Amazon - Earnings Call - Q1 2011

Transcript

Speaker 11

We're about to begin. Good day and welcome to the Amazon quarterly conference call. Today's call is being recorded. At this time, I'd like to turn the conference over to Mr. John Felton, Director of Investor Relations. Please go ahead, sir.

Speaker 18

Hello, and welcome to our Q1 2011 financial results conference call. Joining us today are Tom Szkutak, our CFO, and Rob Eldridge, our VP of Investor Relations. We will be available for questions after our prepared remarks. The following discussion and responses to your questions reflect management's views as of today, April 26, 2011, 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 accompany 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 the results for the comparable period of 2010. Now, I'll turn the call over to Tom.

Speaker 4

Thanks, John. I'll begin with comments on our first quarter financial result. Trailing 12-month operating cash flow increased 9% to $3.03 billion. Trailing 12-month free cash flow decreased 18% to $1.9 billion. Return on invested capital was 24%, down from 45%. 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 466 million shares compared with 463 million shares. Worldwide revenue grew 38% to $9.86 billion, or 36%, excluding the $144 million favorable impact from year-over-year changes in foreign exchange rates. We're grateful to our customers who also continue to take advantage of our low prices, fast selection, and shipping offers. Media revenue increased to $3.96 billion, up 15%, or 13%, excluding foreign exchange rates.

EGM revenue increased to $5.59 billion, up 59%, or 57%, excluding foreign exchange. Worldwide EGM increased to 57% of worldwide sales, up from 49%. Worldwide unit growth was 51%. Active customer accounts exceeded 137 million. Worldwide active seller accounts were more than 2 million. Seller units were 33% of total units. Now, I'll discuss operating expenses, excluding stock-based compensation. Cost of sales was $7.61 billion, or 77.2% of revenue compared with 77.1%. Fulfillment, marketing, technology and content, and G&A combined was $1.78 billion, or 18.1% of sales, up 234 basis points year-over-year. Fulfillment was $831 million, or 8.4% of revenue compared with 7.4%. Tech and content was $518 million, or 5.3% of revenue compared with 4.5%. Marketing was $320 million, or 3.2% of revenue compared with 2.7%.

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 45% to $5.47 billion. Media revenue grew 18% to $1.89 billion. EGM revenue grew 63% to $3.3 billion, representing 60% of North America revenues, up from 54%. North America segment operating income increased 6% to $290 million, a 5.3% operating margin. In the international segment, revenue grew 31% to $4.39 billion. Adjusting for the $141 million year-over-year favorable foreign exchange impact, revenue growth was 27%. We estimate that the international revenue growth rate was negatively impacted by approximately 500 basis points following the earthquakes and subsequent events in Japan. Media revenue grew 13% to $2.07 billion, or 9% excluding foreign exchange. EGM revenue grew 54% to $2.29 billion, or 49% excluding foreign exchange.

EGM now represents 52% of international revenues, up from 44%. International segment operating income decreased 25% to $175 million, a 4.0% operating margin. Excluding the favorable impact from foreign exchange, international segment operating income decreased 28%. CSY decreased 8% to $465 million, or 4.7% of revenue, down 239 basis points year-over-year. Excluding the $7 million favorable impact from foreign exchange, CSY decreased 9%. Unlike CSY, our GAAP operating income includes stock-based compensation and other operating expense. GAAP operating income decreased 18% to $322 million, or 3.3% of net sales. Our income tax expense was $89 million in Q1, or a 29% rate for the quarter. The tax provision for Q1 2011 includes income tax expense of approximately $8 million related to a discrete item in the quarter. GAAP net income was $201 million, or $0.44 per diluted share, compared with $299 million and $0.66 per diluted share.

