Q2 FY2022 Earnings Call
AMZN · Preprocessing Report
2022-07-28
Quality
100%
34
Turns
9
Speakers
5
Sections
6
Exchanges
302
Claims
Quality issues

Entities by group 26

e-commerce & cloud 1
Amazoncompany
company executives 2
Brian OlsavskypersonDave Fildesperson
sell-side analysts 6
Doug AnmuthpersonEric SheridanpersonYoussef SqualipersonStephen JupersonBrian NowakpersonJason Helfsteinperson
subscription program 1
Primeproduct
merchant services 1
Buy with Primeproduct
fulfillment service 1
Fulfillment by Amazonproduct
cloud customers/partners 4
Delta Air LinescompanyRiot GamescompanyBritish TelecomcompanyJefferiescompany
streaming service 2
TwitchproductFreeveeproduct
sports broadcast series 1
Thursday Night Footballevent
video content 1
The Lord of the Rings: The Rings of Powerproduct
automotive manufacturer 1
Riviancompany
sports league 1
NFLcompany
delivery vehicles 1
EDVsproduct
advertising format 1
Connected TVtechnology
Ungrouped 2
United StatesotherOmicronother
REPORTING 69PROJECTING 29POSITIONING 107EXPLANATORY 16ANALYST 32

Topics 71

prime×27aws×25advertising×25capital spending×13seller×9cost×8headcount×8revenue×7stock compensation×7infrastructure×6operating income×5leverage×5operation×4fulfillment×4inflation×4guidance×4investment×4bookings×4third-party seller×4workforce×4

Themes 206

investment×6international expansion×6growth×5third quarter×4foreign exchange impact×4mix×4inflation×3fixed cost×3merchant expansion×3q3 outlook×2guidance×2efficiency×2selection×2incremental expenses×2cost pressures×2stock-based×2capital investments×2fulfillment and transportation×2electric×2quarter-over-quarter×2strong growth×2remaining life×2interactive×2third-party sellers×2merchant access×2holiday hiring×2q2 discussion×1inventory and delivery×1consumer×1worldwide growth×1headwind guidance gap×1prior period comparison×1pandemic comparison fading×1normalization×1revenue growth×1pandemic normalization×1compound annual growth×1member spend×1benefit usage×1delivery and inventory×1capacity planning×1q2 progress×1driver of stores business×1more useful and valuable×1premiere×1exclusive access×1strong q2×1unit mix×1fast delivery×1q2 above guidance×1expense reduction×1elevated cost pressure×1network productivity×1labor optimization×1route efficiency×1further improvement×1holiday utilization comparison×1volume step-down×1year-over-year comparison×1network additions×1strategic focus×1sales growth×1run rate×1enterprise and public sector adoption×1customer investment×1infrastructure capacity×1regional expansion and service development×1developer adoption×1customer wins×1profitability×1cost inflation×1equipment finance leases×1technology infrastructure allocation×1full-year outlook×1aws support×1share of capex×1buildout moderation×1prepared remarks×1rivian investment×1delivery fleet×1share adjustment×1q2 2021×1quarterly result×1fulfillment network improvement×1infrastructure investment×1depreciation and fixed assets×1energy costs×1prime video content×1content lineup×1content spending×1merchandise and discounting×1expansion plans×1buildout planning×1warehouses and transportation capacity×1warehouse and transportation capacity×1pre-spending×1timing adjustments×1project deferrals×1quarterly updates×1improvement and costs×1hiring×1discounting pressure×1macroeconomic issue×1energy and electricity costs×1q2 pressures×1inflationary pressure×1employee costs×1as a percent of revenue×1recurring yearly pressure×1technical employees×1macro pressure×1business impact×1outlook management×1cloud trends×1cloud slowdown×1aws slowdown×1aws decline×1future drivers×1operating margin×1margin rate and investment×1margin rate and efficiency gains×1customer commitment and pricing×1revenue and margin volatility×1cloud adoption×1downturn risk×1downturn benefit×1cost optimization×1new industries and government agencies×1current trends×1aws capacity×1global expansion×1customer commitments×1customer service positioning×1continued strength×1lack of segment disclosure×1non-e-commerce advertising×1connected tv and programmatic expansion×1geographic split×1north america mix×1product expansion×1relevant ad experiences×1ad-supported tier×1streaming content engagement×1video ads adoption×1shift to ad-supported content×1freevee and twitch×1streaming tv ads×1macro softness×1customer and brand benefits×1high purchase intent×1measurability×1spend optimization×1brand building×1customer mix×1pricing and selection×1prime eligibility and shipping×1seller enablement×1sellers×1seller customer base×1partnership strength×1prime day participation×1international investment×1international markets×1international improvement×1international content×1u.s. versus international×1market complexities and regulation×1retention and buy with prime×1price increases and retention×1price increases and merchant fees vs inflation×1broader business implications×1fee increase results×1membership and retention×1pricing impact×1program benefits improving×1availability and shipping speed×1new content×1membership base×1member base×1cost coverage×1internal and external factors×1operating improvement×1customer offering strength×1merchant shopping×1delivery and checkout×1online selling×1seller support×1tools and infrastructure×1seller rollout×1workforce reduction×1below guidance×1technical talent×1quarterly hiring×1omicron-related hiring×1year-over-year increase×1pre-pandemic comparison×1adjustments for demand×1stabilization and hiring×1difficult period×1employee attraction×1restricted stock units×1annual rsu grants×1q2 step-up×1headcount growth×1multi-year growth×1tech workers×1

