Greetings. Thank you for standing by. Good day, everyone, and welcome to the Amazon dotcom Q1 2015 Financial Results Teleconference. 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 Q1 2015 financial results conference call. Joining us today is Tom Scutak, our CFO and Brian Olsosky, Vice President and CFO of our Global Consumer Business. 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, April 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 the 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. In addition, the release includes historical financial results of our North America, International and Amazon Web Services reportable segments for 2014 2013. During this call, we will discuss certain non GAAP financial measures. In our press release, slides accompanying this web cast 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 Q1 financial results. Trailing 12 month operating cash flow increased 47 percent to $7,840,000,000 Trailing 12 month free cash flow increased to $3,160,000,000 In the supplemental financial information and business metrics portion of our earnings release, we include a few 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 $4,680,000,000 Capital expenditures do not include the impact of property and equipment acquired under capital and finance lease obligations. Return on invested capital was 14%, up from 9%. 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 5 quarter ends. The combination of common stock and stock based awards outstanding was 483,000,000 shares compared with 476,000,000 1 year ago. Worldwide revenue grew 15 percent to $22,720,000,000 or 22% excluding the $1,300,000,000 unfavorable impact from year over year changes in foreign exchange.
Worldwide paid unit growth was 20%. Active customer accounts was approximately 278,000,000 Excluding customers who only had free orders in the preceding twelve month period, worldwide active customers were approximately $260,000,000 up from approximately $230,000,000 in the comparable prior year period. Worldwide active seller accounts were more than 2,000,000. Seller units represented 44% compensation. Cost of sales was $15,400,000,000 or 67.8 percent of revenue compared with 71.2 percent.
Fulfillment, marketing, technology and content and G and A combined was 6,620,000,000 Fulfillment was $2,670,000,000 or 11.7 percent of revenue compared with 11.3%. Tech and content was $2,520,000,000 or 11.1 percent of revenue compared with 9.2%. Marketing was 1 $050,000,000 or 4.6 percent of revenue compared with 4.3%. Now let's talk about our segment results. Beginning in the Q1, we changed our reportable segments to report North America International and Amazon Web Services.
In addition, we have provided historical results for these segments for 2014 2013 with our earnings release filing today. 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 24 percent to $13,410,000,000 Media revenue grew 5% to $2,970,000,000 EGM revenue grew 31 percent to $10,250,000,000 representing 76% America revenues. North America segment operating income increased 79% to $517,000,000 a 3.9% operating margin. Excluding the favorable impact from foreign exchange, North America segment operating income increased 77%.
In the International segment, revenue decreased 2% to $7,740,000,000 Excluding the $1,300,000,000 year over year unfavorable foreign exchange impact, revenue growth was 14%. Media revenue decreased percent to $2,320,000,000 or increased 2% excluding foreign exchange. EGM revenue grew 4% to $5,380,000,000 or 21% excluding foreign exchange. EGM now represents 69 percent of international revenues. International segment operating loss was $76,000,000
$1,000,000 compared
to a
loss of $33,000,000 in the prior year period. The unfavorable impact from foreign exchange to international segment operating loss was 78 dollars
1,000,000 In
the Amazon Web Services segment, revenue grew 49 percent to $1,570,000,000 Amazon Web Services segment operating income increased 8% to $265,000,000 a 16.9% operating margin. Excluding the favorable impact from foreign exchange, AWS segment operating income decreased 13%. Consolidated segment operating income increased 41 percent to $706,000,000 or 3.1 percent of revenue, up approximately 60 basis points year over year. Excluding the unfavorable impact from foreign exchange, CSOI increased 45%. Unlike CSOI, our GAAP operating income includes stock based compensation expense and other operating expense.
GAAP operating income was $255,000,000 compared to $146,000,000 in the prior was $57,000,000 or negative $0.12 per diluted share compared with a net income of $108,000,000 year over year to $13,780,000,000 Inventory increased 10% to $7,370,000,000 and inventory turns were 8 point 8, down from 9.1 turns a year ago as we expanded selection, improved in stock levels and introduced new product categories. Accounts payable increased 13 percent to $11,920,000,000 and accounts payable days increased to 70 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 consumer 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 legal matters and changes to our effective tax rates can all have a material effect on guidance.
