information about factors that could potentially impact our financial results is included in today's press release and filings with the SEC, including our most recent Annual Report on Form 10 ks. As you listen to today's conference call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. During this call, we will discuss certain non GAAP financial measures. In our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our IR site. You will find additional disclosures regarding these non GAAP measures, including reconciliations of these measures with comparable GAAP measures.
Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2014. Now I'll turn the call over to Brian.
Thanks, Phil. I'll begin with comments on our Q4 financial results. Trailing 12 month operating cash flow increased 74 percent to $11,900,000,000 Trailing 12 month free cash flow increased to $7,300,000,000 up from $1,900,000,000 Trailing 12 month free cash flow less lease principal repayments increased to $4,700,000,000 up from 529,000,000 dollars leases increased to $2,500,000,000 up from an outflow of $2,200,000,000 Trailing 12 month capital expenditures were 4 point $6,000,000,000 Capital expenditures does not include the impact of property and equipment acquired and finance lease obligations. These capital expenditures and capital leases reflect additional investments in support of continued business growth due to investments in technology infrastructure, the majority of which is to support AWS and additional capacity to support our fulfillment operations. The combination of common stock and stock based awards outstanding was 490,000,000 shares compared with 483,000,000 1 year ago.
Worldwide revenue increased 22 percent to $35,700,000,000 or 26% excluding the $1,200,000,000 unfavorable impact from year over year in foreign exchange. Worldwide paid unit growth was 26%. Worldwide active customer accounts were approximately 304,000,000, Excluding customers who only had free orders in the preceding 12 month period, worldwide active customer accounts were approximately 280 $1,000,000 up from approximately $254,000,000 in the comparable prior year period. Worldwide paid Prime increased 51% year over year. Worldwide seller units represented 47% of paid units.
Fulfillment by Amazon or FBA units represented nearly 50% of seller units. Worldwide active Amazon Web Services customers exceeded 1,000,000. Now I'll discuss operating expenses excluding stock based compensation. Cost of sales was $4,300,000,000 or 68.1 percent of revenue compared with 70.5%. Fulfillment, marketing, technology and content and G and A combined was $9,700,000,000 or 27.1 percent of sales, up approximately 100 basis points year over year.
Fulfillment was $4,400,000,000 or 12.3 percent of revenue compared with 11.3%. Tech and content was $3,200,000,000 or 9% of revenue compared with 8.2%. Marketing was $1,700,000,000 or 4.8 percent of revenue compared with 5.1%. Now I'll talk about our segment results. As a reminder, in the Q1, we changed reportable segments to report North America, International and Amazon Web Services.
Consistent with prior periods, we do not allocate to our segments our stock based compensation or the other operating expense line item. In the North America segment, revenue grew 24 percent to $21,500,000,000 Media revenue grew 11 percent to $3,900,000,000 or 12% excluding foreign exchange. EGM revenue grew 28 percent to $17,300,000,000 North America segment operating income was $1,000,000,000 a 4.7 percent operating margin compared with $733,000,000 in the prior year period. North America segment operating income includes $6,000,000 of favorable impact from foreign exchange. In the International segment, revenue grew 12%
to $11,800,000,000 Excluding the $1,100,000,000
year over year unfavorable foreign exchange impact, revenue growth was 22%. Media revenue decreased 3 percent to $3,300,000,000 or increased 5% excluding foreign exchange. EGM revenue grew 19 percent to $8,500,000,000 or 31% excluding foreign exchange. International segment operating income was $60,000,000 compared with $65,000,000 in the prior year. International segment operating income includes $47,000,000 of unfavorable impact from foreign exchange.
In the Amazon Web Services segment, revenue grew 69% to $2,400,000,000 Amazon Web Services segment operating income was $687,000,000 a 28.5 percent operating margin compared with $240,000,000 in the prior year period. AWS segment operating CSOI includes $20,000,000 of favorable impact from foreign exchange. Unlike CSOI, our GAAP operating income includes stock based compensation expense and other operating expense. GAAP operating income grew 88% to 1 point $1,000,000,000 Our income tax expense was $453,000,000 GAAP net income was $482,000,000 or 1 dollars per diluted share compared with a net income of $214,000,000 $0.45 per diluted share. Now I'll discuss the full year results.