Key Metrics 64

capital expenditures×11headcount×11costs×8revenue×8operating income×7stock-based compensation×6fixed cost leverage×5investment×4net sales×3revenue growth×3incremental costs×3bookings×3operating margin×3availability zones×3growth rate×2stock-based compensation expense×2capital investments×2sales×2guidance×2margin rate×2weighted average remaining life×2percentage mix×2profitability×2retention×2in-stock levels×1headwind×1compound annual growth rate×1spend×1usage×1delivery speed×1units sold×1inflationary pressures×1shipping rates×1productivity×1staffing levels×1package deliveries per hour×1annualized sales run rate×1technology infrastructure spend×1capital spending×1net loss×1valuation loss×1vehicle count×1share×1cost×1ebit×1efficiencies×1gross margin×1adoption×1booking rate×1backlog×1advertising services×1growth×1efficiency×1ad spend×1mix×1margin×1loss×1sign-ups×1membership×1in-stocks×1fee×1rsu grants×1stock-based compensation growth×1wage inflation×1

Entities 484

Amazon×240Brian Olsavsky×131Prime×26Dave Fildes×21Buy with Prime×10Fulfillment by Amazon×6Doug Anmuth×6Eric Sheridan×6Youssef Squali×5Stephen Ju×5Brian Nowak×4Thursday Night Football×3The Lord of the Rings: The Rings of Power×2Rivian×2Twitch×2Freevee×2Jason Helfstein×2United States×2Omicron×2NFL×1Delta Air Lines×1Riot Games×1British Telecom×1Jefferies×1EDVs×1Connected TV×1

Business Segments 110

Amazon Web Services×44International×18Third-Party Seller Services×18Subscription Services×9North America×7Stores×7Advertising Services×7

Sectors 175

consumer internet×63cloud computing×42digital advertising×26logistics×16streaming media×9automotive×4sports media×2telecommunications×2warehousing×2subscription retail×2air transportation×1gaming×1investment banking×1public sector×1audio content×1cable television×1media and entertainment×1

Regions 30

U.S.×6worldwide×3North America×3international markets×3India×2Australia×1Canada×1Israel×1New Zealand×1Spain×1Switzerland×1UAE×1Brazil×1Middle East×1UK×1Germany×1Japan×1international regions×1

Metadata Distributions

Sentiment
positive 99negative 35neutral 119
Temporality
backward 73forward 52current 128
Certainty
definitive 66confident 98moderate 68tentative 19speculative 2
Magnitude
major 30moderate 167minor 56
Direction
improvement 22decline 9mixed 5none 217
Time Horizon
immediate 52near_term 96medium_term 31long_term 8unspecified 66
Verifiability
quantitative 49event 21qualitative 183
Analyst Intent
probing 10challenging 2confirming 10seeking_detail 7seeking_guidance 3

Speakers

Executives
BOBrian OlsavskyCFO
Analysts
BNBrian NowakanalystDADoug AnmuthanalystESEric SheridananalystJHJason HelfsteinanalystSJStephen JuanalystYSYoussef Squalianalyst
Other
DFDave FildesirOPOperatoroperator

Sections

TypeLabelSpeaker
preamblePreambleDave Fildes
prepared_remarksPrepared RemarksBrian Olsavsky
qa_sessionQ&A Session—
closing_remarksClosing RemarksDave Fildes
operator_signoffOperator Sign-offOperator

Q&A Exchanges 6

#AnalystFirmTurns
1
BNBrian Nowak
Morgan Stanley3
2
DADoug Anmuth
JPMorgan9
3
ESEric Sheridan
Goldman Sachs5
4
JHJason Helfstein
Oppenheimer4
5
YSYoussef Squali
Truist Securities4
6
SJStephen Ju
Credit Suisse4