Turning to the balance sheet, cash and marketable securities increased $1.82 billion year-over-year to $6.88 billion. Inventory increased 59% to $2.89 billion, and inventory turns were 11.6, down from 12.6 turns a year ago, as we expanded selection, improved in-stock levels, and introduced new product categories. Accounts payable increased 53% to $5.54 billion, and accounts payable days increased to 66 from 59 in the prior year. Our Q1 2011 capital expenditures were $298 million. The increase in capital expenditures reflects additional investments in support of continued business growth, including investments in technology infrastructure, including Amazon Web Services, capacity to support fulfillment operations, and investments in corporate office space. 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 result could differ materially from our guidance. As we describe in more detail in 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 a material effect on guidance. Our guidance further assumes that we don't conclude any additional business acquisitions or investments, record any further revisions to stock-based compensation estimates, and that foreign exchange rates remain approximately where they've been recently. For Q2 2011, we expect net sales between $8.85 billion and $9.65 billion, our growth between 35% and 47%.

This guidance anticipates approximately 640 basis points of favorable impact from foreign exchange. GAAP operating income to be between $95 million and $245 million, or between a 65% decline and 9% decline. This includes approximately $180 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 $275 million and $425 million, or between a 32% decline and 5% growth. 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, John, let's move to questions.

Speaker 18

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?

Speaker 11

Yes, sir. The question and answer session will be conducted electronically. If you'd like to ask a question, please do so by pressing the star key followed by the digit one on your touch-tone telephone. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's star one at this time. If you'd like to ask a question, we'll pause just a moment. We'll take our first question from Spencer Wang with Credit Suisse.

Speaker 12

Thanks. Thanks for taking the question. Two quick questions for Tom. Can you just maybe elaborate a little bit on your 2Q guidance and what you're thinking the impact from Japan could be, and how you're thinking about when you incorporate that into your guidance? Secondly, on shipping, the losses seem like they're growing. I was wondering if you could just talk, Tom, about, you know, is that a function of more Prime usage, faster shipping, or fuel costs perhaps impacting that line? Any more detail there would be great. Thanks.

Speaker 4

Sure. In terms of your first question, what we saw for Japan, first of all, I'll talk just briefly about Q1, and then I'll talk about Q2. Q1, in terms of impact, we think the impact is approximately 500 basis points on international revenue. If you take a look at international revenue growth, excluding foreign exchange, it was up 27%. But for the unfortunate events in Japan, it would have been approximately 32%. The impact on Q1, in terms of consolidated segment operating income, is approximately $20 million. What we saw post the events, we certainly saw a pretty sizable slowdown for the few weeks ending the quarter. What we've seen since then, so far quarter to date, has been that certainly growth rates have picked up, but they're not at the rates they were previous to the events.

We're seeing positive growth there, but not the growth rates we were seeing prior to that. What we believe for the quarter, along with all of our other assumptions, are included in the guidance that we've given today. In terms of your second question related to shipping profit, what you're really seeing there is customers are coming out in great numbers with all of our free shipping programs, including Amazon Prime. We're seeing great adoption there, and that's really what's driving those numbers.

Speaker 11

Ladies and gentlemen, we also ask that you please limit yourself to one question so that everyone will have a chance to ask a question today. You may return to the queue for follow-up questions. We'll go next to Jeetil Patel with Deutsche Bank.

Speaker 17

Great. Thanks. A couple of questions. One, I guess we need to look at your, it looks like the international business is really starting to kick in nicely, and it seems like Amazon Prime has now had a chance to really mature and ramp up in a lot of your regions. I'm curious, are you seeing the same type of kind of returns that you saw in the U.S. market in terms of customer adoption, kind of purchase frequency in the international markets around Prime? Second, it seems like Kindle, you're kind of employing a similar strategy that you did with Prime, which is staggered versus the U.S. market. Is it almost following the same path of kind of ramp and returns for the Kindle initiatives globally, as you saw in the U.S. market?

Speaker 4

In terms of your first question, Jeetil, related to Prime, we are seeing these similar dynamics. We are seeing customers love Prime in all geographies that we've offered it in. We are seeing great cross-shopping that's happening, so customers really like the program. Obviously, we have different offers depending upon geography, but we're very pleased with what we're seeing so far. In terms of Kindle, we've seen tremendous growth both from a device standpoint as well as a unit standpoint in terms of digital books in the U.S. and where we're now offering it outside of the U.S. we're seeing the same. Even though it's very early, we're seeing great adoption and growth there. We're very, very happy to see the progress that we've made. One thing that we're doing, you probably saw the launch related to the announcement related to Kindle's special offer. We actually will start shipping tomorrow.