Revenue increased 20 percent to $107,000,000,000 or 26% excluding year over year changes in foreign exchange. North America revenue grew 25 percent to $63,700,000,000 or 26% excluding year over year changes in foreign exchange. International revenue grew 6% to $35,400,000,000 or 21% excluding Excluding year over year changes in foreign exchange, Germany revenue grew 18%, Japan revenue grew 19% and UK revenue grew 16%. AWS revenue grew 70% to $7,900,000,000 Consolidated segment operating income was $4,500,000,000 or 4.2 percent of revenue, up approximately 220 basis points year over year. CSOI includes $16,000,000 of favorable impact from foreign exchange.
GAAP operating income was $2,200,000,000 compared with $178,000,000 in the prior year. Turning to the balance sheet. Cash and marketable securities increased $2,400,000,000 year over year to $19,800,000,000 Inventory increased 23 percent to $10,200,000,000 and inventory turns were 8 point 5, down from 8.6 turns a year ago as we expanded selection, improved in stock levels and introduced new product categories. Accounts payable increased 24 percent to $20,400,000,000 and accounts payable days increased from 73 in the prior year. I'll conclude my portion of today's call with guidance.
Incorporated into our guidance are the order trends that we've seen to date what we believe today to be appropriately conservative assumptions. Our results are inherently unpredictable and may be materially affected by many factors, including a high level of uncertainty surrounding exchange rate fluctuations, as well as the global economy and customer spending. It's not possible to accurately predict demand and therefore our actual results could differ materially from our guidance. As we describe in more detail in our public filings, issues such as settling intercompany balances in foreign currencies among our subsidiaries, unfavorable resolution of matters and changes to our effective tax rate can all have a material effect on guidance. Our guidance further assumes that we don't conclude any additional business acquisitions, investments, restructurings or legal settlements, recording further revisions to stock based compensation estimates and that foreign exchange rates remain approximately where they've been recently.
For Q1 2016, we expect net sales of between $26,500,000,000 $29,000,000,000 or growth of between 17 percent 28%. This guidance anticipates approximately 130 basis points of unfavorable impact from foreign exchange rates. GAAP operating income to be between $100,000,000 $700,000,000 compared with $255,000,000 in Q1 2015. This includes approximately $600,000,000 for stock based compensation and other operating expenses net. We anticipate consolidated segment operating income, which excludes stock based compensation and other operating expense net to be between $700,000,000 $1,300,000,000 compared with $706,000,000 in the Q1 of 2015.
We're grateful to our customers and remain heads down focused on driving a better customer experience. We believe putting customers first is the only reliable way to create lasting value for shareholders. Thanks. And with that, Phil, let's move on to questions.
Great. Thanks, Brian. Let's move on to the Q and A portion of the call. Operator, will you please remind our listeners how to initiate a question?
At this time, we will now open the call for questions. In the interest of time, we ask that you limit yourself to one question.
May be at AWS. I was wondering if you have an update for that in the Q4? And secondarily, is there any way to characterize what the pricing environment is right now for AWS as well? Thank you.
Yes. Thanks, Stephen. No, I don't have a usage growth number for you. I will say we're been very strong, and the AWS revenue is on a just short of a $10,000,000,000 run rate at the end of Q4. As far as pricing is concerned, we had a price reduction in January for our EC2 services.
It was our 51st price reduction since we launched AWS years ago. And generally what we find is that price is important, but so is speed and agility for customers and the ability to deliver services and features that are beneficial to them. I will point out that we added 722 new features and services in 2015 and that was up 40% year over year. So we feel we have a lead in this space and we don't take it for granted and we want to serve
Thank you. Our next question is from analyst Jason Helfstein with Oppenheimer. Please proceed with your question.
