Thank you for standing by everyone. Good day and welcome to the Amazon dotcom Q2 twenty fourteen 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. Also, today's call is being recorded.
For opening remarks, I'll be turning the conference over to the Director of Investor Relations, Phil Hardin. Please go ahead, sir.
Hello, and welcome to our Q2 2014 financial results conference call. Joining us today is Tom Scutak, 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 24, 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 ks. As you listen to today's conference call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. During this call, we will discuss certain non GAAP financial measures. In our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our IR 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 2013.
Now I'll turn the call over to Tom. Thanks, Phil. I'll begin with comments on
our Q2 financial results. Trailing 12 month operating cash flow increased 18% to 5,330,000,000 dollars trailing 12 month free cash flow increased to $1,040,000,000 trailing 12 month capital expenditures were 4,290,000,000 dollars The increase in capital expenditures reflects additional investments in support of continued business growth, consisting of additional capacity to support our fulfillment operations and investments in technology infrastructure, including Amazon Web Services. Return on invested capital was 6%, up from 2%. ROIC is TTM 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 480,000,000 shares compared with 474,000,000 1 year ago.
Worldwide revenue grew 23 percent to $19,340,000,000 or 22% excluding the 237,000,000 dollars favorable impact from year over year changes in foreign exchange rates. Media revenue increased to $4,840,000,000 up 10% or 9% excluding foreign exchange. EGM revenue increased to $13,280,000,000 up 27% or 26% excluding foreign exchange. Worldwide EGM increased to 69% of worldwide sales, up from 66%. Worldwide paid unit growth was 23%.
Active customer accounts exceeded 250,000,000. Worldwide active seller accounts were more than 2,000,000. Seller units represented 41% of paid units. Now I'll discuss operating expenses excluding stock based compensation. Cost of sales was $13,400,000,000 or 69.3 percent of revenue compared with 71.4%.
Fulfillment, marketing, tech and content and G and A combined was $5,540,000,000 or 28.6 percent of sales, up approximately 260 basis points year over year. Fulfillment was $2,280,000,000 or 11.8 percent of revenue compared with 11.2%. Tech and content was $2,020,000,000 or 10.4 percent of revenue compared with 9.1%. Marketing was $911,000,000 or 4.7 percent of revenue compared with 4.1%. Now I'll talk about our segment results and consistent with prior periods, we do not allocate to segments our stock based compensation or other operating expense line item.
In the North America segment, revenue grew 26 percent to $12,000,000 Media revenue grew 13 percent to $2,460,000,000 or 14% excluding foreign exchange. AGM revenue grew 29 percent to $8,370,000,000 representing 70% of North America revenues, up from 68%. Other revenue grew 38 percent to $1,170,000,000 North America segment operating income increased 7% to $438,000,000 a 3.7 percent operating margin. In the International segment, revenue grew 18% $7,340,000,000 Excluding the $246,000,000 year over year favorable foreign exchange impact, revenue growth was 14%. Media revenue grew 7 percent to $2,380,000,000 or 4% excluding foreign exchange and EGM revenue grew 25 percent to $4,910,000,000 or 20% excluding foreign exchange.
EGM now represents 67% of international revenues, up from 63%. International segment operating loss was $34,000,000 compared to 0 in the prior period. CSOI decreased 1% to $404,000,000 or 2.1 percent of revenue, down approximately 50 basis points year over year. Excluding the favorable impact from foreign exchange rate, CSOI decreased 9%. Unlike CSOI, our GAAP operating income or loss includes stock based compensation expense and other operating expense.
GAAP operating loss was $15,000,000 compared to operating income of $79,000,000 in the prior year period. Our income tax expense was $94,000,000 and this includes approximately $90,000,000 of discrete tax items primarily attributable to audit related developments. GAAP net loss was 126,000,000 dollars or $0.27 per diluted share compared with a net loss of $7,000,000 sheet. Cash and marketable securities increased $523,000,000 year over year to $7,990,000,000 Inventory increased 23 percent to $6,640,000,000 dollars and inventory turns were 9.1, down from 9.4 turns a year ago as we expanded selection, improved in stock levels and introduced product categories. Accounts payable increased 16% to $10,460,000,000 and accounts payable days decreased to 71 from 73 in the prior year.
