Hello, welcome to our Q3 2014 financial results conference call. Joining us today is Tom Szkutak, 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, October 23rd, 2014 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.
Unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2013. I'll turn the call over to Tom.
Thanks, Phil. I'll begin with comments on our third quarter financial results. Trailing 12-month operating cash flow increased 15% to $5.71 billion. Trailing 12-month free cash flow increased to $1.08 billion. Trailing 12-month capital expenditures were $4.63 billion. The increase in capital expenditures reflects additional investments in support of continued business growth due to investments in technology infrastructure, including Amazon Web Services, and additional capacity to support our fulfillment operations. Return on invested capital was 6%, up from 3%. ROIC is trailing 12 months free cash flow divided by average total assets minus current liabilities, excluding the current portion of long-term debt over five quarter ends. The combination of common stock and stock-based awards outstanding was 481 million shares compared with 475 one year ago. Worldwide revenue grew 20% to $20.58 billion, or 20% excluding the $13 million favorable impact from year-over-year changes in foreign exchange.
Media revenue increased to $5.24 billion, up 4% or 4% excluding exchange. EGM revenue increased to $13.95 billion, up 26% or 26% excluding foreign exchange. Worldwide EGM increased to 68% of worldwide sales, up from 65%. Worldwide paid unit growth was 21%. Active customer accounts was approximately 260 million. Worldwide active seller accounts were more than 2 million. Seller units represented 42% of paid units. We'll discuss operating expenses excluding stock-based compensation. Cost of sales was $14.63 billion, or 71.1% of revenue, compared with 72.3%. Fulfillment, marketing, tech and content, and G&A combined was $6.09 billion, or 29.6% of sales, up approximately 350 basis points year-over-year. Fulfillment was $2.55 billion, or 12.4% of revenue, compared with 11.5%. Tech and content was $2.22 billion, or 10.8% of revenue, compared with 9.2%. Marketing was $961 million, or 4.7% of revenue, compared with 3.9%.
I'll talk about our segment results. Consistent with prior periods, we do not allocate to segments our stock-based compensation or other operating expense line items. In the North America segment, revenue grew 25% to $12.87 billion. Media revenue grew 5% to $2.73 billion. EGM revenue grew 31% to $8.79 billion, representing 68% of North America revenues, up from 65%. Other revenues grew 40% to $1.34 billion. North America segment operating income decreased 70% to $88 million, a 0.7% operating margin. In the international segment, revenue grew 14% to $7.71 billion. Excluding the $21 million year-over-year favorable foreign exchange impact, revenue growth was 13%. Media revenue grew 4% to $2.51 billion, or 3% excluding foreign exchange. EGM revenue grew 20% to $5.16 billion, or 19% excluding foreign exchange. EGM now represents 67% of international revenues, up from 64%.
International segment operating loss was $224 million compared to international segment operating loss of $28 million in the prior period. Consolidated segment operating loss was $136 million compared to consolidated segment operating income of $267 million in the prior period. Consolidated segment operating loss includes charges of approximately $170 million, primarily related to the Fire Phone inventory valuation and supplier commitment costs. Unlike CSOI, GAAP operating income or loss includes stock-based compensation expense and other operating expense. GAAP operating loss was $544 million compared to operating loss of $25 million in the prior period. Our income tax benefit was $205 million. GAAP net loss was $437 million, or $0.95 per diluted share, compared with a net loss of $41 million and $0.09 per diluted share. Turning to the balance sheet, cash and marketable securities decreased $806 million year-over-year to $6.88 billion.
Inventory increased 21% to $7.32 billion. Inventory turns were 8.9, down from 9.2 turns a year ago as we expanded selection, improved in-stock levels, and introduced new product categories. Accounts payable increased 18% to $11.81 billion. Accounts payable days decreased to 74 from 75 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 consumer 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, foreign currencies amongst 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 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 Q4 2014, we expect net sales of between $27.3 billion and $30.3 billion, a growth between 7% and 18%. This guidance anticipates approximately 250 basis points of unfavorable impact from foreign exchange rates. GAAP operating income or loss to be between a $570 million loss and $430 million income compared to $510 million of income in the fourth quarter of 2013.
