Q2 2021 Amazon.com Inc Earnings Call
[music].
Thank you for standing by.
Good day, everyone and welcome to the amazon.comQ2, 2021 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 director of Investor Relations. Mr. Dave Files. Please go ahead.
Hello, and welcome to our Q2.2021 financial results Conference call.
Joining us today to answer your questions is Brian Osaki, our CFO.
As you listen to today's conference call.
We urge you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. Please note unless otherwise stated all comparisons in this call will be against our results for the comparable period of 2020.
Our comments and responses to your questions reflect management's views as of today July 29.2021 only.
We 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 and subsequent filings.
During this call we may 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.
Our guidance incorporates the order trends that we've seen to date and what we believe today to be.
Only 3 of assumptions.
Our results are inherently unpredictable and maybe materially affected by many factors, including fluctuations in foreign exchange rates changes in global economic conditions and customer spending world events the rate of growth of the Internet online commerce and cloud services and the various factors detailed in our filings with the SEC.
The appropriate guidance also reflects our estimates to date regarding the impact of the COVID-19 pandemic on our operations, including those discussed in our filings with the SEC and is highly dependent on numerous factors that we may not be able to predict or control, including the duration of the scope of the pandemic, including any recurrence actions taken by governments businesses.
And individuals in response to the pandemic.
The impact of the pandemic on global and regional economies and economic activity work force staffing and productivity and our significant continuing spending unemployed safety measures are.
Our ability to continue operations in affected areas.
And consumer demand and spending patterns as well as the effects on suppliers creditors.
And third party sellers all of which are uncertain.
Our guidance also assumes among other things that we don't conclude any additional business acquisitions investments restructurings or legal settlements.
It's not possible to accurately predict demand for our goods and services and therefore, our actual results could differ materially from our guidance.
And now I'll turn the call over.
Brian.
Thank you for joining us today.
Before we get to the Q&A I'd like the first thank all of our prime members, our vendors or 3 piece sellers and my Amazon colleagues, especially the worldwide ops team for our record breaking Prime day in June.
Third party sellers, who are mostly comprised of small and.
The medium sized businesses were a big contributor to Prime day success the.
Prime day event was the biggest 2 day period ever for these smbs in our stores.
Our <unk> revenue continues to grow significantly faster than our online stores revenue.
Third party of units represented 56 per cent of our total paid units in Q2.
Up from a 53% mix 1 year ago.
Our second quarter net sales were $113 billion or at about the midpoint of our guidance range as the.
The year over year increase of 27% or 24%, excluding the impact of foreign exchange and included the shift of Prime day into Q2. This.
Year, which added about 400 basis points to the year over year growth rate.
Q2 of this year was the transition period from many of our customers as.
As the quarter progressed people were at home less as restrictions and Lockdowns eased in some of our largest geographies, including the U S and much of Europe.
As a result, while prime members continue.
Spend more with us growth in prime member spend moderated compared to spending seen during the peak of the pandemic.
As you look at our recent revenue growth rates I want to give you some insight into what we are seeing is there have been some noticeable intra quarter changes in our revenue run rate.
Prime day has also been in 3 different quarters of the past.
3 years, so the normalized for this impact of my growth rate comments.
Also since FX rates of bounce around all of my comments exclude foreign exchange.
Here's a quick recap of our growth rates in 2020 in 2021.
First before COVID-19, we've been growing at a revenue growth rate close to <unk>.
John you to spend.
2019 full year growth was 22% and revenue growth of the first 2 months of 2020 was 21%.
Once the pandemic hit and Lockdowns began in March 2020, the initial growth rate jumped into the mid 30% range Q1 of last year ended with the revenue growth rate of 27%.
However, our operations network took time to step up to serve this growth in demand to the space constraints and our need to ramp up hiring quickly, while prioritizing employee health and safety.
By mid May of last year, we have made good progress to open up more capacity by adding hundreds of thousands of employees.