Claim Taxonomy 253

REPORTING69
resultFinancial outcome for a completed period43
metricNon-financial quantitative fact17
operationalDiscrete completed event9
PROJECTING29
guidanceQuantitative expectation with number + time14
commitmentPromise with binary verifiable outcome12
targetLong-term aspirational quantitative goal3
POSITIONING107
strategyPriority, direction, or initiative83
competitiveCompany's position or advantages1
opportunityMarket condition framed as growth driver7
riskHeadwind, constraint, or uncertainty16
EXPLANATORY16
attributionWhy a specific outcome happened5
contextNon-company macro/industry fact11
FRAMING0
thesisFalsifiable belief about how the world works0
ANALYST32
questionInterrogative seeking information18
observationRestates a fact or data point12
concernFlags a risk or challenge1
estimateAnalyst's own projection or calculation1
sentimentOpinion, praise, or critique0

Transcript

Preamble
OP
Operatoroperator
Thank you for standing by. Good day, everyone, and welcome to the Amazon.com Q2 2022 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 Director of Investor Relations, Dave Fildes. Please go ahead.
DF
Dave FildesirAmazon
Hello, and welcome to our Q2 2022 financial results conference call. Joining us today to answer your questions is Brian Olsavsky, our CFO. 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. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2021. Our comments and responses to your questions reflect management's views as of today, July 28, 2022, 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 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 appropriate assumptions.
Our results are inherently unpredictable and may be materially affected by many factors, including uncertainty regarding the impacts of the COVID-19 pandemic, fluctuations in foreign exchange rates, changes in global economic conditions and customer demand and spending, inflation, regional labor market and global supply chain constraints, 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. This guidance also reflects our estimates to date regarding the impacts of the COVID-19 pandemic on our operations, including those discussed in our filings with the SEC. Our guidance also assumes, among other things, that we don't conclude any additional business acquisitions, 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 to Brian.
Prepared Remarks
BO
Brian OlsavskyCFOAmazon
Thanks for joining today's call. Before we get the questions, I'll make some comments about our Q2 performance and the outlook for Q3.
Let's start with Q2. During the quarter, we saw improvement in many of our key operational metrics, including in-stock levels and delivery speed and saw a subsequent step-up in consumer demand. For the quarter, worldwide net sales of $121.2 billion exceeded the top end of our revenue guidance range and represented an increase of 10% year-over-year, excluding approximately 320 basis points of unfavorable impact from changes in foreign exchange rates. This was a larger foreign exchange headwind than the 200 basis point impact we had incorporated into our Q2 guidance.
As a reminder, our revenue growth accelerated to over 40% growth from the period between May 2020 and May 2021. While demand has remained strong, the lapping of this high growth period, depressed our revenue growth rate for the following 12 months ending in May of this year. Our growth rates going forward will no longer require this historical explanation. Q2 of last year was also when vaccines had become more available, particularly in the United States and we began to see more normal shopping patterns. Prime Day also occurred in Q2 last year and contributed about 400 basis points to our Q2 2021 year-over-year revenue growth rate. This year's Prime Day sales event occurred on July 12th and 13th, and is incorporated into our third quarter guidance. As the impacts of the last two years are normalizing, we are happy with how we've served customers and how they have responded. Our compound annual growth, since the start of the pandemic, stands at 25%, a growth rate higher than what we are seeing prior to the pandemic. Prime members have meaningfully increased their spend since the start of the pandemic. Over that period, we've seen stronger usage of Prime benefits by Prime members and a greater reliance on Amazon for their shopping and entertainment.
We continue to improve the customer experience in Q2, including quarter-over-quarter improvements in delivery speed and inventory in stock levels. We have also moved quickly to adjust our staffing levels and improve the efficiency of our significantly expanded operations network. We have slowed our 2022 and 2023 operations expansion plans to better align with expected customer demand. While there's still work to be done, we've made good progress in Q2. Our Prime membership program remains a key driver of our worldwide stores business, and we continue innovating to make the membership even more useful and valuable. That includes the upcoming premier of The Lord of the Rings: The Rings of Power on September 2 and exclusive access to NFL Thursday Night Football games starting September 15. Our seller community also had a strong Q2. Third-party sellers represented 57% of all units sold on Amazon in Q2, the highest percentage ever. Selling partners helped to expand the selection we can offer customers while fulfillment by Amazon provides sellers the ability to offer fast delivery. Operating income was $3.3 billion in the quarter, above the top end of our guidance range. Last quarter, I discussed several cost pressures facing our worldwide stores business; inflationary costs, fulfillment network productivity, and fixed cost deleverage.
Recall that these amounted to approximately $6 billion of incremental costs in Q1 when compared to Q1 2021. We've made solid progress in reducing these costs. For the second quarter, incremental costs were in line with our expectations at approximately $4 billion when compared to Q2 2021.