The team's done a nice job of moving the dates up from several days from now to start shipping tomorrow. We're very pleased to be able to offer that and excited about that offering.

Speaker 11

We will take our next question from Mark Mahaney with Citi.

Speaker 6

Great. Thanks. Two quick questions. That 51% unit growth seems like a real outlier. You haven't had that kind of unit growth in the past. Is there something in there that's unusual? Is something in there that's one-time? Is something in there that would have you warn people to think that that's not a sustainable growth level? Very recently, you had something of an outage in the Amazon Web Services field. Was that a demand problem, which is not necessarily a bad thing, or are there certain efficiencies that you needed to, or inefficiencies that you needed to address that have been fixed? Thanks.

Speaker 4

Probably the best way to answer the unit growth rate is you take a look at what we saw in Q4, which is a 43% growth rate. We saw a nice acceleration from 43% to 51% in Q1. What you're seeing there is we saw great growth across the business. The biggest thing you're seeing is that, which is primarily the consequence of growth of our digital business. That's what you're seeing in the growth rate, the acceleration in growth rate from Q4-Q1. In terms of AWS, the team is working very deliberately on the way to identify and validate and fix the root causes associated with this incident. That's what they're working on. I don't really have a lot to add to that at this time.

Speaker 11

We will take our next question from you, Youssef Squali with Jefferies.

Speaker 8

Thank you very much. Two quick questions. First, the midpoint of guidance for Q2 implies margins of about 1.8%. Exclude SBC, where's the other 150 bps or so of additional spend going? How much of that is on recurring things like the 4,200 people or so you hired in the quarter versus any one-time items? Second, on the state tax issue, how big is it, or how big a concern is it to you? How big an advantage do you believe you've enjoyed so far from not paying taxes in those states? In other words, would you have been able to grow at the rates you have been growing at if taxes were levied across your business across the U.S.? Thanks.

Speaker 4

Sure. In terms of your first question, we're not breaking up the individual line items, if you will, for operating expenses. If you take a look at what we saw in Q1, you're seeing that we've added a lot of capacity. You see that in our CapEx, and you also see the fulfillment capacity. You see it in our CapEx, and you also see it in the fulfillment line item. We added 13 fulfillment centers last year. If you take a look at the announcements that we've had to date, we're adding nine fulfillment centers this year. Those are the ones that we've announced. With the growth rates we're seeing, you should expect, if it were to continue, to see more than that this year as well, more than the nine.

That's what you're seeing in the Q1, and you're also seeing that reflected in the Q2 guidance as well. The same is true with tech and content. We're adding a lot of capacity to support our growing business. Again, you're seeing that reflected in the CapEx as well as the Q1 tech and content line, and that's also reflected in the guidance as well. In terms of state taxes, one thing to keep in mind is we actually collect sales and value-added tax in approximately 50% of our revenue base or a little over 50% of our revenue base today. The growth rates that you're seeing reflect the fact that we are collecting in more than half of our revenue base. Beyond that, there's not a whole lot I can add there.

Speaker 11

We'll take our next question from James Mitchell with Goldman Sachs.

Speaker 13

Great. Thank you very much for taking the question. If I look at the 74% growth in North America and other revenue, is that primarily due to Amazon Web Services? If I look at the step up in CapEx, would that also be primarily due to Amazon Web Services? Kind of uniting the two questions together, historically, Amazon's been very capital disciplined. How do you get confidence that the capital you're putting into Amazon Web Services will generate returns over time that you desire?

Speaker 4

Sure. If you look at North America other growth, you know, North America other includes a number of items, including web services. The combination of all those items, you know, that we've talked about in the past. Certainly, you know, web services is a meaningful part of that. In terms of the CapEx question, what you're seeing in CapEx is, if you look at the growth, we had $1.1 billion of CapEx in the last 12 months. If you look at the growth year-over-year of that CapEx, approximately 80% of that is due to pure capacity, and that's capacity in terms of fulfillment. That's capacity from an infrastructure standpoint to serve retail business as well as AWS. Another 10% or 12% is associated with just the corporate office space, and the remainder is a number of small items.