This allowed our.
Our revenue growth rates of jumped to the 35% to 45% range and the remainder of debt level through Q1 of this year, when we had 41% growth.
In Q2 of this year, we began to comp this high sales period from last year and the year over year revenue growth rate has narrowed it has also narrowed as vaccines to become more readily.
Well in many countries and people are getting out of their homes.
Since may 15th again, excluding prime day, our year over year growth rate is dropped into the mid teens.
Our Q3 revenue guidance range of 10% to 16% growth reflects an expected continuation of this trend.
Given all of this volatility.
It is useful to consider the 2 year compounded annual growth rate, which remained strong in the 25% to 30% range.
Recall of this compares to our pre pandemic growth rate of 21%.
This reflects the acceleration of prime membership and prime member purchase levels over the past 18 months.
Well I am.
Not giving forward guidance beyond Q3 of this year, we do expect this pattern of difficult year over year revenue comps to continue for the next few quarters.
As we move forward and start to comp Covid impact on our revenue growth. We encourage you to also look at the multi year compounded annual growth rate since the onset of the pandemic to better put this growth in.
Of.
Now back to the Q2 highlights.
We continue to be very pleased with the prime member growth and engagement we're seeing.
We've been fortunate to welcome more than 50 million new members in the past 18 months and Prime member benefits usage remains high.
It includes continued strong engagement and price family of digital.
<unk> like Prime videos original movies for example, Prime members helped make the tomorrow of war and Tom Clancy's without remorse. The number 1 streaming movies on the respective opening weekends.
On advertising is innovating at a fast clip launching over 40, new features and self service capabilities.
Will offer in the quarter, making it easier for sellers companies and authors to grow their businesses by helping customers discover their brands and products.
Other revenue increased 83% year over year in Q2, excluding the impact of foreign exchange driven largely by continued acceleration in our ads business.
Moving.
Moving on to AWS revenue growth accelerated across the broad range of customers.
We see strong growth in enterprises governments educational and research institutions in our startup in digital native customers.
We recently announced new commitments in migrations from customers across the diverse set of major industries, including Swisscom.
And Bell Canada in telecom.
The financial group and Bank, Columbia, and financial services and Ferrari in automotive.
AWS customers recognize that the move to the cloud is very positive for their businesses in the medium and long term.
Disruptive economic events like Covid of cause many people step.
Back and think about how they want to change strategically in many of come to the conclusion that they do not want to own and run their own data centers.
This is they can save money and gain agility and innovation by moving to AWS.
I'll finish up with some comments on our ongoing investments in operations.
As we think about the pull forward in demand we've seen.
These past 18 months it has required and will continue to require a significant amount of investment in our fulfillment network.
Our teams have done a remarkable job stepping up to serve customers in support of our vendors and sellers and we've worked hard to increase capacity at a rapid rate.
For the trailing 12 months ended Q2 cash.
Opex in equipment finance leases increased 74% versus the prior trailing 12 month period and as usual most of our 2021 spend and building openings are planned in the second half of this year.
This is all part of the multiyear investment cycle for US unit volumes will obviously growing at lower rates of last year's large comp.
Continue to remain high and we see strong demand for FBA and third party sellers. So there's more work to do including additional build outs of our FCS as well as our middle mile and last mile capabilities to support our fast improving delivery offers for customers.
I encourage you to read the business highlights in our press release.
It's a diverse collection of efforts supported by many thousands of customer focused Amazon employees per.
From Amazon Pharmacy to business Prime day, Aws's plans to add 7 new regions, China fell Thursday night football starting next year to the black business accelerated program to a lesser the collaboration with Ford.
Motor Company, we remain heads down focused on driving a better customer experience. We believe putting customers first is the only reliable way to create lasting value for our shareholders.
With that let's move on to Q&A.
Thank you at this time, we will now open the call up for questions.
