Thank you for standing by. Good day, ladies and gentlemen, and welcome to the Amazon.com Q4 2013 financial results teleconference. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question and answer session. Today's conference is also being recorded. Now for opening remarks, I will turn the call over to the Senior Manager of Investor Relations, Dave Fildes. Please go ahead, sir.
Hello, and welcome to our Q4 2013 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, January 30th, 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. 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 2012. Now, I'll turn the call over to Tom.
Thanks, Dave. I'll begin with comments on our fourth quarter financial results. Trailing 12-month operating cash flow increased 31% to $5.47 billion. Trailing 12-month free cash flow increased to $2.03 billion. Trailing 12-month capital expenditures were $3.44 billion. 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 13%, up from 4%. ROIC is TTM 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 476 million shares, compared with 470 million shares one year ago. Worldwide revenue grew 20% to $25.59 billion, or 22% excluding the $258 million unfavorable impact from year-over-year changes in foreign exchange.
Media revenue increased to $7.23 billion, up 11%, or 13% excluding foreign exchange. EGM revenue increased to $17.13 billion, up 23%, or 24% excluding foreign exchange. Worldwide EGM increased to 67% of worldwide sales, up from 65%. Worldwide paid unit growth was 25%. Active customer accounts exceeded 237 million. Worldwide active seller accounts were more than 2 million. Seller units represented 39% of paid units. I'll discuss operating expenses excluding stock-based compensation. Cost of sales was $18.81 billion, or 73.5% of revenue, compared with 75.9%. Fulfillment, marketing, technology and content, and G&A combined were $5.9 billion, or 23.1% of sales, up approximately 210 basis points year-over-year. Fulfillment was $2.84 billion or 11.1% of revenue, compared with 10.3%. Tech and content was $1.69 billion or 6.6% of revenue, compared with 5.7%. Marketing was $1.11 billion or 4.3% 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 item. In the North America segment, revenue grew 26% to $15.33 billion. Media revenue grew 21% to $3.51 billion. EGM revenue grew 25% to $10.65 billion, representing 69% of North America revenues, down from 70%. Other revenue grew 52% to $1.17 billion. North America segment operating income increased 19% to $725 million, a 4.7% operating margin. In the International segment, revenue grew 13% to $10.26 billion. Adjusting for the $244 million year-over-year unfavorable foreign exchange impact, revenue growth was 15%. Media revenue grew 3% to $3.71 billion, or 6% excluding foreign exchange. EGM revenues grew 19% to $6.48 billion, or 21% excluding foreign exchange. EGM now represents 63% of international revenues, up from 60%.
International segment operating income increased 116% to $151 million at 1.5% operating margin. Excluding the unfavorable impact from foreign exchange, International segment operating income increased 119%. CSOI increased 29% to $876 million or 3.4% of revenue, up approximately 20 basis points year-over-year. Excluding the unfavorable impact of foreign exchange, CSOI increased 28%. Unlike CSOI, our GAAP operating income includes stock-based compensation expense and other operating expense. GAAP operating income increased 26% to $510 million or 2% of net sales. Our income tax expense was $179 million, resulting in a 40% tax rate for the quarter and a 32% rate for the full year of 2013. GAAP net income was $239 million or $0.51 per diluted share compared with $97 million and $0.21 per diluted share. I'll discuss our full-year results. Revenue grew 22% to $74.45 billion or 24% excluding the impact of foreign exchange.
North America revenue grew 28% to $44.52 billion. International revenue grew 14% to $29.94 billion or 19% growth excluding year-over-year changes in foreign exchange. Consolidated segment operating income or CSOI increased 20% to $1.99 billion or 21% excluding the unfavorable year-over-year impact from foreign exchange. Operating margin was 2.7% consistent with the prior year. GAAP operating income increased 10% to $745 million or 1% of net sales. Turning to the balance sheet. Cash and marketable securities increased $1 billion year-over-year to $12.45 billion. Inventory increased 23% to $7.41 billion. Inventory turns were 8.9, down from 9.3 turns a year ago as we expanded selection, improved in-stock levels and introduced new product categories. Accounts payable increased 14% to $15.13 billion. Accounts payable days decreased to 74 from 76 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 in our public filings, issues such as settling intercompany balances in 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, restructuring 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 Q1 2014, we expect net sales of between $18.2 billion and $19.9 billion or growth of between 13% and 24%. This guidance anticipates approximately 30 basis points of unfavorable impact from foreign exchange rates. GAAP operating income or loss to be between a $200 million loss and $200 million income compared with $181 million income in the first quarter of 2013. This includes approximately $350 million for stock-based compensation and amortization of intangible assets. We anticipate Consolidated Segment Operating Income, which excludes stock-based compensation and other operating expense to be between $150 million and $550 million compared with $441 million in the first quarter of 2013.
