Amazon.com Announces Second Quarter Sales up 22% to $15.70 Billion

Amazon.com, Inc. (NASDAQ: AMZN) today announced financial results for its second quarter ended June 30, 2013.

Operating cash flow increased 41% to $4.53 billion for the trailing twelve months, compared with $3.22 billion for the trailing twelve months ended June 30, 2012. Free cash flow decreased 76% to $265 million for the trailing twelve months, compared with $1.10 billion for the trailing twelve months ended June 30, 2012. Free cash flow for the trailing twelve months ended June 30, 2013 includes fourth quarter 2012 cash outflows for purchases of corporate office space and property in Seattle, Washington, of $1.4 billion.

Common shares outstanding plus shares underlying stock-based awards totaled 474 million on June 30, 2013, compared with 468 million one year ago.

Net sales increased 22% to $15.70 billion in the second quarter, compared with $12.83 billion in second quarter 2012. Excluding the $392 million unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales grew 25% compared with second quarter 2012.

Operating income decreased 26% to $79 million in the second quarter, compared with $107 million in second quarter 2012. The unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter on operating income was $18 million.

Net loss was $7 million in the second quarter, or $0.02 per diluted share, compared with net income of $7 million, or $0.01 per diluted share, in second quarter 2012.

“We’re so grateful to our customers for their response to Kindle devices and our digital ecosystem. This past quarter, our top 10 selling items worldwide were all digital products – Kindles, Kindle Fire HDs, accessories and digital content,” said Jeff Bezos, founder and CEO of Amazon.com. “The Kindle service keeps getting better. The Kindle Store now offers millions of titles including more than 350,000 exclusives that you won’t find anywhere else. Prime Instant Video has surpassed 40,000 titles, including many premium exclusives like Downton Abbey and Under the Dome. And we’ve added more than a thousand books, games, educational apps, movies and TV shows to Kindle FreeTime Unlimited, bringing together in one place all the types of content kids and parents love.”