I ask each caller to please limit yourself to 1 question if you'd like to ask a question. Please press star 1 on your keypad. We asked that when you pose your question you pick up your handsets to provide optimum down quality once again to initiate a question. Please press Star then 1 on your Touchtone telephone at this.
Tom just hold while we poll for questions.
Your first question comes from line of Doug Anmuth with the.
J P. Morgan. Please proceed with your question.
Thanks for taking the questions.
Brian I wanted to ask 2 just going back to the <unk> revenue.
The <unk> clients, then moderating and the reopening is there anything else you'd point to in particular the data.
Kept you in the middle of the range.
<unk>.
Honestly, where you've been over the last year versus expectations and I guess.
In particular can you talk about prime day relative to your expectations and then.
The Big Commerce partnerships, a couple of weeks ago.
You seemed to open up more to working with merchants away from Amazon.
Just hoping you could talk more about the multichannel fulfillment opportunity and do you think you now have the logistics capable.
Capabilities and as everything recovered to the point, where you can offer these services more to third parties.
Sure. Thanks, Doug.
No.
As far as Q2 run rate is concerned if you look back the last few quarters, we've not done a great job of of nailing the impact of Covid.
It has.
We've generally over performed our guidance range.
Since last quarter.
We have kept the same process.
Coming off of some very high volume for the last prior 4 quarters.
And really the only difference I see.
Q2 versus Q1 and before as is the year of your comp which we.
Is it in but also the increase of mobility I think the impact of people getting vaccine vaccinated and getting out in the world the not only shopping.
Offline, but also the living life and you know getting out of.
It takes away from shopping time, it's good it's a good phenomenon and it's great.
Great.
And we just have to appropriately gauge our run rate going forward.
So prime day was very successful we are.
The past the record set in the last falls of Prime day, which was a very different time of year to have prime day, and starting to bump up against.
Exactly holiday shopping so we're really pleased and again I think of is a great day for her than for third party sellers as I pointed out.
Doug on your second question, it's Dave here.
I'd just say our focus is really squarely on adding capacity to meet the current high customer demand the Brian.
<unk> talked about in his opening remarks.
Always working to develop new and innovative ways to support our partners F N B's in particular, who sell on Amazon.
<unk> testing shipping programs and newer initiatives that can help those businesses get packages to customers quickly and reliably.
So it continues.
You have to look for ways to be able to innovate where its appropriate relative to the customer demand we're already seeing in our network.
Your next question comes from the line of Colin Sebastian with Baird. Please proceed with your question.
Thanks, very much guys I guess.
Brian took sort of masked in the headline result is actually pretty solid performance in higher margin segments of the business.
Including third party services subscription AWS and advertising.
And I think that was evident in gross margin as well. So I guess my question is whether there's any deliberate shift towards these services or is.
Yes more of an output of of the sum of weaker trends you saw after mid May and then secondly is prime day still of once per year phenomenon or would you consider a separate events spread out during the same year.
To capitalize on a different seasonal trends.
Sure on the second question I I don't have anything.
Is that just today of trend has been once a year and.
Of course, it's moved between quarters the last 3 years so.
That's all I have on that 1 as far as the higher margin areas and whether that's the purposeful strategy.
I'd like to say it is but if you look at what they are third party is.
Kind of a.
The continuation of strength in our FBA program in particular.
I think the sellers are doing a great job of adding additional selection.
That's very valuable and reinforces our flywheel and we'd like to see that and you see that.
Third party.
2 announce went up from 53 per cent last year to 56 per cent and that's the steady March we've seen that as we said the third party sellers are doing a great job and we like to see that on advertising advertising is again another.
Part of our flywheel, we have the traffic coming in.
And for the consumer business and if we do a good job with advertising.
I'll make it an additive experience for our customers and our sellers of vendors. So that's what we work on is to make sure that it's a relevant.
The experience and adds to your shopping and shopping experience helps you find selection that the perhaps you wouldn't have found otherwise or.
It would of been harder to and then on AWS AWS is and you know again its own separate part of the business it.
