Greetings. Thank you for standing by. Good day, everyone, and welcome to the Amazon dotcom Q2 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 Relations, Phil Hardin. Please go ahead.
Hello, and welcome to our Q2 2015 financial results conference 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, July 23, 2015 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 our 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 measures. In our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our IR website, 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 comparable period of 2014.
Now I'll turn the call over to Brian.
Thanks, Phil. I'll begin with comments on our Q2 financial results. Trailing 12 month operating cash flow increased 69 percent to $8,980,000,000 Trailing 12 month free cash flow increased to $4,370,000,000 up from $1,040,000,000 In the supplemental financial information and business metrics portion of our earnings release, we include a few additional free cash flow measures. We believe these measures provide additional perspective on the impact of acquiring property and equipment with cash and through capital and finance leases. Trailing 12 month capital expenditures were $4,610,000,000 Capital expenditures do not include the impact of property and equipment acquired under capital and finance lease obligations.
The increase in capital expenditures and capital leases reflects 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. Return on invested capital was 17%, up from 6%. ROIC is trailing 12 month free cash flow divided by average total assets current liabilities, excluding the current portion of long term debt over 5 quarter ends. Combination of common stock and stock based awards outstanding was 488,000,000 shares compared with 480,000,000 1 year ago. Worldwide revenue grew 20 percent to 23,180,000,000 dollars or 27% excluding the $1,390,000,000 unfavorable impact from year over year changes in foreign exchange.
Worldwide paid unit growth was 22%. Worldwide active customer accounts was approximately 285,000,000 Excluding customers who only had free orders in the preceding 12 month period, worldwide active customers were Worldwide seller units represented 45 percent of paid units, up from 41% in the comparable prior year period. Now I'll discuss operating expenses excluding stock based compensation. Cost of sales was $15,160,000,000 or 65.4 percent of revenue compared with 69.3 percent. Fulfillment marketing, technology and content and G and A combined was $6,950,000,000 or 29.9 percent of sales, up approximately 130 basis points year over year.
Fulfillment was 2 point $74,000,000,000 or 11.8 percent of revenue compared with 11.8%. Tech and content was $2,701,000,000 or 11 0.7 percent of revenue, compared with 10.4%. Marketing was $1,100,000,000 or 4.7 percent of revenue, compared with 4.7%. Now I'll talk about our segment results. As a reminder, in the Q1, we changed our reportable segments to report North America, International and Amazon Web Services.
Consistent with prior periods, we do not allocate 2 segments our stock based compensation or the other operating expense line item. In the North America segment, revenue grew 26 percent to $13,800,000,000 Media revenue grew 6% to $2,620,000,000 or 7% excluding foreign exchange. EGM revenue grew 31 EGM revenue grew 31 percent to $10,990,000,000 or 32% excluding foreign exchange. EGM now represents 80% of North America revenues. North America segment operating income increased 113 percent to $703,000,000 a 5.1 percent operating margin.
Excluding the $9,000,000 favorable impact from foreign exchange, North America segment operating income increased 111%. In the International segment, revenue increased 3% to $7,560,000,000 Excluding the $1,370,000,000 year over year unfavorable impact from foreign exchange, revenue growth was 22%. Media revenue EGM revenue grew 10% to $5,430,000,000 or 31% excluding foreign exchange. EGM now represents 72% of international revenues. International segment operating loss was $19,000,000 compared to a loss of $2,000,000 in the prior year period.
International segment operating loss includes $89,000,000 of unfavorable impact from foreign exchange. In the Amazon Web Services segment, revenue increased 81 percent to $1,820,000,000 Amazon Web Services segment operating income increased 407 percent to $391,000,000 a 21.4 percent operating margin. Excluding the $71,000,000 favorable impact from foreign exchange, increased 314%. Consolidated segment operating income increased 166 percent to 1 $700,000,000 or 4.6 percent of revenue, up approximately 2 50 basis points year over year. Excluding the $9,000,000 unfavorable impact from foreign exchange, CSOI increased 168%.