Thank you. Can you talk a little bit about the dynamics in 4th quarter e commerce, particularly in the U. S? Did we see more aggressive promotional activity and maybe talk about how you tried to work that to continue to drive the prime number of members going forward? Thanks.
Sure. Well, what I can say is our approach to pricing has not changed. And through Q4, we did everything we could to have the best prices available for customers and in stock in time for the holiday. Another dynamic of Q4 was that, it was a huge FBA quarter. Nearly 50% of our 3rd party units were FBA and our 3rd party units were also up to 47% of our paid units, so up 40 basis 400 basis points year over year.
So a really strong quarter for our FBA sellers using our FBA services. Did put a lot of demands on our warehouses and we were full. It was a very busy quarter and it did increase some of our variable costs as a result primarily in the U. S, but a very strong quarter for FDA. It exceeded our even our expectations.
Perhaps, how you're able to integrate that into holiday promotions?
I'm sorry, you cut off there. Can you repeat your question?
Sure. Just any additional color around Prime and how you were able to integrate that into holiday promotions?
Nothing specific. I will say one interesting enhancement this year was our Prime Now service, which allowed people to order in selected markets up till 11.59 on New Year excuse me, Christmas Eve. So that was a valuable service to many late shoppers, last minute shoppers. Thank you. Last minute shoppers.
Our next question is from Arun Rubinson with Wolfe Research.
Two questions both on the logistics side. It seems pretty clear that you guys are trafficking in some old world assets like truck trailers and ship lanes and airfields. Can you help give us a sense as to maybe what we're trying to accomplish with that if it's defensive to protect your service to your existing customers or if you're looking to maybe start new businesses with those assets?
Sure, thanks for your question. I would say that what we found is in order to properly serve our customers at peak, we've needed to add more of our own logistics to supplement our existing partners. That's not meant to replace them. And those carriers are just not no longer able to handle all of our capacity that we need at peak. They've been and continue to be great partners, and we look forward to working with them in the future.
It's just we've had to add some resources on our own. You mentioned trucks, the Amazon trucks, we did invest in those this past year. We use those primarily for movement between our warehouses and our sort centers.
Thank you. Our next question comes from the line of Brian Nowak with Morgan Stanley. Please proceed with your question.
Thanks for taking my question. I might have 2. The first one is just on gross margins. I think they were down about 200 basis points sequentially. It's the biggest fall in the Q4 in quite some time.
Anything you call out there? Is it devices or more sortation centers? Is there anything pressuring gross margins we should think about in the Q4? And then on the fulfillment line, you mentioned FBA being a big driver of the growth in the fulfillment costs. Anything else you would call out leading to incremental fulfillment costs, maybe India or something else?
Thanks.
No. And again, keep in mind that the fulfillment as a percent of revenue is impacted by the calculation of FBA revenue being a net number as opposed to a full revenue number. But, our fulfillment cost per unit actually decreased year over year. It's just we are now shipping more and more of our other demand out of our warehouses because of the strength in retail and FBA. On gross margin, I first I'll caution you and say we would encourage you to look at free cash flow, which was grew at a minimum $4,000,000,000 on each of the metrics that we point out and our profit, which was up 88% year over year.
If you look sequentially, also keep in mind that in Q3 when it was up 500 basis points year over year, that was lapping the write down of our Amazon phone inventory the prior year. So there's a little bit of noise in the Q3 number. But generally, again, we're happy with the ability to service customers, the reaction of customers in Q4, and the bottom line results that we had.
Thank you. Our next question comes from the line of Colin Sebastian with Baird Equity Research. Please proceed with your question.
Great, thanks. One follow-up and then another question. On the logistics and transportation side, I was curious if that's to date just to supplement some of the other carriers, but more broadly or longer term, is there an ambition from the services side to perhaps provide capacity to other companies? And then on AWS margins, I was just wondering if we should expect more leverage there going forward and whether Q1 whether that should demonstrate some seasonality versus what we've seen in terms of sequential growth in prior years? Thank you.