I'll conclude my portion of today's call with guidance. Incorporated into our guidance are the order trends that we've seen to date 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 on our public filings, issues such as settling intercompany balances and foreign currencies amongst our subsidiaries, unfavorable resolution of legal matters and changes to our effective tax rates can all have material effect on guidance.
Our guidance further assumes that we don't conclude any additional business acquisitions, investments, restructurings or legal settlements, record any further revisions to stock based compensation estimates and that foreign exchange rates remain approximately where they've been recently. For Q3 2014, we expect net sales of between 19 point $7,000,000,000 $21,500,000,000 or growth of between 15% 26%. This guidance anticipates approximately 120 basis points of favorable impact from foreign exchange rates. GAAP operating loss to be between $810,000,000 loss and a $410,000,000 loss compared to a $25,000,000 loss in Q3 of 2013. This includes approximately $410,000,000 for stock based compensation and amortization of intangible assets.
We anticipate consolidated segment operating income or loss, which excludes stock based compensation and other operating expense to be between a $400,000,000 loss and 0 compared to $267,000,000 of income in the Q3 of 2013. We remain head sound 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 to questions.
Great. Thanks, Tom. 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 your questions. In the interest of time, we ask that you limit yourself to one question. We'll hear first today from Carlos Kirchner with Bernstein.
Hi. Thanks for taking my question. 2 if I may. Tom you mentioned in the past that China is an area of investment. Can you say a little bit about what are the main drivers of investment there, it's marketing, pricing, fulfillment?
And how do you decide on any given year how much you invest in China just given the size of the potential market and opportunity? And secondly, we saw a material deceleration in the North America other revenues, while this is primarily driven by an AWS deceleration And is this deceleration a meaningful contributor to the losses implied in your next quarter guidance? Thank you.
Sure. I'll take the second part of the question first. Yes, North America Other includes a number of things, including Amazon Web Services. Amazon Web Services is the largest part of North America Other. As we talked about on last call, we had very substantial price reductions for customers starting in 2nd quarter.
They range from 28% to 51% depending on the service. But AWS continues to grow very strongly. In Q2, we had usage growth close to 90% year over year for the quarter. So the team is doing a fantastic job. And we put in some price reductions that were very substantial that are saving customers 100 of 1,000,000 of dollars over the next several months as we mentioned 90 days ago.
But again, we love that business. It's doing great and we're very pleased to have the opportunity to invest in it. The team is innovating very quickly. In fact, so far year to date, they've released 250 significant service and features. And that's at a pace that's much, much faster than last year's pace, which was faster than the year before.
So again, they're continuing to innovate on behalf of customers. And so we're investing. And so that's certainly impacting both the pricing decisions we've made is certainly impacting the guidance. Also the large amount of CapEx and infrastructure for that business is certainly impacting the guidance along with a number of other things across the business that we're investing in. But we're very pleased to do that.
In terms of China, we'll continue to invest on behalf of customers there, obviously trying to make the experience even better for customers in terms of improved in stock levels. We've spent certainly added a lot of fulfillment capacity over time in China and we're doing a lot of interesting things to better serve customers in China. In terms of some of the other parts of your question, there's not much more I can add to that.
Thank you.
We'll hear next from Neel Doshi with ERT Capital. And Neil, you may have us muted. If you still have a question, please go ahead.
Hi, can you hear me now?
We can please. Thank you.
Great. Sorry about that. I was on mute. Tom, can you talk a little bit about the
deceleration in the units?
And then also in terms of the the deceleration in the units? And then also in terms of the 3rd party dollar, it looks like you're kind of trending around 40% for a while, ticked up a little bit to 41%. So if we adjust for digital, how should we So if we adjust for digital, how should that trend be looking? Thanks.
Yes. In terms of unit growth, we had 23% unit growth year over year. It is down from last year's growth rate, but it's consistent with what we've seen recently, including last quarter. And in terms of the unit, the 3rd party units as a percentage of total units, you're right, that's 41% this quarter. It's up about 100 basis points.
And we're not breaking out the digital versus physical on that. But again, very strong 3rd party growth, number of factors, but certainly FBA is helping 3rd party growth.
And we'll go next to Eric Sheridan with UBS.
Thanks for taking the question. When looking through the expense lines, tech and content seem to have an upward pressure in the quarter. Wanted to maybe get a little more granularity on what was driving that upward pressure and whether that's sort of a new run rate of expense as we saw in the first half of this year? Thanks. There's a number of things that are going into the tech and content line.