Inflationary pressures remained at elevated levels in Q2, similar to what we saw in Q1. These include pressures from higher fuel, trucking, air and ocean shipping rates, which we expect will continue into Q3. We made strides to improve fulfillment network productivity in Q2. Staffing levels were more in line with rising Q2 demand, and we saw better optimization of our fulfillment network. On the transportation side, we've continued to improve delivery route density and improve package deliveries per hour. We are encouraged by the progress during the quarter and see opportunity to further improve in the second half of the year.
Lastly, the year-over-year negative impact of fixed cost leverage was relatively consistent with Q1. There are two main drivers when talking about fixed cost leverage.
First is the unfavorable comparison to very high holiday level utilization rates that we saw in the first half of 2021. And second is the normal step down in volumes off of our Q4 peak that we saw in first half of 2022. On the first point, we expect this challenging year-over-year comp will have ended in Q2. On the second point, we expect fixed cost leverage to improve in the second half of the year as we continue to grow into our capacity. We've also taken steps to slow future network capacity additions.
Let's turn to AWS. We saw another strong quarter of innovation and customer engagement in AWS, where net sales were $19.7 billion in Q2, up 33% year-over-year, and now represented an annualized sales run rate of nearly $79 billion. AWS continues to grow at a fast pace, and we believe we are still in the early stages of enterprise and public sector adoption of the cloud. We see great opportunity to continue to make investments on behalf of AWS customers. We continue to invest thoughtfully in new infrastructure to meet capacity needs, while expanding AWS to new regions, developing new services and iterating quickly to enhance existing services. Developers at organizations of all sizes, from governments and not-for-profits to start-ups and enterprises, continue to choose Amazon Web Services. Companies like Delta Air Lines, Riot Games, British Telecom, and Jefferies' Investment Bank to name a few announced new agreements and service launches supported by AWS. AWS operating income was $5.7 billion in Q2. As a reminder, this includes a portion of our seasonal Q2 step-up in stock-based compensation expense. AWS results include a greater mix of these costs, reflecting wage inflation in high demand areas, including engineers and other tech workers as well as increasing technology infrastructure investment to support long-term growth.
Now let's talk about capital investments. As usual, we will discuss the combination of CapEx plus equipment finance leases. In 2021, we incurred approximately $60 billion in capital investments. About 40% of that is comprised of technology infrastructure, primarily supporting AWS as well as our worldwide stores business. Another 30% of the $60 billion was fulfillment capacity and a little less than 25% was for transportation, remaining 5% was comprised of things like corporate space and physical stores. For full-year 2022, we do expect to spend slightly more on capital investments than last year, but the proportion of capital spending shifts among our businesses. We expect technology infrastructure spend to grow year-over-year, primarily to support the rapid growth in innovation we are seeing with AWS. We expect infrastructure to represent a bit more than half of our total capital investments in 2022. For the worldwide stores business, we've continued to moderate our build expectations to better align with customer demand. We expect the fulfillment and transportation dollars spent on capital projects to be lower in 2022 versus the prior year.
Finally, I'd highlight a few additional items. We reported an overall net loss of $2 billion in the second quarter, while we primarily focus our comments on operating income, I point out that this net loss includes a pretax valuation loss of $3.9 billion, which is included in non-operating expense from our common stock investment in Rivian Automotive. In the U.S., we've started making customer deliveries using the Rivian electric delivery vehicles. This rollout is the start of what we expect to be thousands of EDVs in more than 100 cities by the end of the year and 100,000 vehicles across the U.S. by the year 2030. Additionally, note that all of our share and per share information included in our financial materials has been retroactively adjusted to reflect the 20-for-1 stock split, which was effective on May 27th. We also provided our third quarter financial guidance as part of our earnings release. Again, a reminder that this year, our Prime Day sales event occurred on July 12th and 13th, and is incorporated into our third quarter guidance. Prime Day occurred in Q2 in 2021. For revenue, note that our guidance includes an estimated approximately 390 basis points of unfavorable impact from year-over-year change in foreign exchange rates. The estimated FX impact to operating income is not significant. Our third quarter operating income guidance range is zero to $3.5 billion. This compares to Q2 operating income of $3.3 billion. This third quarter guidance assumes, we see approximately $1.5 billion in quarter-over-quarter sequential cost improvement in our fulfillment network operations, which we expect will be largely offset by investments in AWS and additional digital content for Prime members. For AWS, this quarter-over-quarter increases are primarily driven by higher infrastructure investments to support continued strong customer growth, including larger depreciation on a growing fixed asset base. We also expect increased energy costs as we continue to see volatility in utility prices around the world and operating our AWS data centers. Quarter-over-quarter increase in digital content primarily relates to new Prime Video content in Q3, including Thursday Night Football and The Lord of the Rings: The Rings of Power. Thank you. And now let's move on to your questions.