Sure. Let me work backwards. Don't give guidance by segment. So I cannot really comment on AWS specifically in Q1. The and the operational improvements excuse me, the gross margin year or operating margin year over year that we've seen in the AWS business has been heavily driven by operating efficiencies, both purchase reductions and purchase prices and also efficiency in driving greater utilization of the assets that we have.
So we're very happy with that. Keep in mind that we did have a, although the year over year increase in capital expenditures and capital leases was not as great as we saw in 13 to 2014, we did spend over $9,000,000,000 on those capital and expenditures and capital lease obligations, up from prior year was excuse me.
Thank you. Our next question Sorry,
let me finish my answer to him, please. We grew up we grew from in the $5,000,000,000 range in 2013 to $8,900,000,000 in 2014 and now over $9,000,000,000 in 2015.
Thank you. Our next question comes from the line of Ken Senna with Evercore ISI. Please proceed with your question.
Hi. So a lot of headlines around Amazon's activity at Sundance. I just was hoping you could maybe expand once more on the video strategy. And specifically, are you seeing an inflection in prime video usage? And maybe just also on your streaming partners program, what the general reception is like?
Thank you.
Sure. We're very thrilled with the customer response to Prime Video. Again, when Prime Video is used by our Prime members, it drives adoption and retention, higher free trial conversion rates and higher renewal rates for subscribers. So we were encouraged by in Q4 was that globally we doubled the number of our Prime members doubled the number of viewing hours of the Prime Video year over year. And internationally, we had twice as many Prime members streaming year over year.
So very encouraged by the pickup and the responsive customers. The other comment I would say about video is we're very happy with the Amazon Studios content in particular. We've had some great success in 2014 2015. As you probably know, Transparent has won multiple Golden Globes and Emmys, both for actors and for the show itself. Mozart in the Jungle just won 2 Golden Globe Awards.
So very, very pleased with the critical acclaim to the Amazon Studios content and we've got a lot of new content coming out this year. Catastrophe Season 2, Bosch Season 2, we're all looking forward to. And in February we will have Chirac, our first original movie that we got to work with Spike Lee on, which won many critical made many critics best films list in 2015. That will be coming to Prime Video in February.
Streaming partners program, so that's our new over the top streaming subscription program for Prime members. We think it's a really convenient way for them to access additional content, content from sources like Showtime and Starz. And it's really early, so it's just out of the gate, but we've been very pleased with what we've seen
so far.
Thank you. Our next question comes from the line of Mark Mahaney with RBC Capital Markets. Please proceed with your question.
Two things, please. Any call outs on the macro side? Occasionally, you've called anything you've called things out this time. And then can you talk a little bit about Amazon Business? I know that there's a little bit of a line in the press release on it.
I know you've had this for a couple of years, but any indications of the materiality of that, the kind of momentum it's gaining, the kind of traction it's gaining? Thank you.
Sure, Mark. Thanks for your questions. No macroeconomic comments. Again, we feel like we're very encouraged by the customer response to our offerings in Q4. Amazon Business, yes, in April, you may remember we launched it as a marketplace with specific features and benefits for businesses.
That Amazon Business now serves more than 200,000 businesses from small organizations to Fortune 5 100 companies. So it's still early, but we're encouraged and we think we're creating some value, a lot of value for our business customers.
Thank you. Our next question comes from the line of Mark May with Citi. Please proceed with your question.
Thanks. Brian, question on the international retail business. I think you added well over $1,000,000,000 in revenue year on year in the quarter. But from a CSOI perspective, you really didn't see any improvement there. I'm sure there are a lot of different things going on.
I just wonder if you could unpack that a little bit and give us a sense of what profitability looks like maybe in some of your more mature established countries and regions relative to the investments you're making in other countries so that we can kind of get a better picture of what's actually going on under the hood there? Thanks.