But you're right, we're one of the ones that I just mentioned. We're investing in various parts of the business, but certainly for Amazon Web Services that's both from an infrastructure standpoint to support the very fast usage growth that we're experiencing. Again, we have usage growth to 90% year over year in the Q2 for Web Services. In addition to that, we've over the past year, we've added thousands of people in web services. So again, ramping that up.
And then across a number of different other investment areas, we continue to add great technical resources to do the things we're doing in digital and many other parts of the company. So again, it's we have a lot of opportunities to invest in as you can see from a lot of the releases that we've had over the past 12 months and you're certainly seeing that reflected in our actual results as well.
And next from JPMorgan, we'll go to Douglas Anmuth.
Great. Thanks for taking the question. This is Kai Zagalla in for Doug. I was wondering if you could just talk about the deceleration in your international EGM line? And then separately, now that you've had the prime price increases in effect for about 3 months.
I'm wondering if you could just talk about any changes you've seen in sign ups or conversions there? Thanks.
Sure. In terms of international EGM and this would really relate to total international growth as well. We saw 18% growth on a dollar basis, 14% growth on a local currency growth basis, which is down a little bit sequentially from what we saw in Q1. Obviously, there's variability from quarter to quarter in each of the geographies that we operate in. One call out, which impacted certainly EGM and our total international growth rate is Japan.
We saw on April 1, the consumption tax increase was increased from 5% to 8%. Leading up to that in the latter part of Q1, we certainly saw accelerated growth. And so that was reflected in the Q1 results. In Q2, we saw some corresponding softness in Q2 following that. Hard to know how much was related to consumption growth, but certainly as you've probably read elsewhere that others are seeing that too.
So it's not probably reflects the consumption tax increase. But if you take out Japan out of both Q1 and Q2, the growth rates on a local currency basis were very similar within approximately 100 basis points of each other. In terms of Prime, Prime subscribers are growing very nicely year over year. In fact, we added more Prime subscribers in Q2 of this year than in Q2 of last year. So we're very pleased and customers are responding to continue to continue to get new subscribers as well as existing customers responding to the great value they're getting out of Prime.
Helpful. Thanks.
And from Citi, we'll go to Mark May.
Thanks for taking my question. Common sense based on sort of what you've talked about in the disclosures around the price, the amount of the price decreases, the common sense would suggest that all if not most of the CSOI margin decline that you posted in Q2 year on year is related to the AWS price changes. And common sense would also suggest that given the significant volume gains that you're seeing in that business that Q2 might be the most impacted quarter from that yet the Q3 guidance suggests that it's having an even greater impact on Q3. Just wondering if you could help us think through that. Is there some timing issue related to the impact of that?
Or is there something else going on within the core retail business or maybe some other one time items that might be impacting your Q3 outlook? Thanks. Sure. In terms of we're not quantifying the impact of the price changes on our Q2 and Q3, but it is fair to say
that the impact certainly did impact our Q2 results in a meaningful way and that's reflected in the actual results that you're seeing. Another thing to keep in mind as you look out related to AWS is we're continuing to invest in that business and with the great strong usage growth rates that we're seeing, We're also investing in CapEx and infrastructure to support that growth. So again, we're the team's doing a fantastic job and innovating on behalf of customers. And as I mentioned earlier, the new releases both from a service and feature perspective was about 250 year to date, which is at a pace that's much faster than we've seen over the last few years with a very high bar given all the innovation that's happened from that team in that space. So again, those are certainly things that are impacting Q3 guidance.
There's a number of other things. When you look at Q3, keep in mind, if you look back over the last several years, we're getting ready for our Q4 seasonal quarter. And when that happens, if you look back, certainly, you've seen our CSY usually has been at the lowest point for the year during Q3, particularly during these high growth years. And so we're at we've added or announced that we are adding 6 net new fulfillment centers. And we've also announced that we'll have 15 or more sortation centers.
The sortation centers helps us get closer to customers so that we can have fastest delivery speed as well as deliver on Sundays, which is a big deal for us in the U. S. So we're very pleased to be able to do that. On top of that, other investment areas that are certainly impacting our Q3 guidance is we like what we see on the content side. So video content for example, we're ramping up the spend from Q2 to Q3 significantly and so be it also a significant growth year over year.
Keep in mind we have 2 types of content. We have licensed content. We also have original content. A lot of you have probably seen a lot of the announcements that we've green lighted a number of pilots. We're going to be in heavy production on those pilots during sorry, in those series that have been greenlit during Q3.