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Q&A Session
Q&A 1/6
OP
Operatoroperator
At this time, we'll now open the call up for questions. [Operator Instructions] Thank you. Our first question comes from Brian Nowak with Morgan Stanley. Please proceed with your question.
BN
Brian NowakanalystMorgan Stanley
Thanks for taking my questions. I have two. The first one, Brian, I wanted to just talk a little bit about the bridge from 2Q to 3Q EBIT guide a little bit.
It sounds like you're going to have revenue up nicely. You talked about the efficiencies of the $1.5 billion quarter-over-quarter and some of the incremental investments in content, et cetera. Where are the other areas where you're sort of investing more to grow and is any of that associated with merchandise margin or step-ups in discounting? That would be the first one. And the second one is kind of going back to your comment about you — how you've slowed 2022 and 2023 operations expansion plans. How should we think about the fulfillment and transportation CapEx sort of looking into the fourth quarter into next year? How far ahead of this build have you gone through for the last, call it, nine months? Thanks.
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BO
Brian OlsavskyCFOAmazon
Sure. Thanks, Brian. Let me start with your second question.
So in any particular year when we're spending capital, a good portion of it, we estimate about 40% this year is being spent in support of warehouses or transportation capacity. That will be opening up and effective in 2023 and beyond. So there's always a pre-spend to keep the — again, the pipeline moving. So when we make adjustments to the time horizon, the impact is not as great as you might expect in the year 2022.
Again, we have moved things out and capital is coming down in those areas as we just mentioned. We'll just have to keep you posted as we go quarter-to-quarter on what our expectations are. On the bridge to Q2 to Q3, so again, you have the — mentioned three items, ops improvement that we see of a $1.5 billion and offsetting that is increased costs in AWS, as we build out depreciation. We also are adding — continuing to add people in that space; product engineers, salespeople, customer support. Speaking more broadly, we know AWS is a huge opportunity to early days in the adoption curve for companies and governments. And we invest with that - with that confidence in mind and customers have responded and we're going to keep investing there. Your comment on discounting, we're not seeing some of the pressures that other people are seeing right now. Our macroeconomic issues are principally on inflation and pretty transparent on that. I think the new thing this quarter is additional pressure on the energy, electricity rates in our data centers because of the ramp up in natural gas prices, if you've seen that. So that's probably the new information and then the other inflationary factors. Well, some of them are coming down slightly. They're still significantly a penalty year-over-year. Other cost pressures are principally on our cost of employees. If you look at our stock-based comp as a percent of revenue, it's gone up 150 basis points quarter-over-quarter, as we stepped up from Q1 to Q2. We see that pattern every year, but we don't see that magnitude and that's where a lot of our wage inflation is for particularly our technical employees.
So there's a certain amount of conservatism always built into this because we are in a very difficult macroeconomic state potentially. Again, we're not seeing it hit our businesses directly. In fact, we're seeing strong growth in sales through the quarter in Q2. But we're cognizant that things could change quickly and we'll see and monitor and that's how we set our forward guidance.
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Q&A 2/6
OP
Operatoroperator
Our next question comes from Doug Anmuth with JPMorgan. Please proceed with your question.
DA
Doug AnmuthanalystJPMorgan
Thanks for taking the questions.
Brian, I wanted to ask about AWS. Some of your peers in the cloud space have talked about some slowdown in booking rates just as customers take longer to work through deal terms and duration. So if you could comment on whether AWS is seeing similar dynamics? And then also when you think about margins, the 35% for AWS in 1Q going to 29% in 2Q, what are some of the puts and takes that we should think about going forward just given decreasing server life benefits and tougher macro environment? Thanks.
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BO
Brian OlsavskyCFOAmazon
Sure, Doug. I'll start with second question. So on margins in AWS, yes, as you mentioned that is dropping sequentially. The margin rate is going to fluctuate and this business is going to be always a factor of new investment and things like the sales force and new regions and infrastructure capacity offset by infrastructure efficiency gains that we see. Pricing issues as we extend contracts, we've seen really good progress with our customer base, longer and longer commitments, really committing to the cloud, some of that comes with credits to help them make their conversion to the cloud and so that the revenue pattern can be, and the margin on that revenue can fluctuate quite a bit quarter-to-quarter, but see a lot of strength in the business right now.
We're very happy with the growth rate. We're happy with the adoption of the cloud. As you hit a potential rough patch in the economy, I think the last time we saw this was back in 2008-ish. And it's hard to draw lessons from that, but we did notice that it did help our cloud business at the time because again, when you're trying to launch a new product or service and you have to face with building your own data center and getting capital for a data center and building it yourself or moving to the cloud and essentially buying incremental infrastructure capacity, the cloud computing really shows its value. So we're prepared — just like when the slowdown in 2020, we are prepared to help customers optimize their costs and will help them any who are scaling down. But we'll also, again, continue to find new customers and new industries including government agencies and happy with that. And if you look again, where our investments been over the last few years and the growth of our sales force and our sales support, it's starting to — it is showing benefits, and we expect that to continue. On your — sorry, your other question was, is that…