This includes approximately $470 million for stock-based compensation and amortization of intangible assets. We anticipate consolidated segment operating income or loss, which excludes stock-based compensation expense and other operating expense, to be between $100 million loss and $900 million in income, compared to $876 million in income in fourth quarter 2013. We remain head-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 share owners. Thanks. With that, Phil, let's move to questions.
Great. Thanks, Tom. Let's move on to the Q&A portion of the call. Operator, will you please remind our listeners how to initiate a question?
At this time, we'll now open the call for questions. In the interest of time, we ask that you limit yourself to one question. If you would like to ask a question, please press star one on your keypad. We ask that when you pose your question, you pick up your handsets to provide optimum sound quality. Once again, to initiate a question, please press star then one on your touch-tone telephone at this time. Please hold while we poll for questions. Thank you. Our first question comes from analyst Brian Pitz with Jefferies & Company.
Great, thanks. Two quick questions. Can you provide any color on the consumer over this year's back-to-school season? How do you view the outlook for the consumer as we head into the holidays? Separately, you recently closed the acquisition of Twitch last month. Can you help us understand where does Twitch fit into your overall digital content strategy? Thanks.
Sure. In terms of back to school, certainly the results are reflected in the Q3 results that you see today. There is a number of different impacts back to school has. One thing I would like to call out, as you look at our North American Media growth rates, one thing that we are seeing is certainly a shift from a textbook standpoint from purchase to rental. We see a lot more customers renting, so you see that impacting the growth rate a bit in North American Media. In terms of Q4, as in any Q4, when we look at it, there is a wide range of outcomes.
We are giving a wide range of guidance. What we feel good about is we have a team that has been improving customer experience over the past 12 months. We are very excited to serve customers. We have had a lot of unique selection.
We have gotten inventory closer to customers. Many different things that we are doing on behalf of customers. We are very excited about the holiday season and look forward to serving customers. In terms of Twitch, we are very excited to have Twitch as part of our overall team. We have been in video games for quite some time, and we think that it is a very creative team. They are doing some very innovative things on behalf of their customers and our customers. We are excited to have them be part of Amazon, and look forward to working together with that team.
Great. Thanks.
Thank you. Our next question will come from Carlos Kirjner, analyst with Bernstein.
Thank you for taking my question. Two, if I may. International CSOI margins this quarter were the lowest they have been in years, maybe ever, I don't know. We know you have been investing internationally, but has something changed fundamentally? If yes, what? Secondly, I wanted to ask you about the vast difference in revenue growth rate between your international and domestic business. What is fundamentally different between the U.S. and your main international markets, is this difference fundamental or temporary? Thank you.
Thank you. Thanks for the questions. In terms of the consolidated segment or the segment operating income, excuse me, for international, certainly versus what you would have seen last quarter, there's some notable changes. One is we're certainly getting ready for the holiday season. As we get ready for the holiday season, we are expanding from a capacity standpoint. We've gotten great penetration in Fulfilled by Amazon customers. You'll see that our unit growth rate is actually higher than our revenue growth rate. That's what we've been experiencing. Certainly adding capacity from a fulfillment perspective, adding capacity from an infrastructure standpoint. If you look at our overall operating expenses, we're certainly investing. With the slower growth rate, you're certainly not seeing as much leverage. We understand that we do have to get leverage over time. We are investing right now.
We're also investing in newer emerging geographies, including India and Italy and Spain, continue to invest in China. One other call-out I mentioned in my opening remarks, there was approximately $170 million impact related to inventory valuations and supplier commitment costs. The vast majority of that was in North America, there was about $25 million in international, just to let you know that's there. In terms of the growth rates, it has been softer across a number of geographies. If you look back over the past, really four quarters, we've seen a little bit of volatility between the quarters, it's been softer. We continue to focus on the inputs, we still think international is a very big opportunity for us in terms of growth.
More recently, if you look at the growth rate for Q3 and you see the 13% excluding foreign exchange, you may remember on the last call about 90 days ago, I talked about Q2. What had happened was in late Q1, we had seen a ramp-up in Japan before the consumption tax increase happened on April 1st. We saw a pretty sizable drop-off in Japan growth rates from Q1- Q2, which brought that down. The only update, again, there's a number of different puts and takes by geographies, the only other comment I would say is that we really haven't seen the Japan growth rates improving since Q2. That's something that's there. In terms of the fundamentals, long-term, we're very excited about international as well as North America. We think it's a big opportunity. We continue to focus on the inputs.