We launched Prime in the U.S. nine years ago with free unlimited two-day shipping on one million items and an annual membership price of $79. Today, Prime selection has grown to over 19 million items. Even as fuel and transportation costs have increased, the $79 price has remained the same. We know that customers love Prime as their usage of the shipping benefit has increased dramatically since launch. On a per customer basis, Prime members are ordering more items across more categories with free two-day shipping than ever before. With the increased cost of fuel and transportation as well as the increased usage among Prime members, we are considering increasing the price of Prime between $20 to $40 in the U.S. We remain heads down focused on driving a better customer experience through price selection and convenience.
We believe putting customers first is the only reliable way to create lasting value for shareholders. Thanks. With that, Dave, 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?
Absolutely, Mr. Fildes. Well, ladies and gentlemen, at this time we will now open the call up 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 handset to provide optimum sound quality. Once again, to initiate a question, please press star then one on your touchtone telephone at this time. One moment while we assemble the roster. Our first question will come from Mark May with Citi.
Thanks for taking my questions. The unit growth in the quarter, I believe, was around 25%, which was a deceleration notable versus the last couple of quarters. I believe the comp even got a little easier. Can you provide any color as to the dynamics in the quarter that may have drove that?
Try to get a sense of how to think about the magnitude of the Prime price increase. Maybe if you could give us a sense of the base of subscribers that would be applied to. Lastly, on shipping demand, is there anything that Amazon will do differently next holiday season to try to smooth out the pace of demand late in the holiday shopping season?
First, the unit growth. You're right, it was 25% year-over-year. It is a small deceleration from the last couple of quarters. Keep in mind that it is certainly our biggest quarter, most seasonal. Both from a revenue and from a unit standpoint, you saw a deceleration from Q3 to Q4 of 2012 also. We saw a deceleration, not of the same magnitude we saw back in 2012 from Q3 to Q4. If you take a look at the total growth, it's 25% on a unit basis, 22% ex exchange on a revenue basis. We saw very good growth in North America, up 26%. This is, again, on a revenue basis. It's down sequentially a little bit in the last couple of quarters, but certainly up from Q4 last year, where we grew 23%. In International, revenue was up 15% ex exchange.
If you look at the pieces, certainly one of the biggest things you're seeing is if you look at the media growth in our digital categories within media and International, it's growing very fast. As we've been talking about for quite some time, certainly a shift going from physical to digital. You see that reflected in our North America media growth rates. The reason why you don't see it as much in our International is because we're at the very early stages of that. That's what you're seeing in terms of the differential, certainly one of the key differentials between the International media growth rate and the North America growth rate. Also keep in mind, in other revenue, the AWS revenue, which is growing very fast, is recorded in North America segment.
In terms of the Prime, in terms of impact, sorry, I can't help you with the impact on the U.S. What we have said is globally, we have tens of millions of customers. We certainly have been offering Prime in the U.S. longer than International. Both segments are growing very fast from a Prime perspective, if that's helpful. From a customer standpoint during Q4, we work very hard on behalf of customers to make sure that we can service them. I think the team did a very nice job. We'll continue to work on that to even get better in future quarters and in future Q4s going forward.
Our next question will come from Neil Doshi with CRT Capital.
Good afternoon. This is actually Raul on the call for Neil. A couple of questions. If you could maybe talk a little bit about the impact of refunds or incentives given to customers to make up for some of the goods that arrived late in the holiday season. Also on Prime, with respect to the increase, would you consider phasing that in, applying perhaps just the new members at first? Would you consider giving an installment option to pay it off in the below? Thank you.
In terms of the refunds, we did give some in the form of gift certificates, as well as refunding some shipping fees where fees were incurred by customers for that subset of customers who were impacted. That's reflected in the Q4 results that you see today. In terms of details of how we'd roll out the Prime price increase that we're considering, you'll have to wait on that. Certainly, as I mentioned, it's something that we haven't had any increase in the nine years. Customers certainly love Prime. The available units for shipment have grown dramatically from one million to over 19 million over the last nine years. We haven't had any price increase. Customer usage on a per-customer basis has gone up pretty dramatically given the selection and the convenience of the service. That's why we're considering.