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DA
Doug AnmuthanalystJPMorgan
Just about current trends in terms of booking rates…
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BO
Brian OlsavskyCFOAmazon
Got it. I blended into one answer.
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DA
Doug AnmuthanalystJPMorgan
Yes, you blended that.
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BO
Brian OlsavskyCFOAmazon
Yes. Hopefully that covered what you're asking about.
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DA
Doug AnmuthanalystJPMorgan
Yes, it does.
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BO
Brian OlsavskyCFOAmazon
Doug, just to — I mean, just to pile on to that too. I mean, I think just the longer term vision I probably talked about here, we're right now with 84 availability zones. So that's 26 geographic regions, and we've got plans for — to launch 24 more of those availability zones across eight regions. And this is Australia, Canada, India, Israel, New Zealand, Spain, Switzerland, UAE, so a lot of different spots.
And so continuing to focus on building out to customers, working on that pipeline and building longer commitments, making — finding customers that are making longer commitments is really important to that. And just to that point, the backlog figure that we've discussed in the past and disclosed on a quarterly basis on our filings, it's up 65% year-over-year or about 13% quarter-over-quarter and the weighted average remaining life of those long-term commitments that we're talking about here continues to grow. So it's at about 3.9 years on a weighted average remaining life basis. So again, a lot of good work, a lot of still good opportunity out there to come, and as Brian talked about, we're working hard in many facets and investing in that to make sure we're in good position to serve folks.
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Q&A 3/6
OP
Operatoroperator
Our next question comes from Eric Sheridan with Goldman Sachs. Please proceed with your question.
ES
Eric SheridananalystGoldman Sachs
Thanks for taking the questions.
Maybe two-parter on the advertising business, where you saw continued strength. Is there any way to give us an update of how much of the advertising services line at this point is driven by North America e-commerce versus international e-commerce, and how you think about the relative growth rates and advertising going forward between North America and international? And the second part would be away from the e-commerce-driven parts of advertising. How are you feeling about the positioning and the investments you need to make around things like Connected TV and programmatic advertising, where from the outside in it looks like you're continuing to make greater levels of investment and increasing your exposure to a wider array of advertising products? Thanks.
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BO
Brian OlsavskyCFOAmazon
Great. Hi, Eric. Thanks for your questions. I would say on the geographic split, we haven't broken that out.
The majority of advertising revenue is in North America, but having said that, we are making great strides in international as well. And we're also, as you mentioned, expanding our array of advertising products from our consumer websites to video opportunities, Twitch and others. Dave, do you want to take the second part of that?
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Dave FildesirAmazon
Yes.
I think it was — Eric, it was a question around kind of interactive work. I mean, we've got — one of our main priorities is building relevant and engaging ad experiences. And so, we of course, introduced interactive ads last year for streaming video content, things like Freevee. We've got Amazon Music as ad supported tier as well for audio ads. So looking for opportunities like that, where customers can more easily engage with brands while streaming content. So I think there's a lot of good opportunity for that, but what's great, video advertising, as you mentioned, it's still early in that space, it's increasingly coming mainstream and then viewing behaviors have really shifted away from some of the more traditional cable or kind of traditional viewing and advertisers are using our ad- supported content to reach those viewers. So things that are ongoing we've talked about around Freevee, around Twitch, and then of course, some things we're obviously excited about it. Thursday Night Football and Amazon streaming TV ads capabilities that we're going to continue to work with these partners and work with our own kind of technology capabilities to keep building out.
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BO
Brian OlsavskyCFOAmazon
Eric, I'd just add a little more on advertising because you're probably wondering again about softness — potential for softness in that or macroeconomic factors. Right now, we still see strong advertising growth. Again, it's got be a positive both for the customer and for the brand. I think our advantage is that we have highly efficient advertising. People are advertising at the point where customers have their credit cards out and are ready to make a purchase. It's also very measurable. And when people are looking, companies are looking to potentially streamline or optimize their advertising spend, we think our products compete very well in that regard. In addition to maybe longer term things like brand building and brings new selection to bear in front of customers.