Our guidance further assumes that don't conclude any additional business acquisitions, investments, restructurings or legal settlements, record any further revisions to stock based compensation estimates if foreign exchange rates remain approximately where they've been recently. For Q2 2015, we expect net sales of between $20,600,000,000 $22,800,000,000 or growth of between 7% 18%. This guidance anticipates approximately 7.50 basis points of unfavorable impact from foreign exchange rates. GAAP operating income or loss to be between a $500,000,000 loss and a positive $50,000,000 of income compared to a $15,000,000 loss in 2nd quarter 2014. This includes approximately $600,000,000 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 $100,000,000 $650,000,000 compared to $404,000,000 in the Q2 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. 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?
Thank you. At this time, we will now open up the call for questions. Our first question comes from Brian Pitzer with Jefferies and Company. Please proceed. Your line is live.
Thank you. Can you share with us any updated metrics for Prime Now? How sticky is it in terms of repeat customers, average order value or other details? And also any update on your fulfillment center plans for the year? If you can't disclose specific numbers, maybe you could just qualitatively tell us your focus either domestic versus international or sortation versus traditional FC build out?
Thanks. Sure.
On the PrimeNow, we don't have specific metrics we want to share today, but we have expanded to 7 cities with more on the way. Customers are really enjoying the 1 hour and 2 hour delivery of tens of thousands of daily essential products. So the responses has been great. We'll point out that our operations network that been building for the last 20 years helps make PrimeNow a viable proposition for us, the scale makes it possible. So really so far customer response has been great.
And Brian on the SCs, as we've done in prior years, it's early in the year. And as we progress through the year, we'll give you some updates on how many. But as a reminder, we ended the year with 109 fulfillment centers around the world and we'll update you as we go.
Next question comes from Ross Sandler with Deutsche Bank. Please proceed.
Great. Thanks for the new disclosure guys. Really helpful. I guess just digging in on that a little bit, we all understand the investments you guys are making on international retail and mid to what that margin has been declining. But can you give us some color on what's driving up the North America retail segment margin?
And I guess in the context of that just talk about the impact that is having on the retail margin for both North America and international? Thanks.
Yes, sure. So North America operating margin up 120 basis points year over year at 3.9%. A lot of good cost efficiency, but again we're continuing to invest selectively as we build the Prime platform and event on behalf of customers. So you'll see a lot of invention definitely to feed the Prime platform, which things like video content, Prime Music, as we talked about Prime Now devices and we'll continue to build fulfillment centers for selection and expansion and FBA. So that's generally what's driving the operating margin in North America.
And just to add on
to that, we're we gave the metrics last quarter about prime. It's growing very fast. As Brian said, we're feeding the platform and certainly the common thing with category expansion, new FCs, original content, Prime Instant Video Devices, Prime Now, the common theme is they're all really intertwined with Prime and they're inextricably linked to our consumer business in Prime. So it's just we're happy to do it. And the last quarter we gave an indication of the growth rates after being added for 10 years.
So we're super excited to have the platform and continuing to invest in it.
Great. Thanks guys.
Our next question comes from Douglas Anmuth with JPMorgan.
Thanks for taking the question. Can you guys talk a little bit more just about the international business and kind of the key initiatives here in terms of getting the growth to reaccelerate from these levels? And then also perhaps a little bit more on your strategy in China, how you're thinking about the cost structure there relative to previous years and some let me start with China. So,
Let me start with China. So I think you'll see a lot of invention. You're seeing a lot of invention from us in China right now. Amazon is a trusted source of authentic international products and that's really what we're doubling down on now with the Amazon Global Store on our own site, which gives Chinese customers access to over 1,000,000 Amazon products globally. And then the Tmall flagship store for international brands, which you've heard about, giving thousands of direct imported products access or customers access to these products.
And those happen to be stocked and ready to ship from our fulfillment centers in China. So that's an added benefit. 25% of those are exclusive over 25 percent of those are exclusive to Amazon. So we continue to be selective in our investments there, but we're taking the long term view and we have hoped for the new initiatives along with the global store and the team mall flagship store.
In terms of the growth for total international, just maybe some comments first about the current quarter and then elaborate a little bit further. But the growth was down 2% on a dollar basis, up 14% on a local currency basis. So we did see a little bit of improvement in terms of growth rate acceleration versus the last couple of quarters. And in addition to the things that Brian mentioned earlier about the Prime platform, that's something that we're doing globally. And so we're certainly all of those things we're working on globally.
So those are things that at least in most geographies we have today. One thing to keep in mind also as you look at the growth rate for Q1 is last year Q1 we talked about in April 1, there was a consumption tax increase in Japan. We had some we think some pre buys in Q1 and we're overlapping that in Q1 of this year. So it's a headwind if you think about it for Q1. But we're looking we think there's still a big opportunity.
