Greetings. Thank you for standing by. Good day, everyone, and welcome to the Amazon.com 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, 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 23rd, 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-K. 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 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 the comparable period of 2014. Now I'll turn the call over to Brian.
Thanks, Phil. I'll begin with comments on our second quarter financial results. Trailing 12-month operating cash flow increased 69% to $8.98 billion. Trailing 12-month free cash flow increased to $4.37 billion, up from $1.04 billion. 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 $4.61 billion. 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 minus current liabilities, excluding the current portion of long-term debt over five quarter ends. Combination of common stock and stock-based awards outstanding was 488 million shares compared with 480 million one year ago. Worldwide revenue grew 20% to $23.18 billion, or 27% excluding the $1.39 billion unfavorable impact from year-over-year changes in foreign exchange. Worldwide paid unit growth was 22%. Worldwide active customer accounts was approximately 285 million. Excluding customers who only had free orders in the preceding 12-month period, worldwide active customers were approximately 265 million, up from approximately 237 million in the comparable prior year period. Worldwide seller units represented 45% 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 $15.16 billion, or 65.4% of revenue, compared with 69.3%. Fulfillment, marketing, technology and content, and G&A combined was $6.95 billion, or 29.9% of sales, up approximately 130 basis points year-over-year. Fulfillment was $2.74 billion, or 11.8% of revenue, compared with 11.8%. Tech and content was $2.70 billion, or 11.7% of revenue, compared with 10.4%. Marketing was $1.1 billion, or 4.7% of revenue, compared with 4.7%. Now I'll talk about our segment results. As a reminder, in the first quarter, we changed our reportable segments to report North America, International, and Amazon Web Services. Consistent with prior periods, we do not allocate to segments our stock-based compensation or the other operating expense line item. In the North America segment, revenue grew 26% to $13.8 billion. Media revenue grew 6% to $2.62 billion, or 7% excluding foreign exchange.
EGM revenue grew 31% to $10.99 billion, or 32% excluding foreign exchange. EGM now represents 80% of North America revenues. North America segment operating income increased 113% to $703 million, a 5.1% operating margin. Excluding the $9 million favorable impact from foreign exchange, North America segment operating income increased 111%. In the International segment, revenue increased 3% to $7.56 billion. Excluding the $1.37 billion year-over-year unfavorable impact from foreign exchange, revenue growth was 22%. Media revenue decreased 12% to $2.09 billion, or increased 3% excluding foreign exchange. EGM revenue grew 10% to $5.43 billion, or 31% excluding foreign exchange. EGM now represents 72% of international revenues. International segment operating loss was $19 million compared to a loss of $2 million in the prior year period. International segment operating loss includes $89 million of unfavorable impact from foreign exchange. In the Amazon Web Services segment, revenue increased 81% to $1.82 billion.
Amazon Web Services segment operating income increased 407% to $391 million, a 21.4% operating margin. Excluding the $71 million favorable impact from foreign exchange, AWS segment operating income increased 314%. Consolidated segment operating income increased 166% to $1.07 billion, or 4.6% of revenue, up approximately 250 basis points year-over-year. Excluding the $9 million 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 million compared to a loss of $15 million in the prior year period. Our income tax expense was $266 million. GAAP net income was $92 million, or $0.19 per diluted share, compared with a net loss of $126 million, or a loss of $0.27 per diluted share. Turning to the balance sheet. Cash and marketable securities increased $6.02 billion year-over-year to $14 billion.
Inventory increased 12% to $7.47 billion, 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 $12.39 billion, 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, 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 legal 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, 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 $23.3 billion and $25.5 billion, or growth of between 13% and 24%. This guidance anticipates approximately 620 basis points of unfavorable impact from foreign exchange rates. GAAP operating income or loss to be between a $480 million loss and $70 million of income, compared to a $544 million loss in the third quarter of 2014.
This includes approximately $580 million 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 million and $650 million, compared to a $136 million loss in the third quarter 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 create lasting value for shareholders. Thanks, with that, Phil, let's move on to questions.
Great. Thanks, Brian. Let's move on to the Q&A portion of the call. Operator, will you please remind our listeners how to initiate a question?
Certainly. Ladies and gentlemen, at this time, we'll be conducting a question-and-answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press *2 if you need to remove your question from the queue. For participants using speaker equipment, it might be necessary to pick up your handset prior to pressing the star keys. 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, maybe just focusing in on AWS, which 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, I think in the past you've talked about what unit growth was for AWS. 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. 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, we've 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. 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 think 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. India is that kind of surprise. 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 million ASINs, which is the largest online store in India, and continue to improve pricing and fast delivery. We're super excited about India. We'll not get into specific investment levels right now, but we continue to ramp up our investment there.