Yes, sure Mark. Thanks for your question. We are very pleased by the international growth, 22% FX neutral was up 1,000 basis points year over year.
We saw that the we told you that
the Prime growth Prime membership growth of wealth 50% excuse me 51% globally, 47% in the U. S. Means that international Prime programs grew at a faster clip than that. So very pleased with the uptick. We've rolled out a lot of additional Prime features internationally as well this year from Free Same Day to Prime Now to Prime Music and Prime Video in Japan to name a few.
So very happy with that. But in general, if I step back, our investments in National are twofold. First, there's the Prime platform and all the features as I just mentioned, including the fulfillment adding more fulfillment resources to handle higher and higher retail volumes and a very strong FBA program as well. And then the remainder, the biggest other investment area is obviously India. And we like what we continue to see, like what we see in India.
In Q4, Amazon India was a top e commerce site in India throughout the very busy Diwali shopping season, including the shopping season according to Comscore. And sales by sellers in Q4 were greater than all of 2014 combined in Q4. So, we've seen great progress with downloads, innovations for sellers and customers alike. And we like the ramp there. We're continuing to invest in India.
Thank you. Our next question comes from the line of Douglas Anmuth with JPMorgan. Please proceed with your question.
Thanks for taking the question. Two things. Just first on the North America EGM growth, if you could just talk about the 28% there and the decel on an easier comp and whether there's any particular factors within that we should be thinking about and perhaps if there's any weather and apparel impact there? And then second, last quarter, and I don't want to misquote you, but you said something along the lines of being able to invest as you'd like and also deliver good profit and that the pendulum wouldn't swing as far perhaps as it has in the past. Does that statement and thoughts still hold as you head into 2016?
Thanks.
Sure. Let me start with EGM. So EGM growth North America EGM growth of 28% was actually also the highest in the last 4 years. So we're happy with that. The deceleration you're seeing of 700 basis points is more a function of the Prime Day that we had in Q3, if you remember.
We didn't break it out by segment, but we said that Prime Day contributed 200 basis points to our Q3 run rate revenue growth rate. So sequentially last year in North America EGM we dropped from 31% to 27%. This year it's 35% to 28%. So there is always a generally a sequential drop in Q4, but certainly very happy with that business and its role in prime as well total customer satisfaction. Your other question, investments, yes.
We continue to have healthy investments, as we've stated, across the globe. To step back again on that, our general philosophy is we want to find things businesses that customers love that can grow to be large, will provide strong financial returns and are durable that can last for decades. We think Prime is that, we think Marketplace is that, we think AWS is that, and we're constantly looking for a 4th or 5th business that fits that criteria. So but as we continue to invest, primarily in, as I said, in Prime, the Prime platform, Prime features for customers, expansion for fulfillment capacity as we build out to support 26% unit growth in Q4 for instance and much greater FBA share. And not to mention all of the investments in AWS.
We're constantly looking for cost efficiencies in fixed and variable productivity. I think a thing to think about is the investments will ebb and flow over time, but our focus on cost reductions and improvement on customer experience will be constant.
Thank you. Our next question comes from the line of Heath Terry with Goldman Sachs. Please proceed with your question.
Great, thanks. I was wondering if you could give us a sense, as we look at the slowing growth in AWS, obviously still from an incredibly high level and still very strong growth there. But try and take that into context with the growth in margins that you keep seeing in that business to levels that certainly seem a lot higher than you would anticipate for an Amazon business. Is there any capacity constraint or management that's driving pricing strategy in AWS. We've heard the comments about the number of availability zones that are being launched this year, which is obviously about a big part of driving incremental capacity in that business and just trying to balance those think about how we should balance those three things?
Sure.
Let me work backwards from your footprint question or comment. We have we just announced Korea as a region and we'll be adding 5 more regions in the next in the future in the near future, as we've mentioned. CapEx, let me start with that first. CapEx, we've seen great efficiencies in capital expenditures in particularly in AWS and we continue to work on better purchase efficiencies and driving utilization rates in our data centers. CapEx, as I mentioned, grew quite a bit in 2014 and grew even more to over $9,000,000,000 across all of our capital expenditures and capital leases in 2015.