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Q&A 4/6
OP
Operatoroperator
Our next question comes from Jason Helfstein with Oppenheimer. Please proceed with your question.
JH
Jason HelfsteinanalystOppenheimer
Thanks. If I can ask two. So you called out just the 3P mix being a kind of highest level, maybe talk about your focus to increase the mix to 3P and how that fits into plans for improved efficiency? And then secondly, on international, how much of the weakness in the margin sequentially was FX-driven? Thank you.
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BO
Brian OlsavskyCFOAmazon
Let me start on your first one. So challenge the premise is a little bit there about incenting mix, sorry, I believe that is how I interpreted your question. We are relatively indifferent as to whether some customer buys a third-party or first-party product from us. We're all about obviously is price selection and convenience. And 3P particularly helps us with selection. And when it's part of FBA can also help as being more Prime eligible and available to ship in one, two days or whatever the Prime offer happens to be. So we're happy with the selection that we've added from third-party sellers. And I think that shows in the percentage mix that you see. We're proud of the investment we've made to build tools and products that allow sellers to be successful on our site.
And it's a great partnership and it's worked really well. Sellers and vendors are also some of our larger advertising customers as well and helps — that advertising helps them surface new selection to our customer base. So it's a very strong partnership and it's been getting stronger. And I think you'll see also that they had a very big part in our Prime Day earlier this month.
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DF
Dave FildesirAmazon
Yes. Jason, on your second question related to the international and the profitability there, reported there's a foreign exchange exposure there on that segment with the operating income, there's included in there about $231 million of unfavorable impact to that segment included in that $1.7 billion loss for the quarter. Just looking — broadly speaking at what's going on with that business and the losses that we're seeing there in the investments, I think it's important to remember it's early in many of our international countries, particularly in some of our emerging or more recent launch countries, places like India, Brazil, the Middle East, there are others as well, of course, but where we've been operating in many of those cases considerably shorter than the tenure we've had in the U.S. In our established international locations, UK, Germany, Japan, over time, we've continued to improve the profitability of that business as we build out and established stronger customer relationships and work on the cost structure and how we serve folks. A lot of that, of course, is driving improvements through our key pillars with price selection and convenience and working with vendors on commercial terms. In our emerging locations, there's a healthy amount of investment we've done to drive expansion. And we expect to continue to do that, given the strong competition across many of these markets and that's investments in Prime Video, not just in some of the flagship shows that are kind of sourced here in the U.S., but also you've seen us continue to push for opportunities for in-country and local language the video content that resonates with customers and can be a meaningful reason people sign-up for the Prime program, engage and renew.
And we're also investing depending on the regions and kind of the local infrastructure [inaudible], whether it's building out payment methods, third-party transportation services, even in some cases, the Internet and the telecom infrastructure. So we're playing a role along with others. It's not just us investing in ways to create and enable that infrastructure to be successful. So those are some of the opportunities and challenges that you think about kind of where we are in the U.S. versus international that are out there. The network complexities, of course, there are some regulatory hurdles and other differences out there. But we think it's important to continue to invest in those opportunities and learn from what we're — not just in what we've done in the history with the U.S., but also in many of these countries and keep that flywheel spinning and continue to serve customers in more efficient ways.
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Q&A 5/6
OP
Operatoroperator
Our next question comes from Youssef Squali with Truist Securities. Please proceed with your question.
YS
Youssef SqualianalystTruist Securities
Great. Thank you. I have two questions. One, can you discuss the impact, the price action you took on Prime, on merchant fees, et cetera, had on retention during the quarter, and do you feel that that's enough to offset the inflationary pressure we're seeing to date? And then on Buy with Prime, I know it's early, but how do you see the rollout of this initiative from it being by invitation only today to all merchants using FBA to — Amazon merchants, et cetera, and just kind of the implications on — broader implications on the business from that initiative? Thank you.
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Brian OlsavskyCFOAmazon
Sure. Thank you, Youssef. So first on the — let's take them one at a time. So on the Prime fee increase earlier in the year, we're happy with the results we're seeing in the Prime program. Prime membership and retention is still strong.
I think that change has been above our expectations positively. And I think the benefit of the program continues to get better and better. And as I mentioned in-stocks never been higher, delivery speed is increasing. So not to mention a lot of the new content, especially on the video side that will be coming in the fall. So we feel good about the program and the state of the Prime members after a very rough couple years of pandemic turmoil.