Highlights

• Amazon and Viacom Inc. announced an expanded multi-year, multi-national digital video licensing agreement to bring hundreds of TV shows and thousands of TV episodes from Viacom to Prime Instant Video, including a collection of TV shows that customers won’t find on any other digital video subscription service. Prime members now have unlimited instant streaming access to popular kids’ titles such as Dora the Explorer and SpongeBob SquarePants, along with top-rated shows from MTV and COMEDY CENTRAL.
• Amazon announced expanded multi-year licensing agreements with NBCUniversal Cable & New Media Distribution and PBS Distribution, bringing popular TV shows to Prime Instant Video such as Grimm, Suits, NOVA, and Masterpiece. Prime Instant Video now includes more than 41,000 movies and TV episodes that are available for Prime members to watch at no additional charge.
• Comedy pilots Alpha House and Betas, along with kids pilots Annebots, Creative Galaxy and Tumbleaf, have been given the greenlight to begin production on a full series of episodes that will air exclusively on Prime Instant Video later this year and in early 2014.
• Amazon announced that since launch, Kindle FreeTime Unlimited has already added more than a thousand books, games, educational apps, movies and TV shows, including popular kids’ titles from Disney, Warner Bros. Interactive Entertainment, Electronic Arts and more. Kindle FreeTime Unlimited brings together for the first time all the types of content kids and parents love into one simple, unlimited, easy-to-use service for kids ages 3-8.
• Amazon announced that the Amazon Appstore is now available to millions of customers in nearly 200 countries, giving them access to apps and games from top brands like Disney and Electronic Arts, new releases including “Angry Birds Friends” and all-time favorites like “Temple Run 2”. Customers around the world can now buy apps and games directly from the Amazon Appstore on Macs, PCs or Android phones and tablets, including Kindle Fire.
• Amazon announced that customers can now use Amazon Coins to purchase apps, games and in-app items in the Amazon Appstore and on Kindle Fire. For customers, Amazon Coins is an easy way to purchase apps and in-app items on Kindle Fire, and for developers it’s another opportunity to drive traffic, downloads and increased monetization. With discounts of up to 10% for purchasing Coins in bulk, it’s also an opportunity for customers to save money on their app and game purchases.
• Amazon Publishing announced Kindle Worlds, the new publishing model that allows any writer to publish authorized stories inspired by popular Worlds and make them available for readers to purchase in the Kindle Store, and earn up to a 35% royalty while doing so.
• Amazon Publishing announced that Oliver Pötzsch has become the first Amazon Publishing author to sell 1 million copies in combined print, audio, and Kindle English language editions worldwide.
• Amazon announced that Kindle Fire HD and Kindle Fire HD 8.9” are now available to customers in over 170 countries and territories around the world through Amazon.com, giving customers access to millions of apps, games, books, audiobooks and magazines, including more than 350,000 books that are exclusive to the Kindle Store.
• Amazon introduced Kindle Paperwhite and Kindle Fire HD in China, available both online at amazon.cn and popular retail locations. Customer response to this launch significantly exceeded expectations and product went out of stock in many retail outlets within the first week.
• Amazon announced that Kindle Fire HD is now available for customers to purchase in Canada at www.amazon.ca and select retailers. In addition, Kindle Paperwhite and Kindle Fire HD are now available for customers to purchase in India at www.amazon.in and select retailers.
• Amazon announced new accessibility features for the free Kindle for iOS reading app, making it easier than ever for blind and visually impaired customers to navigate their Kindle libraries, read and interact with their books and more. Similar accessibility enhancements will be available on additional platforms in the future.
• Amazon announced the launch of its marketplace in India, www.amazon.in, providing customers a convenient and trustworthy online shopping experience and Indian retailers of all sizes a robust and scalable platform to sell their products online with no listing fees and pay-as-you-go fulfillment services.
• Goodreads announced it now has over 20 million members – up from 10 million in less than one year. Goodreads is a leading site for readers and book recommendations that helps people find and share books they love. Goodreads members can discover new books by seeing what their friends are reading or by using the Goodreads Book Recommendation Engine; share ratings and recommendations; track what they have read; and list what they want to read.
• As part of its Amazon Career Choice Program, Amazon is increasing the amount it will pre-pay for hourly employees to pursue associate degrees or vocational certifications. The program is designed to expand the choices available to its employees in well-paying high demand careers, whether its building a career at Amazon or as a step towards a career in another industry, such as computer and information technology, health and sciences, and accounting. Amazon will pre-pay an eligible employee’s tuition up to $3,000 per year or up to $12,000 over four years.
• Amazon Web Services (AWS) became the first major cloud provider to achieve FedRAMP Compliance which recognizes the ability of AWS to meet extensive security requirements and compliance mandates for running sensitive US government applications and protecting data. FedRAMP certification simplifies and speeds the ability for government agencies to evaluate and adopt AWS for a wide range of applications and workloads.

• AWS announced the launch of the AWS Certification Program, which recognizes IT professionals that possess the skills and technical knowledge necessary for building and maintaining applications and services on the AWS Cloud. AWS Certifications help organizations identify candidates and consultants who are proficient at architecting and developing for the cloud.
• AWS further enhanced its security and identity management capabilities across several services – introducing resource-level permissions for Amazon Elastic Compute Cloud (EC2) and Amazon Relational Database Service (RDS), adding identity federation to AWS Identity and Access Management (IAM), extending Amazon Simple Storage Service (S3) Server Side Encryption support to Amazon Elastic Map Reduce (EMR), and adding custom SSL certificate support for CloudFront. These enhancements give customers more granular security controls over their AWS deployments, applications and sensitive data.
• AWS announced it had lowered prices by up to 80% on Amazon EC2 Dedicated Instances, instances that run on single-tenant hardware dedicated to a single customer account. In addition, AWS lowered prices on Amazon RDS instances with On-Demand price reductions of up to 28% and Reserved Instance (RI) price reductions of up to 27%.

Financial Guidance

The following forward-looking statements reflect Amazon.com’s expectations as of July 25, 2013, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates, changes in global economic conditions and consumer spending, world events, the rate of growth of the Internet and online commerce and the various factors detailed below.

Third Quarter 2013 Guidance

• Net sales are expected to be between $15.45 billion and $17.15 billion, or to grow between 12% and 24% compared with third quarter 2012.
• Operating loss is expected to be between $440 million and $65 million, compared to $28 million in third quarter 2012.
• This guidance includes approximately $340 million for stock-based compensation and amortization of intangible assets, and it assumes, among other things, that no additional business acquisitions, investments, restructurings or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates.