It has been the 50.
15 years in the development and we think our scale and experience really pays dividends.
If you look at the last.
Your AWS added more revenue quarter over quarter and year over year than any quarter in our history, where now of 59 billion dollar of annualized run rate business and that's up from 43 billion at this time last year. So.
Those are output measures of as we like to say the input measures are doing the good job on products at.
Adding new capabilities.
Quarter is and being able to work with our customers to solve their problems and I think that's what you're seeing and its matching up well with a renewed emphasis.
Emphasis on getting to the cloud by a lot of companies out there.
And when they are looking to make that transition it's out of it.
The giving.
Control and putting yourself.
Yourself in the choosing a partner for the long haul and we're proud that the companies choose us for that journey.
Your next question comes from the line of Brian Nowak with Morgan Stanley. Please proceed with your question.
Thanks for taking my questions I have 2.
You want a little nitpicky, 1 kind of big picture of the the nitpicky, 1 Brian the fulfillment cost per unit basis was the was pretty high in the second quarter relative to normal seasonality you talked about sort of what's driving that is that of newbuild new square feet are there sort of inefficiencies that went on in the in the quarter and fulfillment and the second 1 sort of a.
Picture in the last quarter, you talked a little bit about same day in Europe, there's lots of headlines about the same day, how do we think of how should we think about a larger same day offering being part of the investment process right now just to sort of maintain and grow your share of grocery and consumables. Thanks.
Sure. Thanks.
Yeah, I would say on the fulfillment side there are a number of things first we're adding a lot of capacity if.
If you step back the Amazon fulfilled unit volume. So that's the units coming out of our fulfillment centers, both retail and FBA have doubled in the past 2 years.
The bigger me a M C L. The delivery of arm of our business has more than doubled in that time period. So you can see there has been very strong.
Multiyear demand here that we are still catching up with from last year. So.
Most of the I mentioned.
And of our year over year growth in Capex and equipment leases of 74% in the second at the end of June compared to 38 per cent of the year before.
So we're continuing to add and most of that development is really ahead of us in the second half of the year. So.
If you.
She's.
Earlier with US a long time, you know the the cadences that as we add demand excuse me as we had come out of capacity. There's a lot of additional costs from hiring to starting up to training to getting that building or sort center or delivery station up and running it usually takes a multiyear periods.
Some of those assets.
And we've literally nearly doubled our network here in the last 18 months from the size standpoint. So.
There's a lot of that going on.
A lot of strong effort by our fulfillment of ops teams to.
To help mitigate the cost the other.
Thing is wage pressure has as.
The time become evident.
We've talked about this a bit the way.
The increase for the what you normally would do in October we pulled forward into May we're spending a lot of money on signing and incentives and while we have a very good staffing levels its not without cost.
A very competitive labor market out there.
Certainly the biggest contributor to inflation inflationary pressures that we're seeing business.
Brian on the second point just around the speed.
As we've talked about many times customers respond well to the fast high quality delivery and of course back.
Back in 2.
2019, we were talking at that time about expanding the 1 day delivery in the U S and the Europe, 1 day delivery as part of Prime and in most of those are sizable European countries, where we operate has been standard for for many years.
We're investing in the transportation network to support the demand.
Significant part of.
The capital investments, we've been talking about from the past few years and certainly since the Pandemics start has been to support those efforts in the middle of last mile capacity to keep the patient support with that the man. So as we contained here that works not done yet we're continuing to expand.
You'll see that investment throughout 2021.
John and Theyre growing transportation network will support faster delivery times for customers 1 day delivery of.
It is improving and.
In the U S as well as the same day delivery.
It makes sense and where the network is growing there. So we'll have to continue to see how we go but.
We're focused on those.
Those data points and we're also focused on improving.
Delivery of precision as a way of improving the quality of of the overall offering.
Your next question comes from the line of Youssef Squali with the Truest Securities. Please proceed with.