Thanks so much.
Our next question comes from Justin Post with Merrill Lynch.
Great. Thank you. A couple questions. We've followed this company for a long time, profits seem to move around quite a bit year-over-year and year against year. 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 there a way to kind of smooth that out? Secondly, in AWS, it does seem like pricing competition has come down, 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. 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 350 significant new features and services, we believe that 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?
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?
Sure. Well, here's how I think about it. We have at least two things going on. We're continuing to drive operational improvement in every business that we're in, 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 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." We will continue to invest in the business that we think fit that profile, and we're always looking for a fourth or fifth business that fits that profile.
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's listening in. That's a great exit on his part. 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? Is that the impact as one thesis, is that the impact of kind of the buildup of Prime in international markets and also in the U.S. too, but more spend per Prime customers as they go through this evolution, and it'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, international was up 800 basis points. Half of that, you will remember, we have spoken about the impact of the Japanese consumption tax that was instituted last April 1st of 2014. It had a measurable impact on our run rate, our growth rate last year, particularly in Q2. So we are lapping that, which sequentially makes up half of the 800 basis point sequential gain. Independent of that, yeah you are right. Prime membership continues to grow faster outside. Data we gave you at the end of the year, it is growing faster outside the U.S. than it is in the U.S., and we are happy with both growth rates, quite frankly.
I would say the Prime membership, the Prime flywheel, the additional benefits that we are 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 two. 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? What's driving that North America improving profitability? 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. Let me start with North America. 5.1% operating margin was up from 3.9% in Q1 and 3% last Q2. You hit the 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 % of revenue basis. We are getting very good top-line growth. A lot of that is fueled by Prime adoption. We are dropping a lot of it to the bottom line with many 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 our 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 Doug Anmuth with J.P. Morgan.
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. 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. The 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. 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 millions. New Prime members signed up in higher rates than we've ever seen. People bought more devices than on any other day. It's a great success. My hat's off to the operations team and all the people who worked on that, because it was Christmas in July, quite frankly.
A bigger day than Black Friday, as we said, orders increased 266% year-over-year. I'll also point out that worldwide FBA unit order growth approached 300%. Not only was it a great day for Amazon, it was also a great day for our sellers, which is great. While I'm not breaking out the impact of Prime Day specifically, it's incorporated into our guidance.
Our next question comes from Carlos Kirjner with Bernstein.
Hi, thanks for taking my questions. I have two. 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, two years out, you'll be able to fund its growth from the retail business? 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 nine cities, three more in the quarter, including our first international city in London. We're moving quick. We'd always like to move quicker, obviously. On AWS, I think your question's more around the ability to fund AWS. No comment specifically on that. We do realize it's a capital-intensive business, and we have modeling that shows that 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. We're certainly cognizant of the capital part of that calculation. 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 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? 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 business should be?
Sure. Thanks for your question, Heath. I would point out that we have continued to lower prices. We've had multiple price cuts this year. We're now up to 49 since launch in 2006. It is a fundamental part of our business model. Is innovation, and as I said, we have over 350 new features and services, also significant features and services that have launched this year. As we were just talking with Carlos, the capital investment is very large as well. 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. We're thrilled with the business, and price reductions are part of that model. Again, as I said earlier, we're in this for the long haul.
We're 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. I want to go back to something that you said, Brian. You said that you've seen greater efficiency in that business from a cost standpoint. I was wondering if you could maybe parse that out a little more for us. Were you referring to OpEx or CapEx? If you're referring to CapEx as well, 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 a constant decline in that metric, CapEx as a percentage of revenue for that particular business? Thanks.
Yeah, 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 will also say that Amazon is one of the primary large customers of AWS, 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. We get a double whammy there. We're getting great efficiency from our external AWS business, but also from our own use of AWS services.
Okay, thanks.
Our next question comes from Ronald Josey with JMP Securities.
Great. Thanks for taking the question. Just a quick follow-up on Heath's question, just on the price reductions, Brian, 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 2014? Then a follow-up just on the third-party units. I think you mentioned third-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. 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 first party or third party. 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 third-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 FBA program. We're really happy with what that's doing for the third-party business. We're working really hard to give customers as many options as possible and allowing them to choose. 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've followed.
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 who use the video side of Prime and their shopping behavior, number one. Number two, just any update on sort of your plans for growth on the content cost side? Thank you.
