Hello and welcome to our Q2 2007 financial results conference call. Joining us today is Tom Szkutak, our CFO.

Jeff Bezos, our Founder and CEO, and Tom will both be available for Q&A. The following discussion and responses to your questions reflect management's views as of today, July 24, 2007 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 2006 annual report on Form 10-K.

As you listen to today's call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. During this call, we will discuss certain non-GAAP financial measures.

In our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our IR web site, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2006.

Now I will turn the call over to Tom.

Thanks, Kim. I'll begin with comments on our financial results.

Trailing 12-month free cash flow increased 87% to $700 million, while the combination of common stock and stock-based awards outstanding decreased 2% to $435 million. Worldwide revenue grew 35% to $2.89 billion, or 33% excluding the $46 million favorable impact from foreign exchange rates.

Media revenue increased to $1.83 billion, up 27% or 25% excluding foreign exchange rates. EGM revenue increased to $970 million, up 55% or 53% excluding FX.

EGM continued to increase its share of our worldwide sales mix, representing 34% of sales in Q2 of 2007, up from 29% for the same period last year. Our worldwide unit growth was 25%, and active customer accounts exceeded 69 million, up 16% year over year.

Worldwide gross profit was $701 million, up 38%. Gross margin increased 49 basis points to 24.3%, primarily due to the wind down and termination last year of our contract with TRU, which negatively impacted worldwide gross margins in Q2 2006 by approximately 90 basis points and North America gross margin by approximately 170 basis points.

This was offset partially by product mix. Worldwide active seller accounts were over 1.1 million, and third-party units, representing Marketplace and Merchants@ units sold on Amazon sites, were 30% of total units versus 29% in the prior year.

Now I'll discuss operating expenses excluding stock-based compensation. Fulfillment, marketing, tech and content and G&A combined was $536 million or 18.6% of sales, an improvement of 148 basis points year over year.

Fulfillment was $248 million or 8.6% of net sales, up 8 basis points year over year. In the quarter, we announced plans for a new fulfillment center in Phoenix, and we opened up a fulfillment center in Guangzhou, China.

Technology and content was $176 million or 6.1% of net sales, an improvement of 99 basis points year over year as we continue to grow into our new level of spending. In 2007, technology and content will increase in absolute dollars, but we expect the growth rate of our spending in T&C to be significantly less than it was in 2006.

Now I'll talk about our segment results. Consistent with prior periods, we cannot allocate to segments our stock-based compensation or other operating expense line items.

In the North America segment, revenue grew 38% to $1.6 billion. This is the highest growth rate in more than six years.

Media revenue grew 26% to $923 million. EGM revenue grew 66% to $606 million, representing 38% of North America revenues, up from 32%.

We saw another quarter of strong sales in electronics; and revenue from soft goods -- which includes jewelry, apparel, shoes and sporting goods -- doubled year over year. North America gross profit grew 40% to $434 million, and gross margin increased 34 basis points.

North America segment operating income increased 233% to $82 million, a 5.1% operating margin. In the International segment, revenue was $1.28 billion, up 31% year over year or 26% adjusted for the $45 million favorable foreign exchange impact.

Media revenue grew 27% to $910 million or 23% excluding FX. In EGM, revenue grew 40% to $364 million or 34% excluding FX.

International gross profit grew 34% to $267 million or grew 29% excluding FX, while gross margin increased 48 basis points to 20.8%, which reflects increased third-party mix offset partially by lower prices, product mix and free shipping offers. International segment operating income increased 50% to $83 million, a 6.4% operating margin.

Excluding the $3 million favorable impact from foreign exchange rates, International operating income increased 42%. Consolidated segment operating income grew 106% to $165 million or 5.7% of net sales, up 198 basis points year over year.

Unlike CSOI, our GAAP operating income includes stock-based compensation and other operating expense. GAAP operating income grew 149% to $116 million or 4% of net sales.

Our provision for income taxes was $33 million in Q2 or a 30% rate for the quarter, which includes a $4 million year-to-date adjustment to reflect our current estimate of our annual effective tax rate of 26%, which incorporates our strong North America growth. As a reminder, there's potential for significant volatility of our effective tax rate, due to several factors including variability in accurately predicting the amount and mix of tax flow income by jurisdiction.

In 2007, we anticipate cash paid for income taxes will be approximately $25 million, compared to $15 million in 2006, as we continue to benefit from NOLs in the United States. NOL utilization is impacted by many factors, including our excess stock-based compensation deductions.

GAAP net income was $78 million or $0.19 per diluted share, compared with $22 million and $0.05 per diluted share. Turning to the balance sheet, cash and marketable securities were $1.66 billion, an increase of $245 million year over year.