As we mentioned last call, big opportunity with Prime. Prime is growing at a faster rate. We think there's still a great opportunity to add unique selection for category expansion. And again, so we're going to continue to feed the Prime platform as we talked about, continue to add selection in a lot of categories. We're also very excited about India.
If you take a look at our results from an operating profit standpoint, you see that it was approximately negative $76,000,000 on a dollar basis. If you back out exchange, that's approximately breakeven. Included in there, we certainly have a sizable step up in investment in India. And we're super excited from what we see there right now. We think it's a very big opportunity and we're investing appropriately for that big opportunity.
So those are some of the things that we're working on. And we think there we still have a lot of opportunity there going forward.
Our next question comes from Brian Nowak with Morgan Stanley.
Great. Thanks for taking my questions. I have 2. The first one is on the new AWS disclosure.
Can you just help us
on an accounting question? The AWS data center costs related to the core e commerce business, are those being allocated to North America and international? Or are those being fully embedded in to the AWS segment? And then the second question goes back to China. I guess any early learnings from the TMOS partnership and whether you have new thoughts of potentially a lower capital intensive growth strategy in China?
To answer your first question, yes, they are. The associated infrastructure costs to run our North America and International Consumer Business. Those We're liking We're liking certainly some of the things that we're seeing there, but there's not a lot I can add to that at this stage.
Thank you.
Our next question comes from Colin Sebastian with Robert Baird.
Great, thanks. Maybe just another follow-up on the new segment disclosure. Thanks for breaking that out. If we assume that the advertising other segment is reasonably profitable then the implication is then that the core retail business is very modestly profitable close to breakeven. And just wondering what the thought process and strategy is behind that if in a sense there's some subsidy to the retail side being used as you build market share in the core business?
Thanks.
Yes. I think the best way to think about it is we certainly have an advertising part of our North American consumer segments. Segments. But the way you should think about it is we are making some great investments for the long term And that's really what's reflected in the operating results that you're seeing in terms of so it is certainly impacting the operating margins both for North America and International. So it's the things that both Brian and I talked about that we're doing globally to support the Prime platform, all of those things that we mentioned, video content, original content, Prime Now, category expansion, investing on behalf of FBA, which also helps prime devices.
Those are all intertwined and certainly part of that. And then some of the things outside of that are more specifically related to international in addition to those are some of the geographic stuff that we talked about. So I think you should think about it that way that certainly think it's a big opportunity. And again, one of the reasons I wanted to give you an update last quarter on prime growth and you can see that that's going very well. And so we're feeding that.
And that's what we have been doing and that's what you see also in certainly results that you're seeing today.
All right. Helpful. Thanks very much.
Sure.
Our next question comes from Mark May with Citi.
Thanks for taking my questions. On the international revenue, I believe there's probably a there's a real distinction here between some of your more established countries and some of your more emerging countries. Wonder if you could talk a little bit about for Germany and the U. K. And Japan and some of the more established markets, what the profit profile of those markets look like?
And just how much of the international segment results are being losses being held back by a handful of the more emerging markets? And then a question on AWS pricing. It seemed like the pricing environment was pretty competitive last year. What are you seeing in the market this year? And what are your expectations going forward?
Are you expecting
individual country results. Individual country results. The one thing that I did mention around from a country perspective was India in terms of we certainly stepped up our investment and if you look at it year over year. So that's certainly reflected in the numbers that you're seeing. And in terms of AWS, we've had 48 price decreases since inception.
The team is doing a terrific job in terms of working on behalf of customers to pass on savings as they see it. But in terms of any comment on what to expect going forward, there's not really much to add there. It probably is worth adding that although price is a factor,
the primary factor for customers choosing move to AWS is really around their ability to move quickly and to be nimble and agile. And so we're very pleased with the kind of continued adoption and usage growth we've seen and obviously the benefits of AWS around their ability customers' ability to be nimble is a primary factor there.
Our next question comes from Carlos Kirchner with Bernstein.
Hi. Thanks for taking my question. I have 2. My first is my first question is about the profitability of the North America segment. You mentioned a few minutes ago that investments in prime were part of the or most of the explanation for what is a relatively low 3.9% margin in North America, which are much lower than the 5% to 6% EBIT margin that a brick and mortar retailer books despite the large benefit of Booking 3P net.
Here's the question. Prime is not new in North America. You probably have tens of millions of Prime users in the U. S. 30, 40,000,000, 50,000,000 yet margins are still low.