Of course, during this nine-year period, shipping costs have gone up a lot, fuel costs have gone up a lot. That's certainly the basis for us taking a look at it. In terms of the details, we'll get back when we make those decisions back to customers.
Moving on to Doug Anmuth with J.P. Morgan.
Great. Thanks for taking the question. Just wanted to follow up on Prime as well, was hoping, Tom, that you could give us some color on how newer Prime members, you've obviously added a lot of them over the recent quarters, but how newer cohorts of Prime members act relative to older cohorts, and in particular, if they convert sort of as quickly and if they're spending on a similar kind of early trajectory as your more tenured Prime members. Also, can you just comment on the, I believe, the constrained sign-ups in 4Q on Prime? Thanks.
Sure. In terms of details, I can't really give you a lot of color on the more recent versus the Prime member who's been with us for a long time, except to say that there's a lot of similarities in terms of what we're seeing. In other words, customers, when we launched Prime nine years ago, one of the things that we hoped for was customers would do a lot more cross-shopping, that they would buy more from us. We're seeing that trend also in more recent Prime additions again. The program's growing very fast. We're very pleased with it, and we think it's great for the business as we look forward as well. In terms of, what was the second part of the question again?
4Q, I think you talked about sign-ups being constrained in the quarter.
Yeah. Again, we had very fast growth. We put a couple statistics out in our holiday release on the 26th that you can refer to. We had very strong growth, and we did constrain it a bit. Customers like it. Again, there's a lot of demand for the service, and we're going to continue to make sure that we can satisfy customers there, and we thought it was appropriate to do that during Q4.
Thank you.
We'll move on to Scott Devitt with Morgan Stanley.
Hi, Tom. A couple of questions, starting with, I'll continue the trend with Prime questions first. You mentioned higher shipping costs being a driver of potentially higher prices in the U.S. The U.S. Prime service is also the only one that has Kindle Lending Library and Video, was just wondering if potentially those additional services have led you to think about increasing price as well to potentially further bolster either or both. Secondly, international CSOI's been on a glide path lower over the past few years, as that's happened, the organic international growth rate's moderated during the same period.
I'm just wondering, going back to the decision to embark on the international investment cycle, if you anticipated the current revenue growth rate that you're experiencing, and if not, where are the areas in the business where you could point to that we would begin to see growth that's not yet evident in the international business? Thank you.
Sure. In terms of the first part, we have added a lot of new services to Prime, beyond the shipping benefits. You mentioned Kindle Owners' Lending Library, certainly Prime Instant Video, we're investing very heavily. Those are certainly costly. Those aren't the reasons for the price increase that we're contemplating. That decision, again, is just based on, we haven't done a price increase in nine years. Shipping costs have gone up, if you look back very considerably over the nine-year period. Customers like the service. They're using it a lot more. We have a lot more selection. They're using it a lot more. That's the reason why we're looking at the increase. In terms of the international growth, the growth was solid with revenue exchange of 15%.
The unit growth was considerably faster than that, primarily because third-party growth was very strong, and certainly FBA is a component of that. When you think about the capacity that we built, it's not only for our retail, but also for our third parties, and we're able to offer our FBA items through Prime as well. We're very happy with the capacity that we've built across the world, including our international operations. That's reflected in the results that you're seeing. Certainly one of the reasons why you're seeing the growth of operating income up over 100% in Q4 for international is because of the mix of third party certainly helping that. It's a combination of a number of factors, but certainly that's one that's a significant call-out.
Thank you.
Our next question comes from Justin Post with Bank of America Merrill Lynch.
Great. A couple things. I was hoping you could talk about your initiatives with Amazon Fresh, what you're seeing in Bay Area and Los Angeles so far. Are you seeing more units per customer? Maybe talk a little bit about the international Kindle stores. Could you start to see better media results as you built out that infrastructure? Thank you.
Sure. In terms of Fresh in L.A. and the Bay Area, it's very early. We like what we see. Customers like the service. There's been good adoption. There's been good conversion from the Prime trials. We're very pleased with what we're seeing there. It's still very early, you'll have to stay tuned on that one. Again, it's very early, but we like what we see. In terms of international Kindle stores, yeah, absolutely. To be very clear, if you look at the Kindle content growth in Q4 in international, it's very strong. It's just, again, we're at the early stages of this cycle from physical to digital. The growth rate is very strong. We saw similar type things When we look back in the U.S. in terms of trends, again, we're at the earlier part of the cycle in that conversion.