Unlike CSOI, our GAAP operating income includes stock based compensation expense and other operating expense. GAAP operating income was $464,000,000 compared to a loss of $15,000,000 in the prior year period. Our income tax expense was $266,000,000 GAAP net income was $92,000,000 or 0.19 dollars per diluted share compared with a net loss of $126,000,000 or a loss of $0.27 per diluted share. Turning to the balance sheet. Cash and marketable securities increased $6,020,000,000 year over year to $14,000,000,000 Inventory increased 12 percent to $7,470,000,000 and inventory turns were 8.9, down from 9.1 turns a year ago as we expanded selection, improved in stock levels and introduced new product categories.
Accounts payable increased 18% to $12,390,000,000 and accounts payable days increased to 74 from 71 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 and 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 in foreign currencies among our subsidiaries, unfavorable resolution of legal matters and changes to our effective tax rate can all have material effect on guidance. Our guidance further assumes that we don't conclude any additional business acquisitions, investments, restructurings or legal settlements record any further revisions to stock based compensation estimates and that foreign exchange rates remain approximately where they've been recently. For Q3 2015, we expect net sales of between $23,300,000,000 $25,500,000,000 or growth of between 13% 24%. This guidance anticipates approximately 6.20 basis points of unfavorable impact from foreign exchange rates. GAAP operating income or loss to be between a $480,000,000 loss $70,000,000 of income compared to a $544,000,000 loss in the Q3 of 2014.
This includes approximately $580,000,000 for stock based compensation and amortization of intangible assets. We anticipate consolidated segment operating income, which excludes stock based compensation and other operating expense to be between 100 $1,000,000 $650,000,000 compared to a $136,000,000 loss in the Q3 of 2014. We remain heads down focused on driving a better customer experience through price selection and convenience. We believe putting customers first is the only reliable way to 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?
Certainly. Our first question comes from Mark May with Citi. Please proceed. Your line is live.
Thanks for taking my questions. Clearly, a lot of things that were working well in the quarter, but maybe just focusing in on AWS, which is seems to be quickly emerging as kind of your largest contributor to operating income. Can you maybe provide a little more color on what drove the acceleration and just the overall growth in the business? If you could talk a little bit about the addition of new customers versus average spend per customer? And I think in the past you've talked about what unit growth was for AWS.
And then in the press release you talked about expanding AWS into some new international markets. Can you give us a feel for how much of AWS's business today is domestic? And kind of what kind of opportunity you have there to expand AWS outside the U. S?
Yes, Mark. Thanks for your question. So we will not be providing the granular customer detail unfortunately, but I will say the growth of 81% was up from 49% in Q1. You remember that we're lapping a number of large price decreases in Q2 of last year. So it was somewhat expected, but a very strong quarter in AWS.
We did open a region in India.
You announced a region in India. The other thing to mention is just we continue to see really strong usage growth. It's outpacing the revenue growth of 81%, obviously. And so we're really excited about it. From a distribution of customers, it is a global business.
We have regions spread throughout the world. We've got 11 regions at this point and have announced plans to launch a region in India in the future.
Our next question comes from Eric Sheridan with UBS. Please proceed. Your line is live.
Great. Thank you for taking the question. There's been some recent press reports talking about investments in India. Wanted to know, you've talked a little bit about that market in the past, whether there was any update there in terms of how you're thinking about approaching that market and the level of investments that might be needed to compete
in the market? Thank you.
Certainly, Eric. What I can say about India is that when we see a positive surprise we double down on it. That's kind of our policy. In India is that kind of surprise. So we're very happy, very encouraged early on with what we've seen the ramping of the business, the level of invention going on for both customers and sellers.
We're over 25 ASENS, which is the largest online store in India and continue to improve pricing and fast delivery. So we're super excited about India. We'll not get into specific investment levels right now, but we Okay.
Thank
you. A couple
Okay. Thank you. A couple of questions. We've followed this company for a long time and profits seem to move around quite a bit year over year and year against year. And just wondering how you think about that?
Is that just the nature of your big bets and that's just going to continue or is the way to kind of smooth that out? And then secondly, in AWS, it does seem like pricing competition has come down and we've been to a lot of your events and it seems like you're emphasizing pricing a little less to your customers. Can you talk at all about the pricing environment in cloud? Thank you. Sure.