A conference call will be webcast live today at 2 p.m. PT/5 p.m. ET, and will be available for at least three months at www.amazon.com/ir. This call will contain forward-looking statements and other material information regarding the Company’s financial and operating results.

These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including, in addition to the factors discussed above, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, fulfillment and data center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains, and develops commercial agreements, acquisitions, and strategic transactions, and risks of fulfillment throughput and productivity. Other risks and uncertainties include, among others, risks related to new products, services, and technologies, system interruptions, government regulation and taxation, payments, and fraud. In addition, the current global economic climate amplifies many of these risks. More information about factors that potentially could affect Amazon.com’s financial results is included in Amazon.com’s filings with the Securities and Exchange Commission (“SEC”), including its most recent Annual Report on Form 10-K and subsequent filings.

Our investor relations website is www.amazon.com/ir and we encourage investors to use it as a way of easily finding information about us. We promptly make available on this website, free of charge, the reports that we file or furnish with the SEC, corporate governance information (including our Code of Business Conduct and Ethics), and select press releases and social media postings.

About Amazon.com

Amazon.com, Inc. (NASDAQ: AMZN), a Fortune 500 company based in Seattle, opened on the World Wide Web in July 1995 and today offers Earth’s Biggest Selection. Amazon.com, Inc. seeks to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices. Amazon.com and other sellers offer millions of unique new, refurbished and used items in categories such as Books; Movies, Music & Games; Digital Downloads; Electronics & Computers; Home & Garden; Toys, Kids & Baby; Grocery; Apparel, Shoes & Jewelry; Health & Beauty; Sports & Outdoors; and Tools, Auto & Industrial. Amazon Web Services provides Amazon’s developer customers with access to in-the-cloud infrastructure services based on Amazon’s own back-end technology platform, which developers can use to enable virtually any type of business. Kindle Paperwhite is the most-advanced e-reader ever constructed with 62% more pixels and 25% increased contrast, a patented built-in front light for reading in all lighting conditions, extra-long battery life, and a thin and light design. The new latest generation Kindle, the lightest and smallest Kindle, now features new, improved fonts and faster page turns. Kindle Fire HD features a stunning custom high-definition display, exclusive Dolby audio with dual stereo speakers, high-end, laptop-grade Wi-Fi with dual-band support, dual-antennas and MIMO for faster streaming and downloads, enough storage for HD content, and the latest generation processor and graphics engine—and it is available in two display sizes—7” and 8.9”. The large-screen Kindle Fire HD is also available with 4G wireless, and comes with a groundbreaking $49.99 introductory 4G LTE data package. The all-new Kindle Fire features a 20% faster processor, 40% faster performance, twice the memory, and longer battery life.

Amazon and its affiliates operate websites, including www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, www.amazon.cn, www.amazon.it, www.amazon.es, www.amazon.com.br and amazon.in. As used herein, “Amazon.com,” “we,” “our” and similar terms include Amazon.com, Inc., and its subsidiaries, unless the context indicates otherwise.

Amazon.com, Inc.

Certain Definitions

Customer Accounts

• References to customers mean customer accounts, which are unique e-mail addresses, established either when a customer places an order or when a customer orders from other sellers on our websites. Customer accounts exclude certain customers, including customers associated with certain of our acquisitions, Amazon Payments customers, Amazon Web Services customers, and the customers of select companies with whom we have a technology alliance or marketing and promotional relationship. Customers are considered active when they have placed an order during the preceding twelve-month period.

Seller Accounts

• References to sellers means seller accounts, which are established when a seller receives an order from a customer account. Sellers are considered active when they have received an order from a customer during the preceding twelve-month period.

Registered Developers

• References to registered developers mean cumulative registered developer accounts, which are established when potential developers enroll with Amazon Web Services and receive a developer access key.

Units

• References to units mean physical and digital units sold (net of returns and cancellations) by us and sellers at Amazon domains worldwide – for example www.amazon.com, www.amazon.co.uk, www.amazon.de, www.amazon.co.jp, www.amazon.fr, www.amazon.ca, www.amazon.cn, www.amazon.it, www.amazon.es, www.amazon.com.br, www.amazon.in, www.diapers.com, www.shopbop.com and www.zappos.com – as well as Amazon-owned items sold through non-Amazon domains. Units sold are paid units and do not include units associated with certain acquisitions, rental businesses, web services or advertising businesses, or Amazon gift certificates.