Inventory increased 41% to $735 million, and inventory turns decreased from 14.3 a year ago to 12.9 as we expanded selection and improved in-stock levels across product categories and geographies and introduced new product categories. Our investment in fixed assets, which includes net capitalized software development costs, increased $38 million from a year ago to $443 million.

Our return on invested capital was 39%. ROIC is free cash flow divided by average total assets minus average current liabilities.

I'll conclude my portion of today's call with guidance. Incorporated into our guidance are the order trends that we have seen to date and what we believe today to be appropriately conservative assumptions.

However, there is a high level of uncertainty surrounding exchange rate fluctuations as well as the global economy and consumer spending. It's not possible to accurately predict demand, and therefore our actual results could differ materially from our guidance.

As we described in more detail in our public filings, issues such as marking our euro-denominated debt to market quarterly, intercompany balances in foreign currencies that settle amongst our subsidiaries, unfavorable resolution of legal matters and changes to our effective tax rates can all have a material impact on guidance. Our guidance assumes that we don't record any additional intangible assets or any further revisions to stock-based compensation or our restructuring-related estimates, and that foreign exchange rates remain approximately where they have been recently.

For Q3, we expect net sales of between $3 billion and $3.175 billion or growth of between 30% and 38%. This guidance anticipates greater than 200 basis points of positive impact from foreign exchange.

GAAP operating income to be between $75 million and $110 million or grow between 88% and 175%. This includes approximately $50 million for stock-based compensation and amortization of intangible assets.

We anticipate consolidated segment operating income, which excludes stock-based compensation and other operating expense, to be between $125 million and $160 million, or grow between 73% and 122%. For the calendar year 2007, we expect net sales of between $13.8 billion and $14.3 billion or growth of between 29% and 34%.

This guidance anticipates greater than 200 basis points of positive impact from foreign exchange. GAAP operating income to be between $540 million and $640 million or growth of between 39% and 65%.

This includes approximately $185 million for stock-based compensation and amortization of intangible assets. We anticipate consolidated segment operating income, which excludes stock-based compensation and other operating expense, to be between $725 million and $825 million or grow between 45% and 65%.

We anticipate our 2007 free cash flow growth rate to trend similar to our operating profit growth rate year over year, with some variability from changes in working capital. We expect capital expenditures, including capitalized software development costs, to be approximately $250 million.

We will continue to strive for year-over-year annual growth in free cash flow and free cash flow per share while investing in our long-term opportunities. We're confident that if we continue to improve customer experience and execute efficiently, our value proposition as well as our free cash flow will expand.

With that, I'd like to open it up for questions.

Great. Thanks, Tom.

Let's move on to the Q&A portion of the call with Jeff and Tom. Operator, will you please remind our listeners how to initiate a question?

Dave and Mary here, and we just have really one question. It seems like you saw a pretty strong improvement in gross margin.

I know that there was a one-time impact there, but it also seems that there might be third-party sales at work there which continue to be strong, or so it seems. I guess our question is twofold.

One is, why do you think you're seeing such strong traction in third-party sales right now? How important is this to the improvement of Amazon's gross margins going forward?

In other words, how sustainable do you think this is?

Sure. As it relates to third parties, as we have been mentioning really over the past few years, we have been investing in improving what we call seller platforms, and that's surrounding everything that makes it easier for sellers to sell, which includes third parties as well as ourselves.

So I think what you are seeing is certainly an improvement in third-party sales, third-party units were 30% for the quarter as a percentage of total units, which is up from 29%. Certainly, some of that is the launch of Merchants@ International, which we have mentioned on previous calls.

Certainly, that's what you're seeing there. In terms of the importance of it overall, I'll talk about it in terms of our free cash flow rather than our gross margins.

We think that this model of having us as a seller as well as third-party is very important for customers, and also works for us financially as well. So what the customer sees is they get additional selection that they might not ordinarily get from us by having third parties.

They also get the benefit of seeing where there's overlap, seeing competing sellers on our detail pages which they can select from. So we think the combination of these factors is great for customers and great for shareholders and so we think it should be a meaningful part of our business as we move forward.

You mentioned the third-party business being launched internationally but it looks like the bulk of your acceleration in revenue is from your North American business growing 38% year over year in the first quarter, while International decelerated. So I want to focus in on that.

When we look at the domestic business's acceleration and we drill down, it looks like it accelerated in both media and EGM; EGM being the biggest factor, up 66% versus 51% in the first quarter. My question is very specifically, what drove the most incremental dollars in North American EGM to drive that 66% year-over-year growth, which category?

We're not providing details on the specific categories that make up EGM, but in terms of what's driving it is customers are responding to what they believe is an excellent value proposition which includes low prices, fast delivery and increased selection. As part of that, fast delivery, Prime is certainly a factor.

Prime is a more meaningful part of our overall units during Q2 than it has been previously, so we have more subscribers, as well as they are buying more. So that is certainly a key driver.