Let me start with that second question. So as Phil mentioned, we're seeing continued increases in usage both sequentially and year over year. We're also seeing great efficiency in the business on a cost basis. Innovation is accelerating, not decelerating. We had over 3 50 significant new features and services.
And we believe that's what resonates with customers. While pricing is certainly a factor, we don't believe it's always the primary factor. In fact, what we hear from our customers is that the ability to move faster and more agilely is what they value. I'm sorry the first part of your question was? Yes.
I was asking about just how the profitability kind of really moves pretty big swings year over year. Is that a nature of your just big bets and that can continue? Or is there a way to kind of smooth that out going forward? How do you think about that? Yes, sure.
Well, here's how I
think about it. We have 2 things at least 2 things going on. We're continuing to drive operational improvement in every business that we're in. But we're also investing in large opportunities that are in front of us, particularly in Marketplace Prime and AWS. If you saw our shareholder letter this year, I think Jeff Bezos put it really well.
He said, we're going to look for things that are important to customers. Customers love them, businesses that can grow to be a large size that can generate a high return on invested capital and are durable and can last for decades. So we will continue to invest in the businesses we think fit that profile and we're always looking for a 4th or 5th business that fits that profile. So as far as lumpiness, admittedly it is lumpy and we will continue to work on both those tracks going forward.
Thank you.
Our next question comes from Mark Mahaney with RBC Capital Markets.
Okay. Thanks. I don't know if Tom is listening in. That's a great exit on his part. The on international retail, you had nice acceleration there.
Could you give us a little bit
more of the why behind that?
Why would international revenue growth, particularly in EGM, accelerate pretty materially? And is that the impact is one thesis, the impact of kind of the buildup of Prime in international markets and also in the U. S. Too, but more spend for Prime customers as they go through this evolution that's just kind of layering on. Is that what it is?
What is causing that acceleration? Thank you.
Certainly. We saw a good acceleration in both North America and international this quarter. North America was up 200 basis points sequentially and international was up 800 basis points. And half of that you remember we've spoken about the impact of the Japanese consumption tax that was instituted last April 1, 2014. It had a measurable impact on our run rate, our growth rate last year, particularly in Q2.
And so we're lapping that, which sequentially makes up half of the 800 basis points sequential gain. So but independent of that, yes, you're right, Prime membership continues to grow faster outside that data we gave you at the end of the year. It's growing faster outside the U. S. Than it is in the U.
S. And we're happy with both growth rates quite frankly. So the I would say the Prime membership, the Prime Flywheel, the additional benefits that we're adding to Prime, not only in North America, but also internationally and additional selection, both retail and FBA which feeds the prime flywheel. Okay. Thanks a lot.
Our next question comes from Brian Nowak with Morgan Stanley.
Great. Thanks for taking my questions. I have 2. The first one on the North America retail profitability was up nicely. Can you just talk to some of the drivers of that?
Is it more top line and more prime subs coming on? Or is it more on the logistics side and what's driving that North America improving profitability? And then the international profitability, is there any way you can help us understand the profitability of the more mature international markets like U. K. And Germany relative to the U.
S. At this point?
Sure. So let me start with North America. 5.1% operating margin was up from 3.9% in Q1 and 3% last Q2. You hit a nail on the head. A lot of it is the top line growth, but it's also a lot of the efficiency we're seeing, particularly on the fulfillment and marketing lines, which for the whole company were flat year over year on a percent of revenue basis.
So we are getting very good top line growth. A lot of that is fueled by prime, prime adoption, and we are dropping a lot of it to the bottom line with many of the efficiency projects. In international, we have not split countries out. What I can say is that if you adjust for foreign exchange, the operating margin is up slightly, both sequentially and year over year. What you're seeing there is also obviously colored by investment or increased investment in India based on the momentum and success we've been seeing there so far.
Okay, great. Thanks.
Our next question comes from Douglas Anmuth with JPMorgan.
Great. Thanks for taking the question. Just two things I wanted to ask. First on Prime Day, Brian, if you could give a little more color there on the early takeaways that you have? And then also perhaps more importantly, how you think that sets Amazon up for the back to school season and then also the holidays later in the year?
