Amazon - Earnings Call - Q1 2012

Transcript

Speaker 1

Please stand by. We're about to begin. Thank you for standing by. Good day, everyone, and welcome to the Amazon.com Inc. first quarter 2012 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 call is being recorded. For opening remarks, I will be turning the call over to the Vice President of Investor Relations, Mr. Sean Boyle. Please go ahead, sir.

Hello, and welcome to our Q1 2012 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, April 26, 2012 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 our comparable GAAP measures. Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2011. Now, I'll turn the call over to Tom. Thanks, Sean. I'll begin with comments on our first quarter financial results. Trailing 12-month operating cash flow increased 1% to $3.05 billion. Trailing 12-month free cash flow decreased 39% to $1.15 billion. Return on invested capital was 12%, down from 24%. 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 464 million shares compared with 466 million shares. During the quarter, we repurchased 5.3 million shares of our common stock for $960 million. Worldwide revenue grew 34% to $13.18 billion, or 34% excluding the $56 million unfavorable impact from year-over-year changes in foreign exchange rates. We're grateful to our customers who continue to take advantage of our low prices, vast selection, and shipping offers. Media revenue increased to $4.71 billion, up 19%, or 19% excluding foreign exchange. EGM revenue increased to $7.97 billion, up 43%, or 43% excluding foreign exchange. Worldwide EGM increased to 60% of worldwide sales, up from 57%. Worldwide paid unit growth was 49%. Active customer accounts exceeded $173 million. Worldwide active seller accounts were more than two million. Seller units were 39% of paid units compared to 36% of paid units in Q1 2011.

Now I'll discuss operating expenses excluding stock-based compensation. Cost of sales was $10.03 billion, or 76.1% of revenue compared with 77.2%. Fulfillment, marketing, technology, and content in G&A combined was $2.76 billion, or 20.9% of sales, up approximately 283 basis points year over year. Fulfillment was $1.26 billion, or 9.5% of revenue compared with 8.4%. Tech and content was $860 million, or 6.5% of revenue compared with 5.3%. Marketing was $468 million, or 3.6% of revenue compared with 3.2%. Now I'll talk about our segment results, and consistent with prior periods, we do not allocate to segments our stock-based compensation expense or other operating expense line item. In the North America segment, revenue grew 36% to $7.43 billion. Media revenue grew 17% to $2.2 billion. EGM revenue grew 44% to $4.77 billion, representing 64% of North America revenues, up from 60%.

North America segment operating income increased 20% to $349 million, a 4.7% operating margin. In the international segment, revenue grew 31% to $5.76 billion. Adjusted for the $55 million year-over-year unfavorable foreign exchange impact, revenue growth was 32%. Media revenue grew 21% to $2.51 billion, or 22% excluding foreign exchange. In EGM, revenue grew 40% to $3.2 billion, or 42% excluding foreign exchange. EGM now represents 56% of international revenues, up from 52%. International segment operating income decreased 72% to $49 million, a 0.9% operating margin. Excluding the unfavorable impact from foreign exchange, international segment operating income decreased 65%. CSY decreased 15% to $398 million, or 3% of revenue, down approximately 170 basis points year over year. Excluding the unfavorable impact from foreign exchange, CSY decreased 14%. Unlike CSY, our GAAP operating income includes stock-based compensation expense and other operating expense.

GAAP operating income decreased 40% to $192 million, or 1.5% of net sales. Our income tax expense was $43 million in Q1, resulting in a 51% rate for the quarter. GAAP net income was $130 million, or $0.28 per diluted share, compared with $201 million, or $0.44 per diluted share. Turning to the balance sheet, cash and marketable securities decreased $1.17 billion year over year to $5.71 billion. Inventory increased 47% to $4.25 billion, and inventory turns were 10.4, down from 11.6 turns a year ago as we expanded selection, improved in stock levels, and introduced new product categories. Accounts payable increased 24% to $6.89 billion, and accounts payable days decreased to 62 from 66 in the prior year. Our Q1 2012 capital expenditures were $386 million.

The increase in capital expenditures reflects additional investments in support of continued business growth, consisting of investments in technology infrastructure, including Amazon Web Services, and additional capacity to support our fulfillment operations. 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 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 excludes the financial results of the Kiva Systems acquisition, which we expect to close in the second quarter of 2012, and 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 2012, we expect net sales of between $11.9 billion and $13.3 billion, a growth of between 20% and 34%. This guidance anticipates approximately 240 basis points of unfavorable impact from foreign exchange.