Again, the vast majority, approximately 80%, is due to capacity, both infrastructure and our operations capacity. In terms of your question about how we think about AWS, you know, we, like a lot of parts of our business, we look at, you know, that business very discretely and those services very discretely. We look at the ROIC potential of those businesses and what we can do to work on trying to figure out the best way to get great returns for shareholders. That's something that we've been doing since we launched the business. Obviously, we have a lot more information to do that now than we did at launch. Again, it's something that we do continuously.

Speaker 11

We'll take our next question from Jim Friedland with Cowen and Company.

Speaker 1

Thanks. One of the other line items that was up year-over-year was marketing spends, 50 basis points. Is that a ramp or an incremental ramp in Kindle promotion? You guys also did something with a LivingSocial promotion in Q1. Also, equity in affiliates was up a little bit. Was that due to the LivingSocial investment? Thanks.

Speaker 4

In terms of marketing, the two primary paid marketing are still our associates channel and sponsored search. Those are our two primary. You're correct in terms of we are doing, as you've probably seen, some more broad-scale advertising related to Kindle, which would be certainly incremental year-over-year and certainly impacting that number. In terms of the equity line, we do have a number of equity investments. Certainly, one of those is LivingSocial and is certainly impacting that number that you're seeing.

Speaker 11

We'll take our next question from Ben Schachter with Macquarie.

Speaker 16

Can you discuss how Amazon views its advertising business, in particular how ramping up capabilities there could impact both Amazon properties and devices? Separately, how you could participate in advertising opportunities on third-party sites? Thanks.

Speaker 4

In terms of our advertising business, it's still very early. The team has done a fantastic job growing that business. We'll have to wait and see what we do further with that business. It's something that the team has done a great job with, and we think it allows us over time to have another way to have great low prices for customers.

Speaker 11

We'll go next to Colin Sebastian with Lazard Capital Markets.

Speaker 5

Capacity buildout. When you mentioned at these top-line growth rates that you might consider increasing the capital commitment to new capacity, is that something that's already reflected in the Q2 guidance range, or is that more likely a decision for the second half of the year? On the international operating income being down 25%, given that the majority of tech and content spending is incurred in North America, if you could just clarify the drivers of that decline in income. Thank you.

Speaker 4

I'm sorry, Colin, you were just breaking up on the first part of your question around capacity.

Speaker 5

Sure. You mentioned the top-line growth. If these rates continue, you might consider increasing the capital commitment to new capacity. I guess the question is, is that already somewhat reflected in your Q2 guidance, or would that be a second-half decision in terms of ramping up beyond the nine fulfillment centers?

Speaker 4

Here's where we are. We've had announcements of nine fulfillment centers. One is operational today. One is coming up. It will be operational in the coming days. We're actually doing receiving now. The remainder of those fulfillment centers will be throughout the year. My comment was, those are the ones that we've announced. Certainly, with the high growth that we're experiencing, you should expect that, should that continue, we would be adding additional fulfillment centers beyond it. What you are seeing in the Q2 guidance certainly reflects the fact that we will be adding capacity.

That's certainly one of the factors that went into the guidance that we've given.

Speaker 11

We will take our next question from Scott Devitt with Morgan Stanley.

Speaker 2

Hi. Thanks. Just one question, please. In categories that are facing structural change in distribution, like the book industry, which continues to be your largest segment, I was just wondering if you could talk about the effects that that is having today or may have on the margin profile of that business for you over time. Thanks.

Speaker 4

As we look at these new businesses, we're certainly looking at it from a free cash flow and return on investment standpoint with a long-term perspective. We're incredibly excited in that specific one that you mentioned with Kindle because we see that customers are buying a lot more books. We're incredibly excited to be able to offer that to customers. We think the potential long-term is, we love the potential that it has long-term, and we continue to invest in that business.

Speaker 11

We'll take our next question from Brian Pitz with UBS.