And then also can you just comment on the headcount, which I believe is up 18,000 or so sequentially, which I believe is the biggest number that you've ever added in a quarter? Is there anything in particular that stands out there or just more fulfillment centers, more geography expansion as well? Thanks.
Let me start with that second question first. Yes, headcount was up 38% year over year. Vast majority of that is in operations where we're adding people for our new FCs and call centers. We continue to look for smart innovative people who want to build on behalf of customers. And so we are but this particular quarter is colored a bit by the operations growth.
If you look at Prime Day, we're thrilled with the results of Prime Day, surpassed all of our expectations. Any metric we look at, we think it was a huge success. Customers saved 1,000,000. New Prime members signed up in higher rates than we've ever seen. People bought more devices than on any other day.
So it's a great success. My hats off to the operations team and all the people who worked on that, because it was Christmas in July, quite frankly, bigger day than Black Friday as we said and orders increased 2 66% year over year. I'll also point out that worldwide FBA unit order growth approached 300%. So not only was it a great day for Amazon, it was also a great day for our sellers, which is great. So while I'm not breaking out the impact of Prime Day specifically, it's incorporated into our guidance.
Our next question comes from Carlos Kirchner with Bernstein.
Hi. Thanks for taking my questions. I have 2. I may be delusional, but if I add your capital leases and CapEx that suggests that AWS capital intensity is at least 80% if not much higher. What gives you confidence that if AWS continues to grow so fast and consuming so much capital 2 years out you'll be able to fund its growth from the retail business?
And secondly, can you help me understand why you are not rolling out Prime Now and Fresh faster? What specifically are the bottlenecks there? Thank you.
Let me start with that second one. Prime Now you said and Amazon Fresh. We are moving very quickly on Prime Now. We've now expanded to 9 cities, 3 more in the quarter, including our 1st international city in London. So we're moving quick.
But we'd always like to move quicker, obviously. Obviously. On AWS, I think your question is more around the ability to fund AWS. No comments specifically on that. We do realize it's a capital intensive business.
And we have modeling that shows that it's going to be a very it is a very good business for us. And that's what we aim for is long term return on invested capital and free cash flow. So we're certainly cognizant of the capital part of that calculation. So not much more I can add on that, Carlos.
Thank you.
Our next question comes from Heath Terry with Goldman Sachs. Please proceed.
Great. Thanks guys. Wondering if
you can touch a little bit more on AWS AWS margins. Is there a level particularly when you've been able to maintain pricing strength the way that you have been where you feel like margins start to become and the leverage that you have there start to become a catalyst for lowering prices, or is that purely a competitive decision? And as you think about sort of AWS longer term, is there a framework or structure that you use to think about where margins in that
continued to lower prices. We've had multiple price cuts this year. We're now up to $49 since launch in 2006. So it is a fundamental part of our business model. So is innovation.
And as I said, we have over 3.50 new features and services that have also significant features and services that have launched this year. And as we were just talking with Carlos, the capital investment is very large as well. So we continue to fund it and we're super excited with the customer reception that we're getting and the feedback we get from large customers. And so we're thrilled with the business and price reductions are part of that model. And again, I said earlier, we're in the long haul, we're in this for the long haul.
We are looking for return on invested capital, free cash flow and happy customers in this space.
Great. Thanks. Really appreciate it.
Our next question comes from Youssef Squali with Cantor Fitzgerald.
Thank you. I guess another question on AWS, if I may. So I want to go back to something that you said, Brian. You're saying you said that you've seen greater efficiency in that business from a cost standpoint. I was wondering if you can maybe parse that out a little more for us.
Were you referring to OpEx or CapEx? And if you're referring to CapEx as well, have you do you feel that you've reached that escape velocity that should allow CapEx as a percentage of revenues pricing aside to now allow you for constant decline in that metric CapEx as a percentage of revenue for that particular business? Thanks. Yes. Right.
What I can tell you is we have seen great efficiency on the cost side, the cost to generate the capacity for AWS. I'll also say that Amazon is one of the primary large customers of AWS. So we see it on the consumer side of the business as well, although that's not included in AWS revenue. It's an intercompany relationship. But so we get a double whammy there.