GAAP operating income or loss to be between $260 million loss and $40 million of income, or between a 229% decline and an 80% decline. This includes approximately $260 million for stock-based compensation and amortization of intangible assets. We anticipate consolidated segment operating income, which excludes stock-based compensation and other operating expenses, to be between $0 and $300 million or between a 100% decline and a 22% decline. We expect capital expenditures, including capitalized software development, to be approximately $0.8 to $0.9 billion. These anticipated investments are driven primarily by our expectations of continued business growth, consisting of investments in technology infrastructure, including Amazon Web Services, and additional capacity to support our fulfillment operations. We remain heads-down focused on driving a better customer experience through price, selection, and convenience. We believe putting customers first is the only reliable way to create lasting value for shareholders.

Thanks, and with that, Sean, 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?

Speaker 2

Thank you. At this time, we will now open the call up for your 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 touch-tone phone. Please hold while we pull for questions. We'll take our first question from Spencer Wang with Credit Suisse.

Speaker 0

Thanks. Good afternoon. Hi, Tom. Just a couple of quick questions. One was wondering if you could update us on your plans for fulfillment center increases in 2012. Also, on Prime and Prime Instant Video, you guys are over 17,000 movies and TV episodes now. Are you guys at a critical mass, or do you guys expect to continue to invest aggressively there? One last quick clarification question. The CapEx guidance, was that for the second quarter or the full year? Thanks.

Speaker 3

Sure. I'll take the last one first. The CapEx was for the second quarter. The first question on fulfillment centers, in terms of announcements so far that are out there, we've announced 13 for 2012. Certainly, any changes to that, we'd be back to you. We're experiencing very, very strong growth, both in terms of retail, but also our FBA. We're seeing that in our third-party growth. Our third-party growth increased in Q1 over 60% again this quarter. A big piece of that is certainly FBA is doing very well. We're continuing to invest, and the number is 13.

Speaker 2

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

Speaker 0

Hi, thanks. Tom, I just had a question around the operating margin dynamics in the North American market versus international. If you look at it year over year, I guess, or even sequentially, the international margin's down pretty materially, but you had a significant uptick in the North American margins, sequentially, and just a moderate decline year over year. I'm wondering if you can just clarify what's happening in North America versus the international markets. Is it 3P FBA having a more significant effect in the U.S. versus other markets? I had one follow-up question.

Speaker 3

In terms of the, we're investing heavily in both segments. What you're seeing is clearly, if you look at over the past couple of years, we've launched a few new geographies, you know, Italy and Spain. We're investing in those geographies. As we've talked about in the past, China, we continue to invest there. We think it's growing very fast. We like what we see. We think it's a great long-term opportunity, but we're investing there. Those are some of the dynamics that are impacting international. We continue to invest again across both geographies, but those are things that are a little bit different. In terms of third-party growth, we're seeing very strong third-party growth across international as well as North America. Pleased to do that. We're investing, you know, again on behalf of customers and sellers as well as retail for the capacity that we need to do that.

Speaker 0

On the employee-based growth, I don't know if thinking about unit growth is the right way to think about it, but is there a point in time where you think the employee base starts to grow more in line possibly with unit growth? Can you maybe walk through where you're adding most significantly that's driving the headcount growth? Thanks.

Speaker 3

Sure. We are adding a lot of resources across a number of different areas, but certainly, if you look at both year over year and sequentially, the Q1 numbers that you're looking at, the vast majority of that is in operations and customer service. Those are based on the hirings that we did coming out of Q4. We do supplement our workforce with temporaries in Q4. We did hire a number of those coming out of Q4, and those are reflected in the numbers. To answer your other question, yes, we'll moderate it at some point, certainly. Given the growth that we're experiencing right now, we are investing, and we're making sure we have the right resources to do that.

Speaker 2

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

Speaker 0

Thanks, Tom. Could you just provide a little more color on the gross margin trends? It also looks within that, like shipping for the first time in a while shows a little bit less deleverage than it has in the past. Is there some sort of tipping point you reached there? Broadly on gross margins, that real drive-up that you've seen over the last couple of quarters, is that primarily just due to product mix shifts or revenue mix shifts? Is there anything else in there? Could you also just briefly comment on Amazon Supply? Would some of that, all of the inventory that you built up for that launch, would that, have we seen that in the buildup in inventory and the reduction in turns, or are we going to see that going forward? Thanks.