Some of those inputs are certainly on the media side, working on the conversion from physical media to digital media. We continue to work on that in a number of different ways. We continue to add new selection in those geographies and work on the retail basics. Again, we're very excited about the opportunity.
Thank you.
Thank you. Our next call will come from analyst, Scott Devitt with Stifel.
Hey, Tom. Thanks. I had a question, just broadly. A lot of the capital that's been deployed in terms of planting seeds in new businesses have worked out very well. Given what's happening right now in terms of the deterioration in the margin structure as growth is slowing, I'm just wondering, and I think a lot of investors have this question as well, in terms of when things don't go as anticipated in some of the bigger projects where there's not a revenue stream, like areas maybe some of the hardware projects in China and other markets, what's the process for determining whether to plow ahead or turn back capital and redeploy it in other areas? Thanks.
Thanks for the question, Scott. With anything new that we do, obviously, as you mentioned, we've done a lot of new things, there's certainly a wide range of outcome. We certainly understand that. We try to learn from everything that we do as we launch new opportunities. That's something across things that go great and things that don't go as well as others. We try to learn from that. The way I would describe it is, from a looking forward standpoint, we still think that we have a lot of opportunities. That said, we need to be very selective about what opportunities we pursue. That's, again, the way we're thinking about it and probably not much more I can add to it than that.
Okay. Thank you.
Sure.
I think we'll continue on to analyst Mark Mahaney with RBC Capital Markets.
Two questions, please. That $170 million in charges related to the Fire Phone, where was that put in the P&L? In which of the OpEx lines, or was it a COGS? Secondly, on the media side, you talked about maybe seeing a negative impact or definitely seeing a negative impact from the switch towards owning to renting. Do you think that's a broader trend that just beyond just textbooks that affects all media retailers, including Amazon? Could that be one of the issues behind the slow media growth in international markets? If so, is there really a solution to that other than your own rental models? Thank you.
Sure. In terms of the first question, the $170 million, it's predominantly in COGS. The very vast majority is in COGS. In terms of the split, about $25 million of that is in international, and the remainder is in North America. In terms of the growth, we certainly are seeing that in textbooks. We do see another digital media. We're certainly seeing rentals being part of our portfolio more than we had probably during, certainly with physical. In terms of some of the recent growth rates, the one that I called out related to book rentals is certainly impacting North American media. One of the other things that's really impacting it too is we just had some things last year, Q3, that were overlapping, that were paused in Q3 last year from a demand standpoint. One was certainly in physical books.
We had very heavy discounting, which helped our growth in Q3 last year. We're overlapping that in Q3 this year.
Thanks, Tom.
Thanks, Mark.
Thank you. We'll now go to analyst Aram Rubinson with Wolfe Research.
Hey there, and thanks for taking my question. Hoping we can go back to square one here, if you don't mind. Can you tell us or remind us what financial measures are important to you guys, and which financial measures do you hold yourselves and the board holds you accountable to? It's a little hard to see any of them making positive progress. I just would love to get back to basics.
Sure. We're looking at a number of different metrics over a long period of time. Certainly our goal is to maximize free cash flow over the long term. We don't focus on individual margins, but we do focus on the inputs that are going to help drive free cash flow and operating income. We certainly will look at making sure that we're using our capital wisely so that over time, we get good returns on invested capital. We certainly have been in several years now of what I would call an investment mode, and because of the opportunities that we've had in front of us. As I mentioned earlier, there's still lots of opportunity in front of us. We know that we have to be very selective about which opportunities we pursue, but we're encouraged by the opportunities that we have.
Cash flow and return on invested capital is where we should keep our attention?
Yes.
Are the employees in the recruiting side, is that becoming more difficult as the stock kind of has faded a little bit and those return characteristics have faded? How are you making sure that you're hiring the best people?
We have processes in place to make sure that we have a very high bar on the hiring that we do. The people that we're hiring are extraordinary talented. We're very fortunate to get to work with so many talented people here, and we've been fortunate to be able to grow that employment base to work on the opportunities that we have.
Thank you.
Thank you.
Thank you. We'll go to analyst Colin Gillis with BGC Financial.
Great. Thanks for taking my question. Just to get back to that North American media sales, it was the lowest growth rate in over 20 years. Or 20 quarters. Are there other factors beyond the textbook shift and sort of the Q3 strength last year? Are the digital media trends still intact?