We've also announced a number of pilots that we'll be in production on. And so that original content, that's a portion of our total content will be over $100,000,000 in Q3. Keep in mind that just as a reminder that we do not capitalize that portion of our content of our original content. It's expenses incurred. So that's over $100,000,000 in Q3.
And again, that's ramped up considerably both on a sequential and on a year over year basis. Other areas that we're investing in certainly with the launch of some new devices more recently over the past couple quarters between Fire Phone and Fire TV and others over time we've invested in devices. So that's certainly an area we're investing in. We're investing in a lot of different areas, including geographic expansion. We talked about China on one of the earlier We're also investing in other We're also investing in other geographies as well like Italy and Spain and others.
So again, we're encouraged by the just the sheer magnitude of opportunities we have and we're investing in those opportunities.
Appreciate the added detail.
We'll move next to Brian Pitzer with Jefferies.
Great. Thanks for the questions. First question on FBA. Any insights on the penetration of 3rd party sellers using FBA? Maybe you could comment just directionally you expect this to be the model for digital book consumption in the future?
You expect this to be the model for digital book consumption in the future? Thanks.
In terms of SBA, it's doing great. I can't provide any specific percent, but it's continued really since the time we've launched continued to increase as a percentage of total third party units. So the service has been has done very well. The team continues to work on make it even better on behalf of sellers and customers. In terms of Kindle Unlimited, it's very early, but we're extremely pleased with what we see.
There's been a great reaction
Moving next to Heath Terry with Goldman Sachs.
Great. Thanks. I was wondering you mentioned that you were happy with the results that you were seeing from the video content. I was wondering if you could give us a sense of sort of how that manifests itself, whether it's more Prime subscribers, whether it's more consumption of downloadable video content within the ecosystem? And then Tom, to the extent that you're talking about sort of AWS volume increases on a year over year basis, can you give us a sense of how that may have trended over the course of the quarter as your AWS customers were able to sort of adapt to the price reduction in March?
Sure.
In terms of content, we've seen just more and more customers are streaming more and more Prime members are streaming free content. We're seeing through our pipeline as customers join Prime. We're seeing that we have more and more customers taking free trials and then converting. Those customers are great customers that in addition to streaming free content, they have great purchasing patterns, doing a lot of cross shopping on physical products as well as converting to paid digital video and other digital products as well. So we're very pleased with what we're seeing there.
And if when you look at the service that we have today, it's improved dramatically over the past 12 to 24 months and we really think it's a great service and that's why we're investing in it. In terms of AWS, there's not much I can help you with on that. But again, just to reiterate, we saw very strong growth during Q2 and with usage growth rates close to 90% year over year for the quarter. And we're extremely happy with what we see there and the team is doing a fantastic job continuing to innovate on behalf of customers.
Great. Thanks.
We'll hear next from John Blackledge with Cowen and Company.
Great. Thanks. Just a couple of questions. First on AWS, just wondering your take on the competitive environment in public cloud, has it intensified over the past 6 to 12 months? And just given the investments in AWS, how do you view AWS's competitive positioning?
And then if you could just touch on the key drivers of EGM growth in North America? And are those the same drivers of growth internationally? Or are there different drivers North America versus international? Thank you.
In terms of AWS, there's not a lot in terms like talk to long standing practice of not talking about other companies and what they're doing and environment. But the team is certainly used to operating in a very competitive environment. They work hard to be able to afford lower prices for customers. That's something that is instilled in all of Amazon and something certainly is instilled in our web services team. And they're focused on what they do best, which is innovating on behalf of customers, operating these services at the highest quality levels and they'll continue to work on getting more efficient, so that we can have great prices for customers.
And so that's what the team is focused on and they're doing a great job. In terms of EGM growth, both between North America and international, there's not a lot I can call out there. It has many different categories across many different geographies, many different ASINs, both first party and third party. So it's hard to comment. The only thing I would call attention is the comment I made earlier around international growth rates related to EGM and that was the consumption tax increase in Japan that we saw a lead in in Q1 where we saw very strong growth leading up to that point and it softened after the rates went into effect.
But other than that there's not a lot to call out. Thank you.
We'll now go to Macquarie's Vince Schachter.