Speaker 3

In terms of the, you know, we're not reporting gross margins specifically, but in terms of the, you know, if you take a look at the relationship between COGS and revenue, certainly one of the things we're seeing, a number of different factors there, certainly mix of business is one. Another factor is certainly the one I mentioned earlier, which is around third-party growth. We saw very strong unit growth overall this quarter, up from last quarter. We had sequential growth. Third-party units as a percentage of total units were up over approximately 300 basis points over last year. We saw just great third-party unit growth. It was up over 60% again in Q1. Those factors are certainly impacting our operating margins, if you will. In terms of Amazon Supply, certainly we have inventory on hand to support that business. It's certainly something that we're optimistic over the long term.

In terms of the inventory increase that you've seen, it's very broad over a number of different businesses and categories and geographies. That's really what's driving it.

Speaker 2

We will take our next question from Heather Bellini with Goldman Sachs.

Speaker 0

Great. Thank you very much for the question. I have two for you. First, I was wondering if you could talk about just over the last few years, if you could give us a sense how much of the third-party increase has been related to agency e-books. The second question is, in light of the DOJ case, I was wondering if you could walk us through your thoughts about the agency e-book model, as well as whether or not this will mean we should see things move back to wholesale. Thank you.

Speaker 3

Yeah, there's not a lot I can help you with there in terms of the questions. We do think that the suit, it's a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books. It's certainly our unit growth, if you will, in total. Not talking 3P, just in total, certainly the paid unit growth has been certainly helped a lot by e-books. It's growing, as you can imagine, very, very fast. It's certainly impacting that growth rate that you've seen over the past few years, which has been great for us and great for customers. Beyond that, there's not a lot I can add to your questions.

Speaker 2

We will go next to Ken Sena with Evercore Partners.

Speaker 0

Hi. Thanks. In your press release, you mentioned the launch of your Amazon Appstore. Can you just share any thoughts on current traction on Android or specifically off Kindle Fire? What are some of the advantages and disadvantages you see for Amazon in that area? Thanks.

Speaker 3

It's early, so there's not a lot I can do. We're excited about it. We think it's a very interesting opportunity and happy to do that on behalf of customers. Stay tuned, and it's early.

Speaker 0

Maybe one more follow-up. If you could just talk about any of the traction you're seeing within Kindle Fire more broadly or any thoughts you have around a Kindle smartphone, that'd be great too. Thank you.

Speaker 3

In terms of the Kindle Fire, we're pleased with the growth that we're seeing, and customers are buying a lot of content. You're seeing that when you look at particularly in North America, when you look at our North American media growth from Q4 to Q1, you're seeing that accelerate. That's certainly a big part of it. We're very pleased with what's happening. We're going to continue to add more and more content for customers and across all of our digital categories. We think we have a great value proposition for customers today, and we're going to continue to make that better over time.

Speaker 2

We will take our next question from Doug Anmuth with J.P. Morgan.

Speaker 0

Thanks for taking the question. I wanted to ask two things, Tom. If you could first just give us some more color on the outlook around segment operating income in Q2 and just how we should be thinking about the drivers there in terms of the sequential decline. Secondly, just the North American media business, you saw a good re-acceleration from Q1 to Q1. Can you talk about the factors there leading to that acceleration? Thanks.

Speaker 3

Sure. I'll take the second one first, the North American media. I just mentioned that a little bit in one of the previous questions, but certainly, you know, our digital media growth has been great, and certainly, it's helping that. One other call out just to keep in mind, in Q4, I had mentioned that video games, including video game consoles, the console is a part of North American media. That's a seasonal business that was bringing down growth in Q4. It's also something to keep in mind. In terms of our guidance, we've given a pretty broad range on both the top and the bottom, as we have previously. We think the segment operating income on the bottom end of the range is certainly appropriately conservative. Again, things that you should think about, we are, you know, we'll continue to add capacity, as we've talked about in the past.

With the growth that we're experiencing, we are adding more. As I mentioned in one of the earlier questions, we've announced approximately 13 new fulfillment centers. Those are as a result of the growth that we're experiencing. We're also adding capacity to support AWS and our retail business on the infrastructure side as well. Those are things to think about as you think about Q2 from a segment operating income, as well as the CapEx that I mentioned in the opening. Another area is certainly our digital offerings. We are certainly adding more content and specifically more video content, which will be as reflected in our guidance. Those are factors among others that you should think about.