And we think it's good base to build upon. So on the seller fee again, we added that fee grudgingly in May to compensate for some of the inflationary pressures we're seeing. I don't want to give you the idea that either of those fee increases came close to covering our costs. You can see from our operating results, some of it's internal related, but a lot of it's external factors that they're — we are not passing through that at a 100% to external groups. And it's — we've got to work our way out of the condition we are in and we are making good progress in Q2 and expect to keep pressing on that in the second half of the year, but saw strength in the seller results in Q2, as we mentioned on the percentage mix. So I think, seller business remain strong in an integral part of our customer offering.
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DF
Dave FildesirAmazon
Youssef, this is Dave. On your Buy with Prime question, yes, I mean, right now, it's allowing U.S.-based Prime members to shop directly from merchants on the online stores. And it's what they experience, they expect and kind of come to expect with Amazon that's the fast free delivery that seamless checkout and the free returns on orders that are eligible. Right now the program is available, as you mentioned, invitation-only for merchants that are already using FBA. And it'll expand throughout this year as we'll extend more merchants to invite and participate in the program. We're interested in learning and working with FBA sellers that we've known and had good trust with, but also expanding. And I think as you think about it, merchants, they obviously have a lot of choices on where they're going to sell products. And we have a long history of empowering and helping merchants. We've invested a lot in tools and capabilities, and of course, the delivery capabilities and all the things that go along with that. But that's an opportunity for us to support merchants who may or may not be FBA sellers with the tools and the opportunity just to sell their products online and scale their business and build their brand. And so I think I'm really excited about, of course, getting to be able to launch this program over the last few months and dialing it up for more sellers as the year progresses.
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Q&A 6/6
OP
Operatoroperator
Our final question comes from Stephen Ju with Credit Suisse. Please proceed with your question.
SJ
Stephen JuanalystCredit Suisse
Okay. Thank you. So Brian, I think you just reported a quarter-on-quarter decline on headcount, which was by design after what happened last quarter, but it won't be too long before you are gearing up for the holidays. So how do you think the environment is going to fair for you to be adding headcount? And also the stock-based compensation came in below, where you had guided for the second quarter. So is this a matter of not hitting the hiring goals you were hoping for, or do you think the environment for the hiring of technical and engineering talent is losing up a little bit? Thanks.
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Brian OlsavskyCFOAmazon
Sure, Stephen. Thank you.
On the headcount, yes, I think it was more as we mentioned last quarter — last year — excuse me, in Q1, we added — to give you a flavor for it, we added 14,000 workers in Q1, prior year we had reduced our net headcount by 27,000. So we're pretty transparent about the fact that we had hired a lot of people in Q1 for the coverage of the Omicron variant, luckily that variant subsided and we were left with a higher headcount position that has come down through adjusting our hiring levels and normal attrition and — was pretty much resolved by the end of April or early part of May. So that is dominating the quarter-over-quarter reduction in headcount. I would note that we're still up 188,000 year-over-year and nearly double the headcount of what we had heading into the pandemic in early 2020.
So you're right, there will be adjustments to that as we move forward into more holiday level demand. Right now, we see a stabilization in the workforce, maybe we see good hiring rates. And so I think as you remember, there was a very difficult labor period in the second half of last year, and it didn't arrived kind of quickly out of nowhere. So we're certainly diligent on that and making sure we have a good workplace and an environment that will attract employees.
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Dave FildesirAmazon
And Stephen on your — just to your question on stock-based comp, as you mentioned, we do utilize restricted stock units or RSU as our primary mode of equity compensation. And as we always remind you, employee annual RSU grants do occur in the second quarter.
And as a result, we typically see a step-up in the SBC expense from Q1 to Q2 and of course, you saw it this time around. The growth in the line is impacted overall also on the step-up by continued headcount. We've grown our workforce over the last few years. And as Brian talked about hiring in a number of areas of the business, including engineers, other tech workers, and there's some component of the wage inflation as we look to continue to hire and retain employees there. In terms of the coming in at the five — little over $5 billion for stock-based comp, the main driver there was primarily driven by fewer employees stock awards vested — excuse me, fewer employee stock awards we're vesting in Q2 than we expected.
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Closing Remarks
DF
Dave FildesirAmazon
Thanks for joining us on the call today and for your questions. A replay will be available on our Investor Relations website for at least three months. We appreciate your interest in Amazon, and we look forward to talking with you again, next quarter.
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Operator Sign-off
OP
Operatoroperator
This concludes today's conference call. Thank you all for your participation.