What gives you confidence that the investments that you are making will pay off? Second question on AWS. If you look at expenses like R and D and perhaps even the fixed component of marketing and sales, which presumably one day will be really fixed. Are these still growing significantly? In other words, is there room for significant margin expansion at some point in the future when AWS is I don't know 3, 5 or 10 times its current size?
Or do you expect R and D to scale up at the same rate as revenues? Thank you.
In terms of your first question, specifically related to North America, one of the comments we made last quarter that we disclosed was we disclosed the growth rate globally as well as the growth rate in the U. S. And the growth rate in the U. S. After 10 years is up 50% it was up 50 percent year over year.
So 2014 versus 2013 in terms of Prime membership. And that's after a price increase on Prime from $79 to $99 So it gives you a feel for the work that we've put into Prime to make that experience great for customers and the value that we're giving them, so again, given that growth. And so that's what that's certainly one of the things that gives us comfort. But when we look at the individual pieces, we like what we see. So in other words, some of the investments we're making, I think as we've talked about in the past, one example would be video content, both original and licensed content.
We mentioned last call that we spent approximately $1,300,000,000 on content globally for prime customers. And what we've seen to date is it's certainly still an investment for us. It's certainly impacting our operating results, but we like what we see. We see customers who come in through our free trial pipeline, if you will, for video content. They convert at a higher rate.
We see we have a great retention of Prime members, but those who stream actually we retain we retain those at a higher rate. And when we bring in new customers through our video pipeline, the purchasing pattern that have for those customers is very similar to those who come in from other pipelines. So in other words, they're buying very good from a physical product standpoint as well as digital. So they're buying a diverse set of products. So in other words, the video content that we're spending is helping us.
Customers will buy consumables from us, they'll buy clothing from us, they'll buy shoes from us, they'll buy electronics, they'll buy media items. So that's what we're seeing. And so again, it's some of these things are very early. We'll have to see over time how efficient they are. But each period we go, we keep the data that we see, we're encouraged.
And so that's just one example, but that's why we're investing a lot in Prime and we think it's a great the Prime platform, if you will, and we think it's a great opportunity. I guess as I mentioned earlier, all these things we're investing in are very intertwined.
And Carlos, I think you had a question about AWS. From our perspective, it's a business that's still really in day 1. A lot of potential innovation in front of us, we believe. And so you can see we're putting a lot of CapEx obviously there, including capital leases. And we think over time, we will be able to generate significant free cash flow at strong ROICs.
Our next question comes from Mark Mahaney with RBC Capital Markets.
Thanks. I want to go
back at this North American retail margins and I guess I want to try to figure out I know you're not going to talk about where they could go, but if we look in the past, I assume that if the base in 2014 and in full year 2013 was probably depressed for North American retail margins, North American segment margins. And if we look back 5, 6 years, it's probable that that was running at kind of mid to high single digits ask is there a structural change in the North American retail business over the next this year and the next couple of years versus what you had call it in 2004 to 2,009 when the margins were I think were pretty clearly higher and now you're going to be recovering to those levels? That's what I'm trying to get at. Any color would be great. Yes.
Thanks for the question, Mark. Just in terms of going forward, we're not giving any specific guidance beyond the current quarter. So I can't predict for you what could happen. But what you mentioned is in some of the periods that you were describing as you mentioned what our business looked like several years ago when we prime was nascent and we were a bit earlier in the business. And so we go through different cycles.
We're certainly still investing very heavily. That being said, we as I mentioned last quarter, we're spending time on making sure that we productivity. So we're working on both investing heavily in the business while working on fixed and variable productivity in other areas, putting a lot more energy into it. That's what's helping us with the improvement that Brian mentioned in terms of operating margins year over year. It's a number of different aspects, but mix of business and some productivity is certainly impacting that.
But again, we think there's opportunities to improve margins over time. You'll have to stay tuned on that to see what it looks like. But we certainly as you can see from not only the results, but some of the data points that we've given over the last several quarters, we are investing heavily in the business. Business again because we like what we see in Prime growing so dramatically globally after being in it for a long time. We think that that's a great platform to feed.
Okay. Thanks, Tom.
Our next question comes from Justin Post with Merrill Lynch.
Hey, a couple of questions on margins. First on AWS, I think those are higher than most of us were thinking. Appreciate the disclosure. What is driving your margin versus your pricing decision? How do you think about passing through cost efficiencies or clearly below history, below clearly below history, below the U.