In terms of the principal drivers, it's the two that I mentioned. It's the textbooks rentals and also overlapping some of the strong discounting and strong titles that we had in some categories. It's across a number of categories within media, but those are the two principal drivers.
You don't see this as a broader shift in that number?
No. There's still, both in terms of North America and international, there's certainly a shift that's going on from physical to digital. That's something that we're spending a lot of time on and trying to improve the experience for customers. We've been able to do that certainly over the period of time. It's something we'll continue to work on.
Okay, great. Thank you.
Thank you. We'll continue on to analyst Ron Josey with JMP Securities.
Great. Thanks for taking the question. Two, please. Just if you could update us on the sortation center rollout. Are all 15 online? I'd love to know maybe how they've helped bridge the last mile and improve overall speed delivery. The second question, sort of switching gears and just focusing on advertising. I believe a pilot was launched, or a beta was launched for Amazon's ad network called Amazon Ads, I think maybe late August. I wonder if you can provide some commentary there. Thank you.
Sure. In terms of the sort centers, we'll have over 15 sort centers in the U.S. by the end of the year. It's certainly helping us a lot. We have same-day delivery in 12 cities. We'll have Sunday delivery in approximately 50% of the population. We're pleased to do that. In terms of the ad network, there's not a lot I can say there.
Okay. Thank you very much.
Sure.
Thank you. Our next question will come from analyst, Aaron Kessler with Raymond James.
Great. Thanks for taking my question. Can you just give us an update maybe on your views on original programming? It looks like Transparent's had some good success. Just from an international standpoint, your views on maybe the growth in China, India as well as just are you seeing any signs of any increasing competition in your key international markets today? Thank you.
Sure. In terms of original content, we're excited about it. We're investing, as we talked about last quarter. We spent approximately $100 million in the quarter. Keep in mind that that's expensed in the quarter. That's included in the results that you see in Q3. We're very excited about it. We have a number of pilots as well as a number of series launched. Transparent, he mentions one of them. It's gotten very good reviews. The streaming on that series has been great. We're very excited about it. We think it's an interesting area for our customers. We continue to invest heavily in video content, including originals.
There's a number of different metrics we're looking at, certainly from a Prime standpoint, but what we are seeing so far is those customers who are streaming are renewing at considerably higher rates at a rate that's already high. We like what we see there. When customers come in for new free trials, and they engage from a video content standpoint, we see the conversion being higher. We see that we're adding new Prime members as a result of that. When those new Prime members become Prime members, the other thing we're seeing is they're buying physical product, which is a great impact for us. We see very similar patterns in terms of how much physical product that they're purchasing from us. We're still certainly in investment mode there. We like what we see, and we have a long way to go there.
We're continuing on building a great service, and we see that customers are rewarding us with engagement on the content, both original and licensed, and they're buying more from us on the physical side and becoming Prime members when they do and renewing at higher rates. Those are some of the early signs, and we'll continue to monitor it very closely. We're excited about what we're seeing there. In terms of some of the international comments, I would say this not just international, but I'd say it for the U.S. as well. One thing that's not new is it's a very competitive environment. We have a lot of competitors, both online and offline. That's not anything that's new. We're used to operating in that environment. We've been in that environment really for 19 years.
We are seeing a lot of competition, and again, that's not new.
Great. Thank you.
Sure.
Thank you. Our next question will come from Heath Terry with Goldman Sachs.
Great, thanks. Last quarter, you mentioned that the AWS business saw a 90% increase in volume. Was wondering if you could give us a sense of what you've seen so far this quarter. Then, in the highlights section of the release, the first six bullet points or so that you have there are all related to the hardware side of the business. Now that you have a little bit more time on the hardware side of the business behind you, if you can give us a sense of what you're learning in this category and where you think Amazon's long-term position in hardware is ultimately going to be.
In terms of AWS, we saw very good growth in Q3 as well. From a usage standpoint, it's very similar to Q2, close to 90%. So the team's doing just a fantastic job. You can see our other revenue in North America went up a little bit sequentially. AWS is certainly the largest piece of that, and it's the vast majority of it, and they're growing at a faster rate than that other line item. Again, the team's doing a fantastic job, not only serving customers, but launching many new features and services. You can see some of the detail on that in the highlights section of our release today. We're very excited about it. In terms of devices, I can't speculate what we would do going forward, but we just launched a number of new tablets and e-readers that we're excited about.