We're getting great efficiency from our external AWS AWS business, but also from our own use of AWS services. Okay, thanks.
Your next question comes from Ron Josey with JMP Securities.
Great. Thanks for taking the question. Just a quick follow-up on Heath's question just on the price reductions. Ryan, you said earlier in the year. Can you just compare maybe the reductions earlier this year versus the ones across the board from last year in 2Q '14?
And then a follow-up just on the 3rd party units. I think you mentioned 3rd party units are now 45% or maybe 47% of total units. Is there a natural limit there or does it matter as long as the customer experience through FBA is seamless? Thank you.
Hey, Ron. So I'll comment on the units first. We're really following the model of giving our customers as many choices as possible and letting them choose whether they want to buy 1st party or 3rd party. And I think we're working really hard to make sellers succeed on the platform. Brian touched on the success that our FBA sellers had with Prime Day.
But we see FBA as a tailwind for the 3rd party business in general. When we surveyed those sellers in the past, in 2014, about 71% of sellers saw a 20%
or greater
increase in sales when they entered the FDA program. So we're really happy with what that's doing for the 3rd party business. We're working really hard to give customers as many options as possible and allowing them to choose. And we don't really have a specific target there. It all comes down to customer choice.
On the price reduction question, we've got a long track record of driving cost out of the business. And you can certainly see where we've even done that over the last several quarters if you look at the margins in AWS. We've also lowered prices for customers 49 times since launch. And so, it can be lumpy, but over the long haul, that's the model we
Great. Thank you.
Our next question is from Paul Vogel with Barclays Capital.
Great. Thank you. Just a question on the content side.
Just any update on how engaged folks are used to the video side of Prime and their shopping behavior number 1. Number 2, just any update on sort of your plans for growth on the content cost side? Thank you.
Sure. On the engagement of Prime customers, we excuse me, PIV customers, we've seen buying habits that look like normal Prime customers or other Prime customers from the group that comes into the digital pipelines. But we do also see a higher pickup in retention rates and free trial conversions. So we're very happy with the linkage between our digital offerings and the Prime customer base. On the content side, I will say that one of the factors in the sequential guidance Q2 to Q3 being lower is 2 things, I'll bring it up.
What we're talking about is the fulfillment center additional fulfillment center costs we see this time every year as we get ready for Q4, but also additional step up in content spend where we spend a lot of our content in Q3. You'll see extensions of a lot of the successful shows that we've had so far this year, a new pilot season including Man in High Castle and Hand of God. So stay tuned for that or seasons
of Man in High Castle and Hand of God.
Thank you.
Our next question comes from Gene Munster with Piper Jaffray.
Good afternoon and congratulations. Just want to follow-up on a previous question. In past calls, you talked about an increase focused on productivity. Is that still a focus of yours? And separately is any thoughts in terms of how robotics are impacting any updates in terms of number of robots and fulfillment centers?
Thanks.
Sure. Thanks for your questions, Gene. On robotics first, we don't have any new numbers to share with you, but we're super excited with the progress of that business. We had very high expectations for Amazon Robotics and its impact on our warehouse cost structure. And we've been very pleasantly surprised by the job being done on that by that team.
So that's looking great. Efficiency, yes, as we've talked about in the last few calls, we have even more emphasis on variable and fixed productivity. I think that's evident in the Q2 results that you've just seen. To give you a little more color on that, I would say, what does that look like? Defect reduction and process improvements are probably something we've always done and worked on both to lower our cost, but also to improve the customer experience and also the seller and vendor experience.
We're using software and algorithms to make decisions rather than people, which we think is more efficient and scales better and will be more accurate, especially as we insert machine learning into those decisions. As I said earlier, we benefit from the efficiency gains of the AWS business as on the Amazon side as well. We look to increase the leverage of our fixed assets, particularly our fulfillment centers and throughput at the fulfillment centers and just generally getting inventory closer to customers as we add and expand warehouses and the sort centers that we added primarily last year, all have helped our cost structure. So just a little more color on some specifics on the efficiency area.
Great. Thank you.