From the new regions, they're not the major driver in any way. Most of our capacity and capital leases in AWS is to service existing regions and existing customers demand growth. But there's certainly expenditures when we open up new regions. Some of that is not always in the year that we open the region. So we spent a good bit on those new regions already in 2015.
As far as pricing, there's no capacity constraint. And I would a little bit dispute the deceleration comment on the yes, on a percentage basis, 69% is lower than Q3. But as I said before, we're approaching a $10,000,000,000 run rate in this business. On a dollar basis, we continue to grow we saw the greatest growth year over year and quarter over quarter. And again, we continue to invent, it's not about price.
We continue to innovate on behalf of customers and see great customer response.
Sure, sure. Got it. Thank you.
Thank you. Our next question comes from the line of Kerry Rice with Needham and Company. Please proceed with your
First question is, if you can provide maybe some context around linearity within Q4 more as it compares to your expectations? Obviously, you have a ramp up into the holiday season, but was, did December tail off faster than expected or did the ramp up, did it spike higher than you expected? And then just on the follow-up, maybe can you add some context about how the mobile played a role in the holiday season for Amazon? Thanks.
So, in terms
of this is Phil. In
terms of expectations, I think, we were pleased with what we saw this Q4. And if you look at what we gave for guidance, we were in the upper half of the range there for revenue. So no real callouts there. I think what was really our second part of your question? And mobile, we've said for a long time continues to be a tailwind for the business.
We're working very hard to make sure that it's very easy for customers to buy the things they want to buy and access a lot of the features that they've grown accustomed to on the website. And so we're very focused on the convenience factor. And if you look at some of our new offerings like Prime Now that's available through a mobile app and very, very convenient for customers. And as Brian's mentioned, allow them to shop even up to Christmas Eve and have their items delivered in 2 hours.
Thank you. Our next question comes from Carlos Kirchner with Bernstein. Please proceed with your question.
Thank you. I have 2. I want to go back to AWS margins. You talked briefly about purchasing and asset utilization, but do this explain the 800 bps or so year on year margin expansion? And are you seeing anything else like is there any impact of scale driving leverage over fixed cost?
Is there some benefit from revenue mix shift like services like Aurora and Redshift growing faster than in situ? Or is all the margin expansion due to purchasing and asset utilization? So that's the first question. And the second, I have a question about your streaming content expenses or cost of revenues to be more precise. Last year you told us they were $1,300,000,000 but you didn't give us a figure for $15,000,000 In lieu of that, can you comment on whether 4Q saw a higher than usual cost for streaming content compared to the other quarters in the year?
Thank you.
Carlos, this is Phil. So your question about the AWS margins, that business as they continue to learn and as we continue to invent and get better at designing and operating the infrastructure and assets, we have been able to drive cost out of that business. And so that's one of the primary drivers of the improvements that you've seen in margin year over year. There's also an FX tailwind in there as well, which I think was about $60,000,000 this quarter, which would contribute on a year over year basis, which really arises because we're largely priced in dollars, but have assets with local currency costs throughout the world. As for the streaming content, we haven't given another update this year and haven't given any commentary on the profile quarter to quarter.
Question comes from Brian Piets with Jefferies. Please proceed with your question.
Thank you. You mentioned Amazon Dash in the press release. Can you give us some color around how you're viewing the traction there both with customers and with brands and devices? And then maybe any update on Twitch, how has traffic and user engagement been trending on that site? Thanks.
This is Phil. So on
the Dash Buttons, we're really excited about what we're delivering there. I think as you saw in the release, there's some new devices that take advantage of the underlying service that we think will be really convenient for sellers and interesting for device makers. So we're excited about what we're building there. Don't have any stats for you today. On the Twitch side, we continue to let Twitch do what Twitch does best.