Your question.
Thank you very much I have 2 questions 1 within online stores was there any particular area of softness during the quarter I'm just thinking about maybe some product categories that may have come.
Come back or actually the opposite May have gone down the demand for with the with the reopening.
<unk> that you can maybe highlight and then as you look beyond Q3, and Q Q4 kind of what kind of growth assumptions for E. Commerce of just in general for the next couple of years or are you guys working with to build your budget and Vince against and invest against the opportunity I'm. Just thinking are you guys assuming that E.
E Commerce growth remains a goes back to pre COVID-19 levels or stays kind of at an elevated level versus the thank you.
Sure, let me start with the online stores revenue.
You're probably looking at the growth rate.
Of 13% in Q2.
Versus the revenue growth.
Neutral.
Revenue growth rate of 24%.
I would point you back to last year in Q2.
The online stores grew 49% there were restrictions on.
What we stocked in our warehouses in any of you remember we had the constrained space for a lot of third.
Part of sellers as well as our retail offering but the mix shifted for the early part of Q2 last year to be more of a retail mix and an MSI index and then it.
Flip back to be more of a balanced mix of the you'd seen in the past.
On the forward investment here's how to explain it we again we are sitting here.
Here with demand volumes that have gone up.
And then.
Zone fulfill network basis, the doubled in 2 year period. So.
We are not back to where we wanted the on a number of dimensions.
Handled the Q4 last year, we had we've been playing catch up.
Pretty much since the pandemic started.
But what suffered as space and space constraints and Thats.
It's gotten better but at the.
It was the factor last year and also our 1 day delivery percentage has.
Dropped and has not returned to levels seen pre pandemic in the United States. It's on.
The par.
We're getting better than.
Pre pandemic in Europe.
But in the United States, while it's improving it still hasn't reached the pre pandemic level. So we have a lot of growth to do there as far as the the stickiness of purchases.
I think theres certainly a number of things that were purchased last.
The last year that didn't repeat for a lot of retailers things like consumables early on gloves cleaning supplies.
Computer monitors.
So you use the outfit your house you can probably go through your own checklist of purchases and say, okay, I, probably will not do this every year.
But there is.
Then of healthy movement to online commerce.
We have and we've added prime members and the Prime members of we have have have ratcheted up their purchases with us which was always the part of the plan and a good sign it means we're offering them more things that they can buy and satisfying more of their demand.
So even in Q2, when as I said rates are starting to moderate in the quarter.
It was probably remember purchases still grew year over year on the her.
Her prime member basis, they just didn't grow at the same clip that they had in the prior 3 or 4 quarters. So that's a good sign.
And we like the engagement levels.
Levels of the retention levels that we see with prime members. So all in all of very positive.
The story on that front has accelerated the model quite a bit of.
There's just again some comparison issues that we'll just have to realize and perhaps look at the 2 year compounded annual growth.
The need for a period of time to the judge where we are on that.
Progress because there's been a lot of in the Internet, especially with Prime day moving around so hopefully that answers your question.
Your next question comes from the line of Stephen Ju with Credit Suisse. Please proceed with your question.
Thank you so much so Brian.
The pandemic has touched all of what looks like a greater urgency among smbs to accelerate their presence online. So I was wondering if your third party marketplaces platform of seeing perhaps a faster at an influx of more sellers or the emerging brands.
Right and.
Following up on the labor market.
Commentary there do you think you will see any incremental headwinds.
You know of hiring the necessary of people for fulfillment centers this year. Thanks.
Yes.
Steven It's Dave I'll take that first question just around F N B's.
The behavior I think you know look if it's a we've.
We've seen of.
The 20 year progression in terms of building out the services that we thought were resonated with us in our business, but also sought very early on to externalize, those services and offerings to the sellers, particularly small and medium sized businesses over time obviously.
Worthy with FBA and many other features and so I think what you see is really just the continuation of that effort put forth by the teams.