There's some really great price points for customers on the tablet side. We also launched a kids tablet, which is the first time we've launched. We've launched some new Kindles, including our premium Kindle. It's a terrific product. We think it's the best Kindle we've made to date for sure. We're very excited about that. We're excited to have these offerings for customers.
Great. Thank you.
Thank you. We'll continue on to analyst Ben Schachter with Macquarie Equities Research.
Tom, you mentioned that you need to get leverage at some point, last call, you also said something similar, can you help us quantify the timing? In your internal modeling, when do you expect to see more meaningful leverage? When you look at your three to five-year outlook, what does the leverage picture look like there? Also, can you remind us what your philosophy of stock buybacks is and what it would take to get you back in the market? Thanks.
In terms of leverage, beyond the guidance that we're giving today, there's not a lot of certainty I can give you. Again, what I'd mentioned earlier is we do have a lot of opportunities. Our job is to be judicious and selective about which opportunities we pursue. That's the way we're thinking about it. Apologies, I can't give you any more certainty in terms of timing, but certainly, that's the way we're thinking about it. In terms of buybacks, we have an open buyback right now. We have authorization to do that. I certainly can't comment on what price points we would or wouldn't do there.
Thank you. We'll continue on to analyst Justin Post with Merrill Lynch.
Great. Thank you. If you look at the phone impact in Q3, it seems to explain some of the difference versus the Street. When you look forward to Q4, looks like you're guiding to about 15%-16% growth ex FX. Again, profits may be below some expectations. Is the phone having an impact on profits in Q4 as well? Also, when you think about the Q4 guidance, are there any events or things you want to call out? Are you being especially conservative in Q4 given recent trends? Anything different this year in the holiday? Thank you.
Yeah. In terms of the holiday season, Justin, if you look back the last several years, I've been giving wide ranges because it's, again, a most seasonal quarter, always challenging to predict precisely where we're going to be. In terms of a dollar range, I gave a $3 billion range last year. I'm giving a $3 billion range again this year from a revenue perspective. Again, wide range. At the higher end of the range, excluding foreign exchange, it's approximately 21%, so it's a little bit higher than what we saw in Q3. Then you can see we were on the low end of the range. In terms of the season itself, we're very excited about it in terms of to serve customers. We feel great about the selection that we have added and are continuing to add for the holiday season.
We think from an operations standpoint, each year we try to get better, we believe that we'll be even better this year than we have in previous years. We're super excited to serve customers. In terms of the phone, the only other thing that I can comment on is at the end of Q3, we had approximately $83 million worth of inventory on-hand. I can't comment on how that would impact guidance or not, but that's the amount of inventory we had on-hand at the end of Q3.
Great. Thank you.
Sure.
Thank you. Our next analyst will be John Blackledge with Cowen and Company.
Great. Thanks. Just a couple of questions. We saw that Amazon Fresh expanded into Brooklyn recently. Just wondering if you can discuss the decision to expand into New York City and how we should think about timing for expansion into other markets. If you can update us on the number of fulfillment centers globally ending the year, that would be great. Thank you.
Sure. In terms of the number of fulfillment centers, it's 13 net for the year. As I mentioned earlier, in the U.S., we'll have more than 15 sort centers by the end of the year. In terms of, sorry, the other part of the question was on Fresh. The team's doing a great job from a customer experience standpoint. As you can see, we're in a few cities today. The team is just heads down focused on making sure that experience is great for customers. Customers like the service, so we're seeing good pickup there. As you mentioned, we're expanding into Brooklyn. I can't speculate on what we do beyond the cities that we have launched to date, but we're excited about what we're seeing so far there.
Thanks.
Thank you. Our next question will come from analyst Eric Sheridan with UBS.
Thanks for taking the question. Tom, you guys put through a price increase on the Prime service this year. Was curious what you were seeing in terms of the impact of that price increase on both the rate of adding people into Prime and the ability to control churn inside the Prime subscription base in general. As you add additional functionality and layers into Prime like you've done this year through the investments, whether you've thought about maybe put in another price increase through next year. Thanks.