S, what kind of things need to happen to get those at least to where the U. S. Is today much less back to where they were 6, 7 years ago? Thank
you. Justin, I'll take the AWS portion of the question first. So, our model over the long term really has been to innovate and to use our scale and position to be able to pass savings along to customers. And so we've had 48 price decreases since we launched. As I talked about earlier, that's one factor customers save a lot of money, but the primary motivator is really around the innovation that AWS enables and the ability for developers to move really quickly.
In terms of the international,
again, as you mentioned, Justin, we are investing a lot right now, which impacts the margins there. Again, ex exchange think of it as approximately breakeven for the quarter. And so again, we're continuing to invest. We're investing in all the things that we talked about related to the platform, continue to invest in some emerging geographies, most notably, certainly India with the step up given the experience we have. And so we are optimistic over time.
We have a lot to do there. We think it's a great opportunity for us. And so that's what we're doing. But we're excited about the opportunity and that's why you see the results that you're seeing there.
Our next question comes from Heath Terry with Goldman Sachs.
Great. Thanks. I was wondering if you
could give us a sense
of how we should think about the run rate of CapEx and capital lease obligations in the quarter as any sort of indication for full year and the trajectory of investment in fulfillment and data centers?
And then just on the
question Prime and Prime Video, as we think about the way that media growth is trending now, Is there a point where you start to think of allocating prime some of those prime revenues to media to account for the as prime video usage increases?
Yes. In terms of the CapEx question, there's certainly 2 pieces of that. There's the consumer, the North American international piece. There's a number of pieces, but certainly the 2 largest pieces would certainly be the CapEx associated with fulfillment and the second would be infrastructure. And again, it's for AWS versus North American International.
I'll take the North American International first. We're seeing good growth year over year in terms of overall unit growth, in terms of revenue growth, certainly ex exchange. As I mentioned earlier, it's early in the year. So as we do every year, we'll continue to monitor the growth there. We're making plans for the rest of the year and we'll get back to you as we throughout the year in terms of what fulfillment capacity we'll need to support that growth this year.
In terms of web services, it's obviously growing extremely fast. We saw some acceleration of growth from a revenue perspective over the last few quarters here. Usage is growing faster than that. So we will be deploying more capital as we go there. In terms of the amounts, specific amounts, we're not giving guidance on that today.
And then one of the reasons is it's just growing so fast that we want to make sure we put the right amount of capital in place. And the team is doing a great job doing all the planning and the execution around that. So that's what we're doing there. In terms of media, I'm not fully sure I understood the question. But as relates to I think it's video, could you repeat the part of that question?
Right.
Part of the question? Right. I was just getting a sense of as video becomes such a becomes a bigger part of the prime value proposition, do you media segment because of the level of usage associated with Prime Video versus the shipping benefits of Prime?
Keith, we do allocate some Prime to account for the video.
Okay, great. Thank you. Thanks for
the question.
Our next question comes from Gene Munster with Piper Jaffray.
Good afternoon. Could you talk a little bit about the focus on same day and same hour and specifically about the incremental investments and just some context to how big of those investments are? And separately is what the strategic advantage? Is this something ultimately, obviously it's to improve the experience, but do you see in any of your data that this opens you up to being more competitive with traditional retailers? Thanks.
Yes, I'll take that one. We 109
fulfillment centers. We're getting very close to customers and it's 109 fulfillment centers. We're getting very close to customers. It allows us and unlocks for us same day and next day deliveries. And to its extreme 1 hour and 2 hour deliveries as you've seen with Prime Now.
So we're not forecasting or giving much more on that, but we definitely see it as a valuable customer proposition. Customers embraced it. Again, smaller number of ASINS, tens of thousands of ASINS, but available for 1 or 2 hour delivery and generally in the category of essential products that you would need in a short time period.
And the only thing I would add to that as Brian mentioned earlier as well, we're in 7 cities today and there'll be more to come. We haven't said how many, but you should be definitely expecting more to come and we're very excited to do that.
Our next question
Our next question comes from Robert
Peck with SunTrust Robinson Humphrey.
Yes. Thank you. I was wondering Tom, could
you give us an update on your retail store strategy? Should we expect stores to open up across the U. S? Or is that something you're just limited trying out in New York? And then number 2, India has come up a couple of times on the call today.
China had several structural challenges just based on the market there. I was curious if you could differentiate what you're seeing that's different in India versus the China challenges? Thank you.
Yes. In terms of our consumer business, we love the business that we have today. We love we think there's a great opportunity to do that, to continue to expand the existing business that we have. In terms of other things, we have a long standing practice of not talking about what we might or might not do there. In terms of the second part India and China, could you repeat that part?