Around whether it's logistics brand representation.
More recently in recent years with some of the advertising features we've been able to develop the surface for.
For all of our selling partners and so I think that's a big area and a big part of the commitment. So I don't know that I'd call out anything specifically in the near term other than to say that we should continue to see great momentum on a unit basis.
Give that metric every quarter about 56 per cent of our <unk>.
Overall.
For all of our total paid units are third party, that's up about 300 basis points year over year.
So you don't expect for us to continue to put forth that effort and FBA around the world.
The for sellers and in some of these other SMB features.
Continue to gain momentum there.
And on the labor comment.
We.
We can't predict too far in the future of we've got you.
Labor estimated in our Q3 guidance I would say it's.
It's a bit of a complicated.
Mix of the economic growth and the industry's opening up the.
The government payments and some areas that may.
The impact People's working and.
And then whether or not children or back to school fully in the fall. So there's a lot of dynamics, we do count.
Count on having more employees.
Q3, and Q4 as you know from our ramp up to the holidays. So I would I would probably count on a wage pressure remaining for the immediate future.
Our next question comes from the line of Ron Josey with JMP. Please proceed with your question.
Great. Thanks for taking the question I wanted to ask on just the international operating income. It's you know if you look at the results. It is now producing consistently positive results here and so can you talk to us a little bit more of just talk to us a little more.
What's driving that is just the result of the most major builds or are now complete and you're seeing the efficiencies in fulfillment centers and so we should see the is trying to continue or is there something else that's driving our international operating income just remaining positive here. Thank you.
Sure Brian Thanks for your question.
Yes, we have had strong.
About the international results in the last.
5 quarters or so.
Noticeably they the positive operating income, which had not been the trend prior to Q2 of last year I would say the major factors here are the acceleration of growth so in some ways.
Strong.
You know the set 2 years outgrowth on top of todays assets.
That's a lot of stress, but it's a lot of leverage of the assets that we have and as we've talked about 4 of our fulfillment centers and operations have been running pretty much at peak since may of last year, starting to mitigate a bit but it's you know.
It's a strong.
Undercurrent.
But having said that we continue to invest in international expansion.
You may have noticed that we added Portugal as the prime country last quarter.
We have investments in Brazil, and India, and the Middle East and a number of countries. So we continue.
To add new countries, having strong performance in our.
More established countries like Europe and Japan.
And.
So it's a bit of a of the.
Ex bag, but right now again the performance is very strong foreign exchange rate has been favorable as.
Well the last few quarters, so that has helped but.
Really really pleased with the.
The performance of our international teams and we will see again it.
Our investment plans, our plans are to make money obviously in the long run, but we have it forward advance prime benefits and a lot of these countries.
Before they would have.
<unk> been able to the see them and if they have run the same trajectory as we did in the U S. So there's a bit of forward investment on prime benefits, especially things like video of that.
We know that resonate with customers and are good for the Prime program and.
To eventually really strong businesses.
Our next question comes from Jason It helps Deane with Oppenheimer. Please proceed with your question.
Thanks, So maybe 1 on Amazon the follow up so Amazon sorry AWP.
And so you saw a 10% sequential growth in the quarter.
You saw that also in the fourth quarter was there anything around reopening that made second quarter AWS exceptionally strong in the we should kind of keep in mind going forward or do we feel like this was kind of a normal quarter for.
Or kind of AWS and this is the kind of a good cadence for the business and then just a follow up just you your maybe your your point about the.
Of the ability to kind of keep up.
Is there any kind of throttling of FBA that that's going on just because.
You don't have the capacity or 2 are you trying to say that you might be losing share to other sellers, who can kind of promise to get an item to the customers faster given still some of the the challenges.
With logistics and last mile and everything thanks.
Yeah, Hi, Jason Thank.
Let me start with that second question No my comments were really about throttling.
Traveling of space last year, which did impact it.
Our vendors and our retail business as well as of third party business is probably more pronounced in Q.