Great. Thank you.
We'll now hear from Brian Nowak with Susquehanna.
Thanks. It looks like 1P gross margins, ex shipping expanded nicely year-over-year again. I was wondering if you could talk to some of the margins of some of the drivers of 1P gross profitability getting better, and how should we think about the sustainability of that over time? Thanks.
We're not breaking out the first-party margins, if you will. I can't talk to the specifics of that. Our retail business is very good. The combination of our retail business and our third-party business on our platform works for us. We think it's very important to have both offerings for a number of reasons. One is from a customer experience standpoint, we like the fact that customers come to our detail pages on our respective websites around the world, and they see competitive offerings. They know that we're very excited about making sure that we get great values for customers and that we price our products appropriately, competitively low. Having third parties on our website certainly helps do that. It also adds additional selection that we don't have.
It's a combination of being able to make sure we have a competitive marketplace as well as add great unique selection from both retail offerings and third parties that make it work. That's why we don't talk necessarily about first party or third party in terms of margins, but it's the combination of those working together on a platform that makes it work.
Thank you.
We'll now hear from John Blackledge with Cowen and Company.
Great. Thank you. A couple of questions. What's the potential pricing change at Prime in the U.S.? Would Amazon consider offering Prime Instant Video separately? In terms of Prime Instant Video, can you discuss the change in marketing spend for the service on a year-over-year basis 4 Q13 versus 4 Q12? Just in the North American Electronics and Other Goods segment, could you call out any particular categories that drove the growth? Thank you.
In terms of Prime, there's not a lot I can help you with there. It's a great offering for customers. Wouldn't speculate what we would do or not do going forward. We like the service that we have. We continue to invest in our Prime offering, and it comes in a number of different forms. We'll continue to add unique selection that's Prime eligible. We have a great pattern of doing that over the nine-year period. We've also offered other services, as you mentioned, in terms of Prime Instant Video as well as Kindle Lending Library. It's a great value for customers, and we plan on keeping that a great value for customers, even with the price increase that we're considering in the U.S.
Great. Thanks. In the North American and Electronics and Other Goods segment, just wondering if there were any particular categories that drove the growth.
Yeah, it was very broad in terms of growth. We're very fortunate that we saw very good growth across many different categories. Certainly, a few call outs to soft line categories were very strong. Consumables were very strong. Again, a number of different areas. Those are certainly a few call outs.
Mark Mahaney with RBC Capital Markets has the next question.
Yeah, I'll just stick with that EGM category in North America. It looks to us like it decelerated relatively sharply. I thought you were going to call out some areas of weakness there. Is there anything that caused that growth rate that you would call out that caused that growth rate to decelerate on EC comp? And then Tom, did you want to call out anything related to weather or UPS, or did you think that those impacts were immaterial to the business this quarter? Thanks.
Well, again, I think the question was around EGM in North America. Grew 25%. You're right, it did decelerate from Q3. Keep in mind that a number of the categories within EGM, there's certainly a seasonal impact. If you look back to last year, Q4 growth rate in North America was 24%. We actually saw an acceleration from Q4 last year to Q4 this year slightly. And then, sorry, Mark, the second part of your question was related to?
Did you want to call out anything related to weather and UPS?
No. I think certainly some of the UPS issues were documented in the press. From our standpoint, our team did a very good job serving customers. We did have the issue that you're describing. Again, we'll continue to work on behalf of customers to make sure we improve that experience over time where we didn't serve them well. We certainly did give some GCs to customers. We also reimburse them for shipping costs where they incurred that, and we'll continue to make that better and better for customers over time.
Thanks.
Moving on to Carlos Kirjner with Bernstein Capital.
Thank you. Two quick questions. Your CapEx was just slightly higher than last year's same period, if you correct for the real estate purchase, even though the business overall grew 22%, and you said AWS grew very fast. Does this relative decrease in CapEx signal an expectation that AWS is going to grow slower? Secondly, on, again, the Prime price increase. If you have tens of millions of Prime users that increasing price at least $20 with no incremental expense, that's quite a good chunk of money. Do you have specific plans to reinvest that money? Thank you.
The first part of your question, do we expect, is this an indication that AWS is slowing down? No. It's not actually. We're very pleased with the AWS business. It's growing very fast. The team's doing a fantastic job from a product and service standpoint. We're very excited about that business. I wouldn't form any opinions about what CapEx might be in the future related to the growth rates in AWS. It's going very well. The price increase on Prime, anything that we would invest would be an independent decision from that. Again, I think in the opening remarks, I talked about the rationale as to why, and that's really what's driving that decision. Our investment decisions would be independent of that.