When you mentioned that AWS is growing 90% year over year, what exactly is growing 90%? Is it storage? Is it something else? And then on the phone itself, are there any key differences in how we should be thinking about that piece of hardware versus other hardware you've done in the past where Jeff has discussed the notion of essentially wanting to breakeven? And then just a follow-up on that, how are you modeling the impact of the phone on the P and L in 3Q?
Is it going to be more or less than the original content initiative? Thanks.
In terms of AWS, it's really a aggregation of usage across all of our services year over year. Think of it as almost a proxy similar to unit growth on our retail business. It's a proxy to say how fast physical volume on that. We're extremely pleased to on that. We're extremely pleased to get it in customers' hands.
We think it's a premium product and it also is it's also great value too. You get a 32 gigabyte phone premium product, 1 year free subscription to Prime along with all the other features that I'm sure you've read about. But so again, we're very pleased to get it to customers and start shipping and customers have started to receive those today.
And from William Blair, we'll go to Mark Miller.
Good afternoon. Many investments, one area it looks like where you are getting a return is in the gross margin. If I take out AWS, it looks like you're up nearly 200 basis points. What are the drivers of that e commerce margin increase? Are you seeing it primarily on the 1st party margin expansion?
And if so, why and how much is coming from a 3rd party unit increase? Thanks.
Yes. We don't actually focus on total company gross margins because of the mix of the business. We focus more on operating profit and obviously ultimately free cash flow dollars. But in terms of things that would be impacting COGS as a percent of revenue and that change to be helpful, you mentioned AWS is certainly an impact there. Our 3rd party business continues to have an impact there.
We have offsets as we lower prices to customers having an impact there. Just mix of products, our various products and geographies has an impact on those results. So again, a large number of items that are impacting that.
And Justin Post with Bank of America Merrill Lynch has our next question.
Thank you. Tom, there might be a little bit of a disconnect. When we've seen prior investment cycles such as distribution builds out or devices with say the Kindle reader, we did see an impact on units and accelerating growth in some of the categories. This time around you've been investing for a couple of years and I guess we're not really seeing the acceleration as some we're looking for. So maybe you could talk about what gives you confidence in investing in devices like the Fire TV and the phone and all the content you're doing?
And are you seeing some underlying signs that say activity is picking up? Maybe you could walk through that.
Sure. Just a couple of things to call out. One is when we look at our unit growth and you hear the 23% unit growth, keep in mind that there are parts of business that are not included in that unit growth. So when we talk about investing in web services and the usage growing close to 90%, that number is not included in the 23%. So that's obviously a large investment area for us that we're excited about that is not so you're seeing very strong growth on the base that we have and we're excited to see that.
And so those are the things when we look at the opportunities that we're investing in and now in terms of video you mentioned, we're seeing that certainly in the number of Prime members that are subscribing. And so that has some short term impact, but great long term impact as we retain those Prime members. And as they start to do more cross shopping over time, so it's more of a trailing we have a lot of investment in front of that demand if you will. So those are some of the things that I would call out may be that would be helpful.
Thank you.
We'll move now to Youssef Squali with Cantor Fitzgerald.
Okay. Thank you very much. Going back to the $100,000,000 in spend on the original content that you mentioned earlier, as the business as that part of the business grows, is there any reason to believe that the amount of spend on originals will go down. The assumption here is it will only go up. So is that $100,000,000 a good level to work off of?
And then going back to the Fire Phone, just trying to understand the strategy around the product longer term. Is it again just to try to further build the Amazon ecosystem with all its benefits? Or do you think this is a this could be a self funded business? Thank you.
In terms of the original content, we're not giving guidance on the numbers going forward beyond Q3. We're very excited about what we see in the pilots that we had and the series we had. And so we're happy to green light the series that we've released that we've talked about in releases over the past few months. We're also happy you'll be seeing many new pilots. And so that's reflected in the over $100,000,000 that I mentioned earlier.
So we're extremely excited on behalf of customers to be able to do that. And we think that's the right thing to do. But in terms of what we do in terms of spend beyond Q3, I can't comment on today. In terms of the Fire Phone, we're very excited about it. You mentioned 2 different areas.
1 is going to exist on its own and whether it's part of our family, if you will, to help drive other usage. And the answer is we certainly think it can be both. So we it could be a great product on its own. We're very excited to offer it to customers. It's very integrated into our certainly our various video services our various digital certainly Prime Music.
So certainly Prime Music. So those are all very interesting things on behalf of customers. It's also a great way to do physical shopping as well. So again, it's certainly integrated into our business as well.