Our next question comes from Brian Pitzer with Jefferies and Company.
Great, thanks. Now halfway through 2015, any update or insights on your fulfillment center build out plans for the year? If you can't disclose that, can you maybe just give us a general sense of focus and strategy? How should we be thinking about domestic versus international as well as sortation versus traditional? What's kind of the path to build out over the next 6, 12, 18 months?
Thanks.
Sure. So we ended the year last year with 109 fulfillment centers around the world and 19 U. S. Sort centers. And typically, we're looking at what the demand would be for peak as we figure out what we need.
So still a little early in the year to comment on that. But in the past, we've given an update sometime around Q3 on that. But continuing to build as we have demand and like Brian said, we like to be close to customers and benefit from having inventory close to customers as well. So like I said, a little early for the update at this point, but something we're looking at and something that the team is working really hard on.
Great. Thanks.
Our next question is from Colin Sebastian with Baird Equity Research.
Great. Thanks and congrats on a great quarter. In the retail business, obviously, a lot of variables driving growth there. You're seeing higher prime membership levels for 1. But I wonder how much of that growth you can also break down by some other factors.
For example, we're seeing a notable increase in selection across longer tail categories. And then secondly, in the press release, no mention of Fire Phone. I think almost every other product was mentioned. Can we just chalk that one up now to a learning experience and an example of where Amazon is showing some discipline around investments? Or how should we think about that?
Thanks.
So I'll
start with the fire phone question. We have a policy of not commenting on a road map. So can't give you anything there. We obviously do learn from everything we do and value the feedback we get from customers, but nothing to share at this point. In terms of growth, we continue to see selection as a strong driver of growth.
Prime is very important as well and we really haven't teased those apart. FBA becomes very important as well and we've talked about some of the tailwinds we see there and sort of the linkage between marketplace and prime that FBA provides. So all those things are going on. As you see in the EGM, strength across a
as well.
Thank you.
Our next question is from Ross Stambler with Deutsche Bank.
Thanks guys. So Brian, I know you guys don't like to provide guidance beyond the next quarter, but philosophically if we go back a few quarters, you've characterized 2015 as a year where you believe that some of the heavier investments made in prior years should start to benefit and pay off. And then we're clearly seeing that in AWS and in North America retail. And it looks like you're still investing heavily international retail. So if we kind of look out 2016, 2017, is there any high level philosophical commentary about whether you see next year is another year of these types of trends that you're seeing now?
Or are there any bigger investment areas, particularly in the retail business that you might be looking to take advantage of?
Yes, I can forecast into the future on that, but I will reiterate the investments we have going on right now, which again, we're looking to invest to strengthen the Prime platform that includes video content, including Amazon Originals, Prime Music, Prime Now. We have robust device business, including a launch of a new Paperwhite, Fire TV, Echo with general availability and numerous other products that we're very excited about that roadmap. We know that those devices drive customer engagement and sales. We built fulfillment centers so that we can add selection and we can add FBA partners. And then we add things like same day delivery, which we talked about.
On the AWS side, we continue to invest in that infrastructure. We talked about opening announcing the region in India, so there's expansion there as well. Feature expansion, services expansion internationally very similar to the U. S. On a number of the prime fronts, but also the investment in India.
And then a few other things you may have seen in our press release today, the launch of Mexico, we're very excited about, an Amazon business. So lots of as I said, lots of investments in front us, but we operate in 2 paths. We are definitely working for operational efficiencies in the business that we're in. We're investing wisely in things that we think are big and important. And it's not a static activity.
We continue to evaluate those investments, take into account what customer responses and make changes. So I think you can look forward to continuation of that into the future.
Our next question comes from Kerry Rice with Needham and Company.
Thanks a lot. You've talked
a lot about operational efficiencies. I know you guys have partnered with the post office and deliveries. Can you talk a little bit about how that is potentially benefiting and maybe the longer term strategy with the post office? And then you guys haven't necessarily broken this out, but I think think you do generate a fair amount of revenue from advertising. I think that's in the other category.
Is there anything that you can provide on advertising revenue? Thank you.