And so don't have any updates on numbers there, but they continue to really engage customers and offer a really unique experience, which was one of the reasons we were attracted to them to start with.
And maybe just quickly end of year fulfillment and sortation centers?
Yes, I'll take that. So we ended the year at 123 fulfillment centers up net 14 and we have sorta excuse me, 23 sortation centers in the U. S, up 4 year over year.
Our next question comes from the line of Gene Munster with Piper Jaffray. Please proceed with your questions.
Hey, good afternoon. I want to just quickly revisit the margin pendulum question in some of your comments as you mentioned that to kind of expect it to ebb and flow. Could you tell us if you expect it to ebb and flow, but moving higher? Or is ebb and flow just mean that it's kind of undetermined in 2016? And then second follow-up is the robotics.
Any update in terms of number of robots or how you see that expansion going forward? Thank you. Yes. My comment on ebb and flow was more about the investment and also including capital expenditures and capital leases. So not around gross margins.
And merely I was pointing out that again, we've laid out all the areas where we're seeing heavy investment. We continue we see continuation of that certainly into 2016 and beyond. There are quarter to quarter and even year to year fluctuations in some accounts and some investment areas. But generally, we're pretty transparent on where we're investing our dollars. And then against that backdrop, we are always looking for efficiency.
And the nice thing about growing the top line at such a high clip is we have a lot more areas for opportunity to save money year over year. And we always look to do that.
And this is Phil. On the Kiva question, the last update we've given is more than 30,000 robots. We continue to be really pleased with the program and like, what it does in the warehouse both from a density of storage as well as from making the jobs easier for the associates who are picking packages by bringing the packages actually to the associates, but no new numbers on that.
Our next question comes from the line of Justin Post with Bank of America Merrill Lynch. Please proceed with your question.
Thank you. Two questions. Was there any category mix impacts in the quarter on gross margins? That's just a quick one. And then secondly, as you look back at last year, you had some quarters where you really exceeded your guidance on the CSOI line.
Maybe looking back or just looking forward, what are the types of things that causes you to come in at the high end versus maybe the low end when you look back or when you look forward? Thank you.
Sure. First on guidance, we keep a pretty consistent process on how we look at guidance and how we value or how we estimate the near term view of the business. I will point out that Q4 is obviously a very large quarter, the largest revenue quarter by far of the year. There's a lot of demand that comes in the last 6 weeks of the year as well. So very, very little visibility at the consistent process.
And there are times when we a consistent process, and there are times when we under run and sometimes when we overrun it.
On the this is Phil. On the category mix question, obviously category mix does play a role in gross margin. I would say that we're much more focused on operating profit dollars and free cash flow dollars. As we've probably talked about before, the gross margins are impacted by 1st party versus 3rd party mix, as well as AWS mix if you're looking at the total for the company. So we're much more focused on the dollars and no specific categories we're calling out as a driver for gross margin because again we're much more focused on the profit dollars.
Thank you. Our next question comes from the line of Paul Vogel with Barclays. Please proceed with your question.
Great, thanks. Just wondering if you could
give an update on this strategy around same day shipping. How we should think about kind of further expansion of that? And kind of what parameters do you guys use to determine what markets to go in? Is it density of the market? Is it proximity of your distribution facilities?
Just some color on that would be great.
So, we deliver really quickly a couple of ways. One is the free same day that you've seen us roll out in a number markets here in the U. S. The other is Prime Now and we're now in more than 25 metropolitan areas for Prime Now. And delivering for free in 2 hours is difficult and expensive, but customers love it.
So we feel like this is the natural evolution of our delivery and we're happy to invest in that service. We like what it does for Prime members. We like the convenience factor. And so we're taking a long term approach and doing what we normally do, which is really focused on continuing to drive greater and greater efficiency.
Thank you. Our next question comes from the line of Ron Josey with JMP Securities. Please proceed with your question.