Sorry.
Sure. So you've talked about India a couple of times today on the call. Obviously, it's a big area of investment and focus for the company. China had some structural challenges based on how the marketplace is. I was wondering if you could differentiate what you're seeing in India that makes you optimistic there versus some of the challenges you faced in China?
Yes. Thank you for the question. They are very different. You'll see the growth rate in India is very rapid. We talked about last year and it's increasing our investment.
I think the biggest difference is the focus on sellers and the connection of sellers. A big part of the challenge there is helping sellers all across India to succeed and grow their online businesses. You see from our press release that we've launched some new apps for that. So that helps them manage their inventory better and also respond to customer inquiries. So that's probably the biggest difference that we see between India and China, but and still very, very early on in India.
Our Our next question comes from Jason Helfstein with Oppenheimer. Thanks.
So can you talk about how the impact on available 3rd party SKUs impacts the business, particularly let's say in Europe? And ultimately what you could do to drive more SKUs through the platform, whether it's lowering 3rd party rates or is there other factors to try to get more SKUs on there for 3rd party? Thanks.
We've spent a tremendous amount of time on our seller business over the years and trying to improve both the experience for sellers as well as customers. And we've done a lot of interesting things to help sellers. And that's why you see the results that we're seeing today. 44% of our units today as of this quarter are 3rd party units that's up about 400 basis points from last year. Certainly, one of the things that we've talked about that's most that's notable is fulfillment by Amazon.
And so the benefit for sellers is they get to take advantage of our multi node fulfillment network globally. We have 109 fulfillment centers globally as well as our customers get to take advantage of that as Prime members where we offer it in those geographies. So it's really a great benefit for sellers. It's good for sellers. It's good for customers and we believe good for shareowners too.
So again, we're very excited, number of different things we're working on, but certainly one of the drivers along with all the things that I mentioned is certainly FDA is very helpful.
Our next question comes from Mark Miller with William Blair and Company.
Hi, good afternoon. Looking at the service sales less the AWS revenues, you've got $4,000,000,000 in fees, mostly coming from the marketplace, up a strong mid-thirty percent. Can you help us think about the costs that go against those marketplace fees? And specifically within fulfillment, if you could help us understand how much of the cost is going against 3P or basically FBA fulfillment, perhaps percent of units out of the FCs that are going to 3P?
So Mark, can't comment on the derived number, but I can say that SBA continues to grow really well. It's become a bigger and bigger part of our 3rd party mix over the years. I think we gave you an update in Q4 that it was more than 40% of our 3rd party units. Obviously, in the fulfillment line, there is cost associated with that as well as our other 3rd party units as well with things like payment processing and other costs that we incur. So I don't know that there's much more we can say about that.
If I can insert a second question, given the upside in profitability in the Q1, the guidance for the Q2 quite a bit lower. Is there what are the factors you see that are negatives or I guess otherwise people are going to think you're sandbagging?
Well, if you take a look
at the guidance that we gave, again, we gave as we have in previous quarters, we gave a wide range. And from a consolidated segment operating income standpoint, we gave 100 to 650. The implied margin at the lower end to the higher end is approximately 50 basis points upwards to 2.9%. This quarter in Q1, we were up 60 basis points year over year in total. At the upper end of that forecast, the implied would be up 80 basis points.
So again, that's the range and we think it's appropriate range for Q2.
Our final question comes from Ram Josey with JMP Securities.
Great. Thanks for taking the question. Just going back to margins and a little bit more on AWS. As I look at the seasonality, I wonder if there's any seasonality in margins, given it looks like margins in 2Q and 3Q came in sub-ten percent versus maybe mid teens in 4Q and 1Q? And then sort of looking at a different way, maybe given the dip in profitability in 2Q of last year, did that have any impact from the pricing cuts in April?
Thanks very much.
So let's start with the increase you saw sequentially in margin from Q2 or Q3 to Q4 of 2014. So revenue grew by about 21.5% sequentially and expense grew by around 10%. So obviously, we were growing faster on the top line than our expenses. And over the long term, improvements in efficiency and innovation allow us to drive that kind of cost out of the business. I mean, there certainly was an impact with pricing changes and you probably saw some of that in Q2 as well.
But over the long term, that's the model we follow.
Great. Thank
you. And with that, thank you for joining us on the call today and for your questions. A replay will be available on our Investor Relations website through the end of the quarter. We appreciate your interest in amazon.com and look forward to talking with you again next quarter.