Sure. So I'll start with the first part of that question. We definitely are delivering a lot of packages with the post office. I think most notably, they did a lot of the Sunday delivery that you saw when we started launching Sunday delivery. So we try lots of things for fulfillment.
We're constantly working to provide the best experience to customers and be as efficient as possible. And so we're happy with all the partners we have and continue to work with them to provide the best experience possible. For advertising, I would remind you that certain parts of the advertising roll up into other, some actually roll up to EGM and media as well. So it's a business we're really excited about. We're taking a customer centric approach as we build that to make sure we're providing engaging business, engaging ads to customers and making sure we the customer front of mind.
And it's
a business that the team
is excited about and working hard on.
Thank you.
Our next
question earlier. I mean to my knowledge, I mean foreign e commerce operators such as yourself are not allowed to have first party retail operations. But given the fulfillment and hence customer service has always been a high focus item for you guys. What steps have you taken in the country to make sure that the consumer experience there is as good, if not better for the inventory on which you have no direct control? And secondarily, I mean, similar to China, you have a pretty large population base and Internet penetration currently that's probably comparable to what was the case when you had Joyo when you acquired Joyo.
So can you provide any color on how the general operating environments are the same or different? And do you expect your growth trajectory there to be similar to what you saw in China? Thanks.
So your first question was about the infrastructure and how we're managing the customer experience in India. So FBA, EasyShip and some of those programs are important to us. They're very valuable for sellers to make it easy for the seller
to get their goods to
the customer. They're great from a customer experience standpoint because we can do what we do best with the logistics. And so there is a lot of investment, a lot of efforts going on in that front. I would say that India and China are totally different. And I think as Brian mentioned, India is a country that we're doubling down on based on the success seen there so far.
And so very happy with the trajectory we're on there and excited to be investing and have the opportunities we do at that point.
Thank you.
Our next question comes from John Blackledge with Cowen and Company.
Great. Thank you. So it appears that Amazon is growing its share of household budget driven by many prime growth and strong growth in large verticals like apparel among others. Specifically on apparel, just wondering how you view the breadth of Amazon's apparel offering? Any color on that segment's performance in the Q2?
And how do you view Amazon's apparel opportunity going forward? Thank you.
Yeah. Thanks for your question. We have not broken out specifically apparel, but we're super excited about that business. It's growing very well. We like our position in it.
We think our website is very, very tuned to selling online. So we're very happy with that. It is a big business for us not only in North America, but also internationally. So you mentioned a couple other consumables categories. I will say we are very happy in our consumables and hardlines categories as well.
We drive a lot of repeat business with things like Prime Pantry and Subscribing Save and others. So very happy with the EGM business as a whole.
Thanks.
Our final question comes from Scott Tillman with B. Riley.
Thanks. I wanted to just follow-up on a couple of things. Three quick questions. First off on international, I was wondering if you could compare and contrast the relative performance of media and EGM moving in different directions. 2nd, there have been a couple of questions about shipping, but most notable is that we had a couple of price increases from the majors hit at the beginning of the year and it seems like your costs are coming down.
I was wondering if you could comment on that. And then third just following up on Brian's question around the FCs. I was wondering how many of the facilities lend themselves to expansion rather than having to put up a new facility? Thanks.
Sure. Let me start with the first question on International Media and EGM. I think we're seeing similar trends in both geographies, both segments that EGM growth is much is very strong. Media growth has been consistent for the last four quarters. We do like the work being done in by the media teams.
There's a lot of pipeline of invention, things like Prime and SynVideo, Prime Music, all feed the Prime pipeline and Prime ecosystem, if you will. They work great with our devices, by the way, and they drive other non media sales. So they're very tied together, although certainly the EGM is outpacing the media segment or excuse me, media businesses right now. On transportation costs, not a lot to add there. Again, we are the combination of doing our own shipping and using 3rd party carriers.
So the rate increases are staged and we see those quite frequently. So nothing to add there. On the FCs and whether we would expand or build new, I think we're looking to always to get the most out of the fulfillment centers that we have. And as we need new facilities, we place them closer and closer to customers. So that can have its benefits as well, but not much more to add on that one.
Thank you for joining us on the call today and for your question. 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.