Speaker 2

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

Speaker 0

Good afternoon and congratulations. Another question on gross margins is obviously impressive results, the best in three years almost. It's been a little bit of a roller coaster in terms of the profitability quarter to quarter. We understand that you're in an investment phase and there's a massive opportunity ahead of you. Is there anything that you can tell us as we think going forward over the next few quarters? Is the investment philosophy that played through this quarter going to play on in other quarters, or is each quarter kind of its own three months and it could go either way? Thank you.

Speaker 3

Gene, in terms of guidance, we're just giving guidance on Q2 today. The one thing I would say is we're seeing very good growth, as you see in Q1 and reflected in the guidance for Q2. We'll have to stay tuned to see what it looks like for the remainder of the year as we progress. We're extremely happy with the opportunities that we have. We think we're in a great position with the opportunities that we have, even though we've reached some scale. We just have tremendous opportunities in front of us, and that's why we're investing in those.

Speaker 2

We'll go next to Brian Nowak with Morgan Stanley.

Speaker 0

Hi, thanks. I have a couple of questions. The first one is, you know, I know there's a lot of focus on kind of CSY margins and margin pressure from the build. I was just curious if you still see, you know, areas of your business and the oldest part of your business where you think you have inefficiencies you can still work to improve execution and kind of get some margin lift out of those in the oldest part of the business just to improve execution. The second one is, any more clarity on how much roughly Quidsi and LoveFilm added to revenue growth this quarter? Thanks.

Speaker 3

In terms of opportunities for improvement, even though we've made a lot of progress, we still feel we have a lot of room for improvement in all parts of our business. Certainly, the most opportunity is the newer parts, but if you go back and look at, we're still trying to get great productivity and putting together programs to get great productivity in each of our operations. There's really too many to list here on the call today. We look at it in all facets of our business in terms of productivity. We think there's opportunities to partner with vendors even more to get better savings and better prices for customers. The list is long.

I think when you look at the opportunities in terms of the ranking, in terms of at least basis points improvement, start with the newer things that we've launched, at least directionally, the newer things that we've launched, work your way backwards and those are usually where the biggest opportunities are in terms of basis points.

Speaker 2

We will take our next question from Matt Niemer with Wells Fargo Securities.

Speaker 0

Good afternoon. Thanks for taking my question. Just going back to the "gross margin," is it fair to say given the change in that metric and the change in third-party seller units that potentially the core margins in 1P really accelerated in the first quarter, in addition to there being a continued mix shift to 3P? That's my first question. Secondly, can you comment on any product categories in either media or EGM that either held you back in the quarter or were a tailwind? I think last quarter you mentioned video games and a few categories in terms of giving some color. Thank you.

Speaker 3

Yeah. In terms of the second part of the question, I think in terms of any headwinds, I would say there's a few areas. As we talked about last quarter with some of the supply issues that we had related to the Thailand floods, that caused certainly some issues for us, specifically in the areas, some parts of cameras, audio, video, office equipment. You saw some of that impact in Q4 as well as Q1. The good news for us with our platform is we have many, many different sellers. Where we had supply, we continue to offer those to customers. In cases where we didn't, oftentimes we had third parties that may have still had inventory. It certainly helped us very well to get through that situation. Those are some of the headwinds that were in Q1.

We had very strong broad growth amongst many categories, certainly in terms of the retail categories. We also had very strong growth in Kindle globally. AWS is growing very, very fast. We had some very, very positive, if you will, tailwinds from the strong growth.

Speaker 2

We'll take our next question from Carlos Kirschner with Sanford Bernstein.

Speaker 0

Hi. Thank you for taking my questions. Two questions, if I may. First, on fulfillment, if you think of the expected utilization of your fulfillment network in the fourth quarter of this year versus what you had in the fourth quarter of 2011, do you expect it to be the same, higher, or lower? Secondly, on Kindle, now that you are a manufacturer, a seller of Android-based devices, can you comment on your intellectual property position and the strategic and financial risks associated with potential lawsuits from competitors? For example, do you intend to go buy patents in the market?

Speaker 3

In terms of the first question, in terms of fulfillment utilization, difficult to say at this point what our utilization will be. We have a very good team of people who work on this in each of our geographies, trying to make sure we have adequate capacity throughout the year, as well as for Q4. It's always a tough balance. We want to make sure that we have enough because we want to make sure we satisfy customers. We will have to see as we progress through the year what the growth looks like. We certainly, based on what we're experiencing so far, expect it to be very good. We will have to see what happens in future months and quarters to see what that looks like.