Gregory Melich with ISI Group has the next question.
Hi, thanks. Going back to Prime, as you consider the price increase, do you think the brand is such that you'd be willing to price tailor it or tier it based on the value that's offered and the sort of services you provide to certain customers? Second, on the categories, I believe you had called out a few quarters earlier that clothing in particular was one, and third-party clothing had picked up a lot. Did you see that this holiday, just given the importance of that category in this season?
I'll take the second part first. Soft lines was very strong in Q4, which clothing is a piece of that. In terms of tiers on Prime, I wouldn't speculate what we might or might not do in the future. We like the Prime program where we've invested very heavily in it. You should expect us to continue to make it even better over time.
There's no prohibition to that, but you just would like it the way it is.
Yes, we like it the way it is. Yeah. Again, if you look back at what we've done, I can't speculate what we might do going forward, but certainly, we've had in the U.S. Prime in place for nine years. We've added massive selection during that time period. This is on the physical side. We've also added digital content as well to the service in the U.S. with Kindle Owners' Lending Library, as well as Prime Instant Video. It's great value for customers. We see that customers love it. We're going to continue to try to make that even better for customers over time.
Moving on to Ronald Josey with JMP Securities.
Great. Thanks for taking the question. I wanted to follow up on AWS and talk a little bit on pricing. While it's certainly coming down as efficiency has improved, but I believe AWS is sold in hour increments. I think Google's compete solution is sold on a per minute of use. I wonder if you thought about maybe changing the way AWS is charged to maybe per minute. Then a quick follow-up on just fulfillment centers, if you could just remind us what you ended the year with and if you have any plans for this year. Thank you.
Sure. I'll take the second part first. The fulfillment centers, we opened seven on a net basis. That's the net adds. If you take that as a percentage of our total fulfillment centers, you'll get a number, but our square footage actually grew at a quite a bit faster rate than that. Keep in mind that I think we've talked about in previous calls, we did have some smaller older facilities that we consolidated into larger ones, that's a net seven. Again, the square footage growth is higher than that. In terms of pricing on AWS, the team's doing a fantastic job looking at the best way to run that part of our business.
I wouldn't want to speculate what they would or wouldn't do related to pricing, but they're certainly making sure that they offer great services to customers, and they're great values to customers as well. We're very excited about that part of the business.
Thank you.
We'll now hear from Chad Bartley with Pacific Crest.
Hi. Thank you. Two quick questions. How much of the slowdown in revenue and unit growth was a function of the shorter shopping season in Q4? In terms of raising the price on Prime, how much of that might be based on customers' reaction and behavior after recently raising the threshold for free shipping to $35?
In terms of the shorter period for shopping, it's hard to tell. Honestly, it's hard to know. It definitely was a shorter period from post-Thanksgiving to the holiday, again, hard to know. In terms of the other part of your question.
I'm curious if the potential price increase on Prime and your confidence in doing that, and that it wouldn't impact the adoption of Prime, how much of that is tied to the early results of raising the shipper saving threshold to $35 from $25?
They were independent decisions. They weren't related.
Thank you.
Thomas Forte with Telsey Advisory Group has the next question.
Great. Thanks for taking my question. When we think about shipping costs, I know you're talking about raising the rate on Prime, but you just indicated that you added seven fulfillment centers in 2013 on a net basis. As you get closer to the consumer and you shorten the ship miles, how should we think about the benefit on shipping expenses from just having more fulfillment centers closer to the consumer?
Yeah, there's no question that as we grow our footprint, we get closer and closer to customers with additional selection. That certainly helped us not raise prices, or look at raising prices before this. Certainly, we'll continue to roll out our footprint. We'll try to make our network as efficient as possible. Even with this price increase that we're looking at, it still enables us to make sure that we have Prime at a great value to customers. That's something that's very important to us, because we know it's very important to our customers.
Thank you.
Moving on to Brian Pitz with Jefferies.
Great. Thanks. In terms of digital content, how are exclusive titles and original series driving user growth and Prime memberships? Any color on what kind of engagement dynamics you're seeing across the different platforms. Thank you.
Hello? Can you repeat the question, please?
Sure. In terms of digital content, just trying to figure out how some of your exclusive content and titles are driving user growth and Prime memberships, and any color just on what type of engagement you're seeing across the different platforms via PC, tablet, et cetera.