Yeah. In terms of what we do, going forward, I certainly wouldn't speculate. We had a price point since the launch of Prime at $79, so it took us a long time, and we're very careful with that, to increase it to $99. Since we've increased to $99, we've had great retention. We're very pleased with the retention we've had from customers. The program is growing very fast. We're very excited about it. We do think it's really good for customers, and it's really good for us and shareholders over the long term. You're correct in that we're investing in Prime in a number of different ways, including video content, as I talked about earlier. That is certainly the way we'll get a return on that investment. Principally will be customers buying more, including, and especially physical products. Again, we're very excited about Prime globally.
Thank you. Our next analyst will be Brian Nowak with SIG.
Thanks for taking my questions. I have two, please. The first one, fulfillment ex stock-based comp was the highest it's ever been as a percentage of gross profit in the third quarter. Can you just talk to the drivers of that? Is that sortation centers or international growth? What's driving that? As we think about the sortation centers, what's the impact of those over the next few quarters to fulfillment? Do they take a while to kind of get the inefficiencies out of the system like a standard DC would?
Yeah. In terms of the fulfillment cost, you're right. Again, we are adding 13 net fulfillment centers. We'll have over 15 sort centers at the end of the year. Certainly one of the drivers for that is certainly the growth that we're experiencing. In addition to that, what we're seeing is the FBA adoption continues to get better. We get further penetrated with sellers adopting Fulfilled by Amazon. We think that's really good for sellers and for us and for customers over the long term. What you're seeing is, several years ago, in terms of fulfillment center planning, we were adding less of them, and it was much closer to the holiday season. With the sheer amount of capacity that we're adding, you're seeing more of that come in even before Q4. You're seeing that impacting us earlier.
The benefit of coming in earlier is, we get to serve customer, get up to the productivity rates that we want to serve customers in Q4 by having that capacity in a bit earlier than in the past. We've seen that trend happen over the past few years where that's coming in earlier than certainly historically we've been able to do.
Okay, great. Thanks.
Thank you. Our next analyst will be Matt Nemer with Wells Fargo.
Thanks so much for taking my questions. First, Prime launched a referral fee recently, I'm wondering if we should take that as any indication that the membership growth has slowed or you're seeing some higher churn. How does that referral fee get accounted for? Secondly, Target launched free shipping with no hurdle for the holidays versus your $35 hurdle. Just wondering what your willingness is to leave that competitive gap during the holidays. Thanks.
Yeah, I can't comment from a competitive standpoint what we might or might not do there. In terms of the Prime referral fee, no, you should not read into that Prime isn't growing well. In fact, just the opposite. We're seeing great growth, we like the fact that enabling customers because they like Prime to be able to refer others, we think is great for us.
I can't actually, maybe offline, you can follow up with Phil or Dave on the accounting. Off the top of my head, I can't remember how that's working, but I know they'll be able to answer it for you.
Okay, thanks so much.
Thank you. Ladies and gentlemen, our final question will come from Colin Sebastian with Robert Baird.
Great, thanks. Good afternoon. A couple of follow-ups. First off, in terms of the Q4 revenue guide, are you giving any consideration in that forecast to some of the shipping issues that happened last holiday and the ability of your shipping partners to manage your growth? Secondly, on paid units, can you provide a split or color between physical and digital unit growth? Thanks.
In terms of the guidance, it reflects all of the assumptions that we think could happen for the quarter. Again, it's a wide range. To speak specifically to some of the issues last year, the team, again, we are continually trying to learn from everything that we do, and the team has done a great job learning from our experiences coming out of Q4 last year, as we do every year, and are excited to serve customers. In terms of the unit growth, there's not a lot I can add in terms of splits other than the overall growth rate. We are pleased with, certainly we're seeing good customer growth. We're doing, we think, a great job for sellers. We continue to add a lot of unique selection throughout the year in terms of, and we have customers. We see FBA for sellers getting further penetrated.
We've launched some, we think, some interesting products for customers. We think our Web Services team is doing a great job. We realize that we have a lot of opportunities, but we need to be selective on which opportunities we pursue. I think beyond that, we're just overall excited and getting ready for the holiday season. Anyway, thanks, everybody, for calling in today.
Thank you for joining us today on the call 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.
Again, ladies and gentlemen, that does conclude today's conference. Thank you all again for your participation. You may now disconnect.