Speaker 9

Thanks. A couple of quick ones. For Q2 revenue guidance, would you comment on whether Quidsi and LoveFilm are included? If so, any approximation of the impact? On content, can you give us any indication on the level of spending to secure digital content rights you anticipate for Prime and Video? Any commentary on whether or not that's driving Prime usage? Thanks.

Speaker 4

In terms of Quidsi and LoveFilm, yes, they're both in Q2. The impact is on revenue, approximately $140 million of revenue in Q2, which works out to be about 220 basis points of growth. Consolidated segment operating income is actually negative, approximately -$16 million. GAAP operating income is approximately -$30 million in the quarter. That's what's included in the Q2 guidance for Quidsi and LoveFilm combined. In terms of content, you'll have to stay tuned on that. We're not splitting out those details. The only thing I would say about it is we're very, very pleased with the adoption so far. It's very early, and we will be adding some more content over time.

Speaker 11

We'll take our next question from Sandeep Aggarwal with Caris & Company.

Speaker 0

Thanks for taking my question. I have two questions. One is, Tom, fulfillment and shipping experience have been among the core offering of Amazon. Many multichannel retailers and pure play e-commerce companies are getting into that space or getting better, at least, including eBay's possible acquisition of GSI Commerce. How does Amazon continue to strengthen its competitive moats around fulfillment and shipping experience? My second question is, can you make a comment about the capacity utilization of the 13 fulfillment centers you set up last year?

Speaker 4

Sure. In terms of the first part, we have a fantastic operations team that is continuing to look at ways to improve delivery speed as well as improving our cost structure over time. That's something that you've seen if you look back over our history. It's something that they've worked on. They're always looking at ways to better serve customers and to get better. There are a number of ways that they do that, and it's a constant focus. In terms of the capacity, I don't think there's anything, any way to really help you because, again, the utilization will vary from week to week and quarter to quarter. What we are seeing is, as you'd expect with this great growth that we're experiencing, there is just more demand for capacity. That's both from a fulfillment capacity, from our core retail business as well as Fulfilled by Amazon.

Speaker 11

Once again, ladies and gentlemen, we ask that you please limit yourself to one question so that everyone will have a chance to ask a question today. You may return to the queue for follow-up questions. We'll go next to Ken Senna with Evercore Partners.

Speaker 19

Thanks. For the days payable to vendors, the increase was 11% to 66 days. How much more improvement do you think that you have there, or is there something else driving that improvement that you can share? Thanks.

Speaker 4

We have been able to get good improvements over the past several years in AP days. We're not giving guidance on what that could look like. We continue to work with our partners to improve our working capital cycle. Obviously, there's certainly a mix of categories that we have. They all have their own operating cycle. Again, we're very pleased with the operating cycle that we have, and we'll continue to work with our partners over time.

Speaker 11

We will take our next question from Jason Helfstein with Oppenheimer & Company.

Speaker 15

Thanks. Can you just go into a little bit more detail on the DC centers? Of the nine centers that you've announced, how many are international? Are the costs higher to launch in international DC internationally than in the U.S.? Just a little more color on that. Thanks.

Speaker 4

Sure. Of the nine, and we could probably have Rob or John get back to you on the exact details, but approximately four of those are in the U.S., or five in North America, and the others are international. The fulfillment centers vary depending upon the level of automation and the location that they're in. I can't really give you a precise as one geography higher than another. It kind of depends on size and the level of automation.

Speaker 7

Hey, Jason, it's Rob. I think one thing to add here is Tom's point. We're expanding fulfillment capacity worldwide. It's not just in a specific geography because the growth we're seeing is broad-based. The second point I guess I just want to make is, as we are building to this level of scale, fulfillment becomes more of a continuous investment project.

It becomes less project-oriented, just something that we need to undertake on a go-forward basis. You're certainly seeing that decision being reflected in our Q1 results, and it's also reflected in our Q2 guidance.

Speaker 11

We'll take our next question from Gene Munster with Piper Jaffray.

Speaker 3

Good afternoon. I realize you guys talked about the impact of the LivingSocial promo. As we look at the uptick in marketing expenses, it seems that you're spending a little bit more to get each incremental new customer. Is that true? If so, what would be driving that?