Sure. On the engagement of 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. We do also see a higher pickup in retention rates and free trial conversions. 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 two things. What we're talking about is the additional fulfillment center costs that 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." 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've talked about an increase focused on productivity
Is that still a focus of yours? Separately, any thoughts in terms of how robotics are impacting any updates in terms of number of robots in fulfillment centers? Thanks.
Sure thing. 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 about the job being done on that by that team. 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 on the Amazon side as well. We look to increase the leverage of our fixed assets, particularly our fulfillment centers and throughput of 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. Just a little more color on maybe some specifics on the efficiency area.
Great. Thank you.
Our next question comes from Brian Pitz with Jefferies and Company.
Great. Thanks. 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 the path to build out over the next six, 12, 18 months? Thanks.
Sure. We ended the year last year with 109 fulfillment centers around the world, and 19 U.S. sort centers. Typically, we're looking at what the demand would be for peak as we figure out what we need. 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. Continuing to build as we have demand. Like Brian said, we like to be close to customers, and benefit from having inventory close to customers as well. Like I said, a little early for the update at this point, but something we're looking at and something that the team's working really hard on.
Great. Thanks.
Our next question is from Colin Sebastian with Baird Equity Research.
Great. Thanks. Congrats on the great quarter. In the retail business, obviously a lot of variables driving growth there. We're seeing higher Prime membership levels for one, 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. 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's showing some discipline around investments, or how should we think about that? Thanks.
I'll start with the Fire Phone question. We have a policy of not commenting on our roadmap, 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 obviously 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. All those things are going on. As you see in EGM, strength across a lot of the categories there. There was no single category we're really calling out, but continue to see good selection growth and good Prime growth as well.
Thank you.
Our next question is from Ross Sandler with Deutsche Bank.
Thanks, guys. 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 we're clearly seeing that in AWS and in North America retail. It looks like you're still investing heavily on international retail. If we look out 2016, 2017, is there any high-level philosophical commentary about whether you see next year as 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?
Thanks for your question. I can't 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 a 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 build fulfillment centers so that we can add selection and we can add FBA partners. 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 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. A few other things you may have seen in our press release today, the launch of Mexico, which we're very excited about, and Amazon Business. As I said, lots of investments in front of us, but we operate in two 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. It's not a static activity. We continue to evaluate those investments, take into account what customer response is, and make changes. I think you can look forward to the continuation of that into the future.
Our next question comes from Kerry Rice with Needham & 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? You guys haven't necessarily broken this out, but I 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. 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. We try lots of things for fulfillment. We're constantly working to provide the best experience to customers and be as efficient as possible. 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. 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 ads to customers and making sure we keep the customer front of mind. It's a business that the team is excited about and working hard on.
Thank you.
Our next question comes from Stephen Ju with Credit Suisse.
Okay, thanks. Brian, just to follow up on the India question earlier. To my knowledge, foreign e-commerce operators such as yourself are not allowed to have first-party retail operations. 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? Secondarily, 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 acquired Joyo.com. Can you provide any color on how the general operating environments are the same or different? Do you expect your growth trajectory there to be similar to what you saw in China? Thanks.
Your first question was about the infrastructure and how we're managing the customer experience in India. FBA, Easy Ship, 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. 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 we've seen there so far. 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. It appears that Amazon is growing its share of household budget driven by many factors, 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 second quarter, and how do you view Amazon's apparel opportunity going forward? Thank you.
Yeah. Thanks for your question. We've not broken out specifically apparel. We're super excited about that business. It's growing very well. We like our position in it. We think our website is very tuned to selling online. We're very happy with that. It is a big business for us, not only in North America, but also internationally. 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 Subscribe & Save and others. Very happy with the EGM business as a whole.
Thanks.
Our final question comes from Scott Tilghman with B. Riley.
Thanks. I wanted to just follow up on a couple 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. Second, there have been a couple questions about shipping. Most notable is that we had a couple 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. 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 very strong. Media growth has been consistent for the last four quarters. We do like the work being done by the media teams. There's a lot of pipeline of invention, things like Prime Instant Video, Prime Music, all feed the Prime pipeline and Prime ecosystem, if you will. They work great with our devices, by the way. They drive other non-media sales. They're very tied together. Although certainly the EGM is outpacing the media businesses right now. On transportation costs, not a lot to add there. Again, we have a combination of doing our own shipping and using third-party carriers. 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 always to get the most out of the fulfillment centers that we have. As we need new facilities, we place them closer and closer to customers. That can have its benefits as well. Not much more to add on that one.
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.