Great. Thanks for taking the question. So I wanted to ask a little more about North America operating margins. I think they expanded just under 50 bps this quarter to 4.7 percent and that compares to an average of 200 basis points thereabouts expansion in the prior 3 quarters. So just wondering if in 4Q maybe higher FPA costs or something else in there that led to maybe an expansion not as great as we saw in the prior quarters?
And then following up on the Prime Now question just now, I'm wondering how our delivery or 2 hour deliveries has changed consumers' perception of just delivery overall? Thank you.
Sure. Yes, again, I'll point out that the demand for FBA services was very high. Nearly 50% of our 3rd party units again were FBA, and the demand for space and services was very large by our seller base, which was a great from a lot of standpoints, but it did exceed our expectations. But it did make our warehouses rather full and did cause us to incur some additional variable costs in the U. S.
And there also is the dynamic that we were fulfilling more of these units ourselves at our warehouses because of the FBA growth and retail growth.
On the speed of delivery, this is Phil. All I can say is that customers love the service. It's very convenient and it gives them flexibility and the ability to get products really quickly. I don't know that there's any big trends we're ready to call out at this point, but they seem to really, really like it. So we're encouraged by that.
We're excited to invest in it and excited what we can do for our Prime members.
Thank you. Our next question comes from the line of Neel Doshi with Mizuho. Please proceed with your question.
Great. Two questions, please. One, it seems like the Echo did perform well. Can you talk more broadly about your Internet of Things ambitions and kind of how Echo plays into that strategy? And then secondly, just wanted to know a little bit more about restaurant delivery.
It seems a little bit outside of the wheelhouse. What's the impetus behind doing more in terms of food delivery? And what are your ambitions there? Thanks.
So on the Echo, we like what how Echo has done. We're really excited about the ecosystem and some of the new skills that are being added to Echo as well as some of the other devices that are taking advantage of Alexa, which is kind of the brains behind Echo. So, we like our device business in general. As you probably saw from the press release, we had a good Q4 where we did almost double the or double the what we did last year. So very excited about the devices.
We like that they pump more energy into Prime and really the whole ecosystem. Not sure on the Internet of Things, but it's very exciting for devices standpoint. And the brains of Echo are the AWS cloud. And so Echo gets new capabilities all the time as Alexa gets better and better. On the restaurant delivery, it's just another great service we can offer for our Prime members.
This is tied in
with the Prime Now offering in a handful of cities at this point. And so, we have the delivery people going out and making the deliveries in the neighborhoods. And so this is one more really valuable convenient service we can offer for our Prime customers.
Thank you. Our final question will come from John Blackledge with Cowen and Company. Please proceed with your question.
Great. Thanks. Two questions. First one, shipping costs were higher than we expected. I think it was 12.5% of net revenue versus 11% last year.
Just any color on the higher shipping costs? And is that percentage of net revenue a new normal as we are in 2016 now and as we look out? And then the second question on Prime Now in 25 markets globally, how should we think about the total number of markets that additional markets you can enter with the Prime Now offering in 2016? Thanks.
Sure. As you say, net shipping margin was up 70 basis points year over year. Again, this is all tied in with the increase in FBA growth and the demand from Prime members. We're shipping more units, more of our units. So that ripples through our ship cost per unit.
And again, the calculation of ship cost as margin is a percent of revenue and that is impacted by the denominator effect on the FBA sales being booked at a net revenue?
Related to your Prime Now question, this is Phil. We're in more than 25 metropolitan locations. It's if you've been watching, this rollout has really happened in the last year. So it's been a pretty rapid rollout. And we're excited to bring it to more places.
We don't have a target for you today, but we're working hard to bring it to more and more places. We're outside the U. S. Now in a handful of countries in the U. K.
And Japan and Italy and working to expand. So it's a program we're really excited about and we're happy to bring it to more customers. Thank you for joining us on the call today and for your questions. A replay will be available on our Investor Relations website at least through the end of the quarter. We appreciate your interest in amazon.com and look forward to talking with you again next quarter.