Speaker 4

Sorry, I didn't catch the first part of it, the LivingSocial piece.

Speaker 3

I know you mentioned the LivingSocial, the impact of the LivingSocial promo on the marketing expenses. Backing that out, as you look at your marketing expenses, can you just talk a little bit about customer acquisition cost and how they've been trending?

Speaker 4

In terms of, I didn't mention anything about LivingSocial as it related to our marketing expense line. What I was referring to is, if you look at our equity income line on our income statement, you can see an expense there. I said that that was made up of a number of different investments that we have, which includes LivingSocial. That was the LivingSocial piece. In terms of marketing spend, the spend is very efficient. What I mentioned earlier was that still the two primary pieces of our spend are our associates channel and also sponsored search. Those are our two primary. In terms of looking at it year-over-year, you're also seeing some of the broad-scale spending we're doing specifically related to Kindle that's impacting that number as well.

Speaker 11

We will go next to Heath Terry with Canaccord.

Speaker 20

Great. Thank you. Seeing growth rate accelerate even slightly for the first time in the past four quarters, to what extent would you attribute that to the infrastructure buildout, improving product selection and availability? Maybe to get a little more granular, can you quantify for us the improvement in product delivery time or availability that you've seen since beginning this investment cycle?

Speaker 4

In terms of quantifying, I'm not sure how much I can help you with that, but there's no question that what we're seeing is customers responding to the increased selection across many categories, across many geographies. We also certainly, Prime is having an impact as well as our other free shipping offers. The adoption of both has been great, and we're very pleased to do that. Also, making sure that we have great low prices for customers is also having an impact. All of those things are having an impact on our growth rate that you see there.

Speaker 11

We will take our next question from Steve Weinstein with Pacific Crest.

Speaker 10

Great. Thank you for taking the question. It has already been noticed that the growth in units relative to the growth in revenue is a pretty substantial difference and kind of a widening difference. I was wondering if you could explain when a customer becomes a digital customer and they start buying whether Kindle books or another digital product, how does their spending on Amazon change? Are they spending similar amounts with you and just buying more units, or is the actual amount of spending with Amazon going up? Obviously, the unit growth is a lot. Thanks.

Speaker 4

I apologize, Steve. This is not a lot to be able to help you with there in terms of specific numbers. We are seeing customers who are digital customers still being very good physical customers as well, buying and doing a lot of cross-shopping across our business. We are very excited about our digital offerings, and it's certainly reflected in the unit growth that you mentioned. We are also seeing very good growth amongst many physical categories across all of our geographies as well. Customers are responding to some of the things I already mentioned, and they're certainly responding to the selection that we have for our digital offerings as well as our physical product offerings, and that's reflected in the growth rate.

Speaker 11

Ladies and gentlemen, we have time for one final question tonight. It does come from Matt Nemer with Wells Fargo Securities.

Speaker 14

Thanks for taking my question. Two questions, actually. One, is there a point where increased digital offering sales offset investments in selection and in stocks, and we start to see that in the inventory turns number? Secondly, a question on fulfillment and tax issues. How flexible is your fulfillment capacity in the U.S. if a state changes its mind or reneges on a prior agreement regarding tax collection? Thanks.

Speaker 4

In terms of your first question, the reason why we're adding the physical capacity is it's growing very fast. We are having the benefit of seeing both a very strong growth in our digital offerings as well as a very strong growth in our physical offerings. It's the combination of those things that are driving the overall growth of our business as well as the fulfillment centers that you're seeing in the case of your question. In terms of the fulfillment centers, we have a wide range of fulfillment centers across a number of different states and geographies. We continue, our operations team does a great job in terms of figuring out where the best places are to invest. They'll continue to do that over time.

Speaker 18

Great. Thank you very much for your questions. Thank you for joining us on the call today and for your questions. Replay will be available on our investor relations website at least to the end of the quarter. We appreciate your interest in Amazon.com and look forward to talking with you again next quarter.

Speaker 11

Ladies and gentlemen, this does conclude.