We're seeing customers like the digital content. We're seeing great engagement. We're not breaking out in terms of the form. Again, we're seeing great engagement. We do track very closely the Prime customers that come from free trials, for example, that come through the pipeline for digital content from a free trial standpoint. We track those conversions, and we see that that's growing very nicely. We do look at customers that use our Prime Instant Video, what their shopping patterns look like outside of digital content. Do they buy beyond the free content we have on there? Do they buy more digital content? Certainly, we're seeing nice growth in digital content because of that, because they do. They also do a lot of shopping in physical categories as well.
Those things we're tracking very closely, and it's a great pipeline for us as customers look at the total value proposition for Prime, including digital content.
Heath Terry with Goldman Sachs has the next question.
Great. Thanks. Tom, you mentioned the strong growth in AWS. Looking at the deceleration in the North America and other line, how should investors think about the relative growth of AWS versus the advertising and financial partnerships that make up the rest of that segment? Just on Fresh, with L.A. and San Francisco's fulfillment centers carrying a number of non-perishable SKUs, what does Fresh do for your same-day fulfillment capabilities in those markets?
In terms of AWS, I think the best way to think about it is a number of things that are in other than AWS can be lumpy. You should assume when you look at the North America growth for Q4, their AWS revenue is growing at a faster rate than other. In terms of Fresh, when you look at the new offerings that we have in the Bay Area and in the L.A. area, it's certainly helping our same-day delivery, and they work hand in hand. In other words, we've increased our capability both for Fresh as well as for our non-Fresh part of our business there in those locations.
Great. Thank you.
We'll now hear from you, Youssef Squali with Cantor Fitzgerald.
Thank you very much. Two questions, please. First, have you seen any impacts from the rise of Google's PLA this quarter? Second, are you using Kiva's technology in your food distribution centers, particularly for perishables? Our understanding that it's not optimized for that, but is that true? If not, are there any other solutions outside of Amazon that do that optimally? Thank you.
In terms of Kiva, it's very early. We're early in our installations there. That's really all I can say. We have it in a few facilities. It's going very well. Very pleased with having Kiva as part of the Amazon family, if you will, and we're excited about the opportunity that brings us going forward.
On the PLAs?
I can't comment.
Okay, thank you.
Our next question will come from Ross Sandler with Deutsche Bank.
Thanks. Tom, just a quick high-level question. Consumers in smartphone markets are spending about half their time on mobile these days, and a lot of that's coming off of PC. I'm sure that's a great kind of new customer acquisition channel for you guys. In terms of existing Amazon customers, are you guys seeing purchase frequency for physical products go up because of having phones with you all day? Or is it just swapping off of PC and into these newer channels? Thanks.
I kind of view just having the more connected devices is just a tailwind for our business, and it's additive. It's certainly helping our business grow. Whether that's phones or tablets, it's a tailwind for our business, and we think it will continue to be so. Customers will certainly still purchase from their desktop or their laptop. The tablet mobile will not be completely additive, but it'll certainly be a tailwind for our business. Just anytime customers have easier access to be able to purchase, that's good for us.
Ladies and gentlemen, we have time for one additional question from Gene Munster with Piper Jaffray.
Good afternoon. Could you just remind us on, just from a kind of a high-level philosophy, the trade-off between revenue growth and earnings? I think investors typically think that you see all of your markets as nascent, and profitability is kind of a distant thought. Is that still the case, and any guidance in terms of how to think about that over the next two, five, 10 years? Thank you.
Sure. We track a lot of our investments on a discrete basis as best we can, we're looking to maximize. Can you hear me okay?
Yep.
We're looking to maximize free cash flow on those investments over time. We have some investments that certainly start to pay off and become profitable in a three- to five-year period. We have others that have been a bit longer. Again, we're monitoring those investments very carefully. Our goal is to maximize free cash flow for investors over time. That's clearly our goal, and that's something that we're working towards. All that being said, we're investing a lot in the business right now. You can see that when you look at our results. The reason why we're doing that is because of the very large opportunities that we see. We do go in cycles, as you've seen in our historical results. From time to time, we'll pull back to make sure the model's working.
We have done that, and I'm sure you'll see that going forward at times as well. Again, we're focused on making sure that we have a great customer experience, and we maximize free cash flow over the long term.
Got it. Thank you.
Great. Thanks, Tom. Thank you all 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.
Again, ladies and gentlemen, that does conclude our conference for today. We thank you all for your participation.