Thanks, Tom.
And Brian Nowak with SIG has our next question.
Thanks for taking my questions. I've got 2. The first one is around CPG and consumer packaged goods. I was wondering, Tom, can you talk to some learnings in CPG so far of what's working and what you think is still holding back faster CPG adoption. Do you think you need a same day delivery offering at this point for CPG kind of given Google and given the traditional retailers push into that category?
And then the second one, the close to 90 percent AWS usage growth, just to help us understand a bit more, what did that number look like in 2013? Thanks.
Yes. In terms of the usage growth, that business is growing very, very fast beyond the data point. There's not a lot I can help you with. In terms of CPG, this really relates to many of our categories. We're working on behalf of customers to provide fast something that we've improved on over the years and we're going to continue to work on.
There's a number of different things we're working on. One of the things that I mentioned earlier in the call is certainly sortation centers. That's an attempt on our side, which we think we have in a small way and tested it and we've seen that it's a way to get product to customers even faster. And so we're excited about that. It also helps us deliver on Sunday, which we think is great too.
So again, those are the things that we're working on as well as others to help customers get product faster. We think that benefits CPG products as well as other products.
Thanks.
We'll move next to Mark Mahaney with RBC Capital Markets.
Hey, thanks. I wanted to follow-up on that William Blair question about gross margins. And only because I know you don't focus on it and there are a lot of mix factors that you correctly pointed out, but that's a record high gross margin for you 30.7% ever. And it's in the context of a quarter in which AWS clearly was came in because of the price cuts. And so there's something else that happened there that really caused that gross margin to gap up.
Could you give us any color? I understand a lot of puts and takes in there, but something must have happened that was unusual to have that kind of result with a weak or with a slowing down AWS contribution. Thanks a lot, Tom.
Yeah. I apologize, Mark. Again, we don't focus a lot on gross margin as a business. Obviously, individual product lines, we would look at gross margin, but across the business we don't. For the very reason you mentioned, there's a large mix impact.
You have our web services business. You have a 3rd party business. You have a retail business. You have categories within retail. There's a whole host of things that would impact that.
And so that's why we don't focus on a total company basis. Certainly on individual SKUs or ASINs as we call them, we certainly would look at it. Individual subcategories, we would certainly look at it internally. But from a total company perspective, given the mix effects, we think it's much more appropriate to look at operating profit and free cash flow. Okay.
And from ISI Group, we'll go to Greg Melich.
Hi, thanks. It looked like revenue per active customer accelerated again this quarter, hiccup over 5%. It was running closer to 2% to 3% last year. Could you help us understand what's driving that, whether it's prime particularly or anything any color on that? And when you gave the prime numbers second quarter more sign ups whether that was a gross or a net number?
Thanks a lot.
The prime was a net number. So that's the net additions to total members. So again we added net more prime members in Q2 of this year versus Q2 last year even with the price change. In terms of revenue per customer, there's not a lot I can say there. The one thing a few things to think about.
One is certainly prime customers buy more than non prime customers. And we're seeing great growth on prime that certainly have an impact on that number. And certainly be other factors too. Our web services business would be included in the numerator that you're talking about as well. And so those are factors you should be thinking about.
But again, the biggest factor would certainly be in terms of looking at our retail business, Prime is becoming much more meaningful. And that's also why we think about how we make Prime better on behalf of those customers. We just like the long term benefits that we see for those
And our final question today will be from Colin Sebastian with Robert Baird and Company.
Thanks, Tom. One of your executives in the U. K. Recently mentioned the company's goal of reaching 1,000,000,000 different products available for sale on the site. I wonder if there is an expansion in selection beyond what we've seen recently that could help accelerate growth.
And related to that, are you still relatively agnostic in terms of the split between 1st and third party unit sales? Thanks. In terms of selection, I would say nothing's new here. We're going to continue to add unique selection. That's something that we've been working extremely hard day in and day out over many years.
We have a great team of people working on that and trying to make sure we get a vast selection. And so that's something that we're pleased about. In terms of the margins, they do approximate each other. Obviously, there's some differences. Some of the 3rd party will be used products.
So you shouldn't assume that a used product necessarily has the same contribution profit per unit as a new unit, things like that, but the close approximates of those.
All right. Thanks very much.
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.
And again, that will conclude today's conference. Thank you all for joining us.