It's a little bit early to say what we think that utilization will be, but we're trying to make sure anytime we do this is to have enough but not too much. It's a delicate balance, so hard to predict what it will be. In terms of your second question, I don't think there's a lot I can help you with there. We certainly have a lot of technology that we develop ourselves. We have a great team, a great technical team that's working in a lot of different interesting areas on behalf of customers, and we'll continue to do so. Beyond that, there's not a lot I can comment.

Speaker 2

We will go next to Jordan Rohan with Stifel Nicolaus.

Speaker 0

Hey, a couple of points of clarification. I don't think I heard you blame macro weakness in Europe. Clearly, you had stronger results across the board, so I don't see it evident in the results. Are you clear enough about the direction of the macro or its impact on your European operations that you can kind of say, at least from what you're seeing, it's not affecting you now? The second question is on this percentage of third-party versus first-party sales. Last quarter, I believe you said that it got up to 36% in part because of stockouts due to the Thai flood and such. At some point, one would think that the supply chain for cameras and other equipment affected by the Thai flood would normalize. Would we expect that to therefore normalize back down from 39% level back down to the mid-30s?

How can we think about that relationship? Thank you.

Speaker 3

Sure. In terms of the macroeconomics of Europe specifically, we're not exactly a bellwether for the economy, and it's hard to assess. Certainly, it's having some impact on us. You're certainly reading the same press we are in terms of what's going on, and it's very challenging. It's hard to quantify what that impact is. We're certainly having some impact, but it's hard to quantify is how I would explain it. In terms of 3P, we've seen the dynamic that you're talking about in terms of it has helped us with stockouts both in Q4 and Q1 for sure and has helped growth. Where does it moderate? Hard to say.

We have seen, outside of these two quarters, very good third-party growth, and that's been accelerating over the past couple of years in terms of third-party unit growth. There are a number of different factors in terms of making that experience better for sellers. The most notable one is Fulfillment by Amazon, and that's certainly having an impact in all of the geographies that we operate and have that in. It's great for sellers, it's great for customers, and it's great for shareholders. It's a nice intersection there. We're very excited about it, and that's really what's driving it. The stockouts and things, those will happen from time to time in various categories. I think that's certainly one of the benefits for our model of having both first-party and third-party offerings. I wouldn't view that as the substantial driver of what's happened in third-party over the last few years.

It's other things that we've done to improve that experience for sellers.

Speaker 2

We'll go next to Lloyd Walmsley with Deutsche Bank.

Speaker 0

Thanks for taking the call. Just had a couple of questions around Amazon Supply. I guess first, wondering if this is the beginning of a bigger push into the B2B kind of industrial space. Secondly, what do you all see as your strongest assets as you approach this space? Are you planning to rely a lot on third-party for inventory? Finally, along these lines, the press release mentions the extension of corporate credit. Wondering how integral this might be to the strategy. More broadly, how you think about credit extension to customers. Thanks.

Speaker 3

In terms of Amazon Supply, it's interesting we've been serving businesses for some time. This is just, you know, again, a separate URL to help us do that, you know, with some interesting selection, we think, on behalf of businesses. We work very closely with a lot of businesses today, both as a customer, you know, on our consumer side of our business. We also obviously have a lot of third-party sellers that we work with, you know, as part of our seller business. We're very excited about that. In terms of any extension of credit and everything, those are things that we're working through. We want to make the right decisions on behalf of those customers. I can't add much to that today, but you know, certainly can talk more about that in the future as that evolves.

Speaker 2

We will go next to Anthony DeClemente with Barclays.

Speaker 0

Hi, thanks. On the Kiva Systems acquisition, I was wondering if you could talk about how you're planning on implementing that at your fulfillment centers, and does it require much incremental investment? More broadly about mobile purchasing behavior, wondering if you could speak to just the purchasing behavior you're seeing from your consumers in terms of, you know, what's the order of magnitude and what type of mix shift in buying that you're seeing from PC to mobile? That'd be great. Thank you.

Speaker 3

In terms of Kiva, it's early. We haven't closed it yet. We're very, very excited to be having Kiva and the team as part of the Amazon team. We're extremely excited to have that. In terms of implementations within Amazon, we still have a lot of work to do to figure out how and when we'll do that. Those are things that we'll be working on. We're very, very excited about the opportunity to join with Kiva. We're excited about it. In terms of mobile, not a lot I can help you with there. Certainly, the mobile part of our business is growing very, very fast. It's a very exciting opportunity. This is not something that's new. It's something that we've been working on for a number of years in a number of geographies. We'll continue to work on that experience to make it even better for customers over time.