Q2 of last year, especially April and into early May.
As we were working.
Working to get fully staffed and of health are helpful and safe way and also build out more capacity.
In Q4 again, we were handling volumes that were.
Somewhat unheard of.
The year over year, our Q4 growth rate was 42 per cent.
That's usually.
Really not the case and it's.
You know.
It's magnified at peak.
When we're already handling the highest volumes of the year. So.
All I was trying to say was that our space planning and if you will throttling of space for a third price all of this is not something we like to do.
We don't think we're the only ones who had that issue and that's why we're building a building.
Building out our network so.
Quickly in the in our mind, it's hard to do quickly, but we're moving as quickly as possible and again, we have a lot of new capacity being added in the second half of the year.
On the AWS.
Our growth if you look at the run rate last year, we had 33%.
Our growth rate in Q1, and it dropped to 29.29 of 28, the last 3 quarters, there's always a lot of year over year of things, but going on but we do note.
Note that last year there was.
A lot of effort by companies.
W. S limit their spend in and operate more efficiently as we're all plunged into of kind of an unknown demand curve in some industries, we're hurt the worst than others.
If you'll remember we worked.
We actually work very hard with our customers to help them lower their demand for AWS services as best we could.
The match.
Still the new demand patterns. We also helped people scale very quickly companies like Disney plus Netflix and others, where are the very health are glad that AWS was there to help them scale. It could meet volume very quickly. So there's a lot of a mixed bag there we think that.
<unk>.
It was a strong performance this quarter, we do see good trends with new contracts and new clients.
Clients that are either signing up with AWS and making the journey to the cloud are accelerating there.
Germany does cloud.
Or setting up the new longer term contracts with us.
Our final question will come from Justin Post with Bank of America. Please proceed with your question.
Great a couple of no one's really mentioned the CEO change. So I was wondering if he is not on the call, but any change in direction of investment philosophies or any more integration of.
Of AWS or anything that we should be aware of related to that change and then second.
Gross margins really strong revenues the the margins came down quarter over quarter can you just remind us of what drives some of that margin fluctuation. Thank you.
Sure let me start with the second 1 so.
Again at any point.
There's a lot of.
Cross pressures in the operating margins of of AWS, there's growth, which helps us leverage of our assets.
There's increasing the efficiency of our servers and the efficiency of our sales force those are all positives on the flip side, there's price decreases there.
There is.
New contracts signed.
With large players from multiple years, so there's pricing pressure there's also.
The expansion of the sales force and building infrastructure to add new regions globally. So.
As we've said these are these margins are going to bounce around we're happy.
Happy with the Q2 margins I would note that there was a negative impact from foreign exchange that was about 150 basis points.
But even at $28.3 it's a it's a strong margin for this business.
We know it's going to bounce around as we invest.
But also work very hard.
Scale of our businesses in and.
Efficiently run our assets on the.
I had a leadership change.
Sure.
Expect Andy has hit the ground running.
He is continuing to have a very high bar for customer experience.
High standards of operational excellence, our inventiveness willingness the fail and everything else that Amazon is known for internally and externally.
I think we've had a good handoffs are Jeff of course is moving into executive chairman role.
And he will not be leaving he's obviously continue to be.
<unk> solved in.
As we say of the 1 more 1 way door decisions all of.
It's also had a good leadership change at AWS with Adam slips keep coming in Adam himself comes with a lot of Amazon history, and knowledge and external CEO experience that has made him the even stronger.
Very impact so we feel really good about the transition.
Of course, I don't expect any any dropped and expect Andy to add.
At his you know unit.
<unk> brand of a.
Positive attitude and.
As an forward looking our focus to help them.
He comes to keep going and delighting customers.
Thanks for joining us today on the call for your questions. A replay will be available on our IR website for at least 3 months. We appreciate your interest in Amazon and we look forward to talking with you again next quarter.
Amazon.
Yeah.
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