Speaker 2

We will go next to Justin Post with Bank of America.

Speaker 0

Thank you. First question is on taxes. Can you help us at all understand what % of your marketplaces currently pay taxes similar to, say, offline retail? Any help on what you saw in New York with the tax law changes there. Maybe start with that and then one follow-up.

Speaker 3

I'm sorry, could you repeat the first part of the question?

Speaker 0

Yeah. What % of your market, including international markets, are already on what we'd call level tax basis, meaning the taxes are the same for buying on Amazon versus an offline retailer?

Speaker 3

Yeah, you're talking sales taxes?

Speaker 0

Yeah, sales tax. Yeah.

Speaker 3

Assume that approximately 50% of our sales, we either collect a sales tax or a value-added tax. We collect it in several states today in the U.S. and a large number of geographies outside of the U.S., so it's approximately 50%. This is not anything new. This is something that we've been doing for a long period of time. We have very good businesses in those geographies and states that we collect.

Speaker 0

Did you see any slowdown in states where they've enacted sales taxes in your sales levels?

Speaker 3

I can't comment on any specific geography or state. You can see by the growth that we've experienced over the past few years, which includes during those past few years certainly adding some geographies, if you will, to our collection efforts. Those are all represented in the results that you've seen over the past few years and several years. That's all I can add to that.

Speaker 2

We will go next to Herman Leung with Susquehanna Financial Group.

Speaker 0

Great. Thanks. Two quick questions. First, I know there's a lot of investment going on in the data center areas for your web services business. I was wondering, at the current level, how much capacity you're able to support, especially as you're signing on more of these larger type customers on the government side? I have a quick follow-up.

Speaker 3

Yeah. No, we're ready for additional demand. The team has worked extremely hard to make sure that we keep up with demand. As you've seen over the past few years now, you're seeing our CapEx growing as a result of it. You're seeing the operating expense as it relates to that and our technology and content. The team's done a very nice job in terms of adding capacity and is very excited to continue this fast growth that we're experiencing in AWS. We're very happy to do that.

Speaker 0

Just a very quick follow-up, I guess, on your GMV that's flowing through your third-party business. Is there an opportunity over time to kind of share with us the real power of just the third-party volume that's actually flowing through the top line? Thanks.

Speaker 3

We have the best way to think about it, at least as it relates to our retail and third-party business. They're certainly not one-for-one because you have new and used products. You have different category mix. In terms of an overall volume perspective, as I mentioned in some of the earlier comments, it was approximately 39% of our total units. It's very meaningful, and that's growing, grew over 60% this quarter, up from 36% of our total units. I can't give you the GMV, but in terms of units as it relates to our retail units, it's 39% of total units. It's meaningful.

Speaker 2

We'll go next to Ben Schachter with Macquarie.

Speaker 0

Given the success of the ad-supported Kindle, should we expect more devices to be offered with an ad-supported option? If any comments on the dynamics driving the increase in the shipping revenue, and finally, any update to the share buyback? Thanks.

Speaker 3

In terms of what we do going forward, we sort of have a longstanding practice of not talking about what we would do going forward. You have to stay tuned on that. In terms of the share repurchase, as I mentioned in the opening comments, we purchased 5.3 million shares, just under $1 billion, $960 million during the quarter. We have a little over $700 million or just under $800 million left on our authorization that we have from the board, which was $2 billion that we got some time ago. That's what's left on the authorization.

Speaker 2

We will take our last question from Colin Sebastian with RW Baird.

Speaker 0

Hi. This is Greg O'Shaughran for Colin. I had a question regarding the Kindle Fire, which you guys have noted for the quarter is still the number one best-selling and most gifted product on Amazon.com, but it's still only selling in the U.S. Can you help us think through or understand what are the other considerations in terms of the timing of an international rollout of the Kindle Fire?

Speaker 3

I think you should stay tuned. It's certainly a very interesting opportunity for us, and we know that, and you'll have to stay tuned.

Speaker 2

That concludes our question and answer session. I'd like to turn the conference back to our speakers for any closing remarks.

Speaker 1

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 Inc. and look forward to talking with you again next quarter.

Speaker 2

Thank you, everyone. That does conclude today's conference. We thank you for your participation.