One other thing to keep in mind is in addition to those key factors, as you look at year over year specifically for North America, keep in mind that last year Q2 we had the impact of the wind down and determination of TRU, which infected our revenue by approximately $20 million, which we disclosed last year during Q2. So keep that in mind as you look at our overall growth results in EGM as well.

Good quarter, guys. A couple of questions.

As you look at your growth in newer categories, non-media-related, can you talk about, what is the growth a result of? Is it actually more the consumer experience and what Amazon has continued to present to the consumer?

Or do you think it is more the seller economics from a third-party standpoint? Second, as you look at the penetration of third party, it looks like about 50% to 55% of U.S.

units and maybe around 5% to 10% in the UK, given the strength domestically. Can you talk about how do you grow or expand the third-party business internationally?

What are the critical success factors for you to get to a 50/55 split internationally as you see in the U.S.?

In terms of the overall numbers, we have not actually provided any numbers by segment. So the numbers that you are quoting, we haven't provided what the third-party units are by segment.

Overall, it's 30% as a percentage of total. What we have said though is that our North America is higher than International, so there's clearly an opportunity there.

But in terms of how we drive it, it's consistent with what we've said in the past. We are continuously focused on how to make the experience better for customers as well as sellers.

So you're talking about some of the new categories as part of your question. What we're finding is, when you launch a new category you need traffic to those detail pages.

As you get more meaningful traffic to those detail pages, it becomes more attractive for third-party sellers to participate. So that's the best way for us to help our third-party business; it is the same as it is to help our retail business, which is to make that customer experience great.

When we do that, it attracts customers and traffic to our detail pages, which is good for sellers, which ultimately is good for customers, having these offers, as well as investors. So that's how they intertwine.

Jeff, could you provide an update on some of the music and/or video offerings, how Amazon [caller dropped]

Speakerphone, perhaps? If you could pick up.

We just can't hear your question.

Yes, if you could repeat the question?

Sorry, I apologize. An update on some of the digital media offerings, video and what kind of traction you are seeing in that?

Thank you.

On some of the digital media offerings, could you discuss the traction that you are seeing? Is that the question?

Sorry, you are breaking up a little bit.

Yes. We are having a power outage.

It's too early for us to discuss any of the traction we're seeing . As you know, we have Amazon Unbox, which has downloadable videos, and have made arrangements with TiVo so that we can offer customers those videos directly to their TiVo Series 2 and Series 3 Internet-connected boxes.

Then we have announced but not yet launched an MP3 DRM-free music offering that we're very excited about, but you'll have to wait and stay tuned for that.

Can you provide some additional color on the impact of Harry Potter attachments in the quarter? Can you also give us any sense for advertising on the site, the potential impact there?

Because we have been seen more and more advertisements throughout. Thanks.

In terms of the impact of Harry Potter 7, you're relating to Q2? Is that your question?

Yes.

In terms of Harry Potter 7, all of the shipments of the book are happening during Q3 but the associated attachments, our normal practice is to ship those products as they become available. So the impact on Q2 was less than 100 basis points globally.

There's certainly also some traffic in addition to that, which is difficult to quantify what the incremental impact of that is. But in terms of the attachments themselves, it's less than 100 basis points.

Any color on advertising, any impact there? Or not really material yet?

Could you be more specific with your question?

Is advertising becoming a more material line item, would you say, going forward? Because we have been seeing a lot more advertisements throughout the site.

We haven't broken it out. Certainly, we're testing a number of things and seeing how they work.

But that's the way we are thinking about it.

Tom, I was wondering if you could talk a little bit about free cash flow here. One of the great things about Amazon historically is you have managed your share count very well.

It looks like this quarter you issued about 5.8 million shares, compared to last year for the full year you did around 9 million to 10 million, of which you bought back about 6 million or so. How do we think about the use of the free cash flow in 2007 and 2008, as we think about the increase of your shares, having almost doubled over the last three or four months?

To buyback those 10 million shares would cost you north of $750 million. So how should we think about the allocation of the free cash flow going forward?

In terms of just one correction, maybe I might have misheard what you said. In terms of the share repurchase, you mentioned 6 million or 7 million.

We actually purchased 14.5 million shares, which is $500 million over the past year. Maybe I just misheard the way you said it.

I meant calendar year.

Calendar year, okay. In terms of looking forward, what we have said, certainly, is we have Board authorization to purchase up to $500 million worth of shares over the next two years.

We also have an authorization to retire up to $500 million of debt. But what you should expect to see is, similar to what we have done in the past, we're going to think about it very thoughtfully in making sure that we do what is right for shareholders.

We have been very mindful; certainly, we have retired debt that we think is appropriate. We talked about the 14.5 million shares that we repurchased over the past three or four years.

We've also retired some convertible debt that avoided potential dilution of just under 10 million shares. So those are some of the examples of things that we've done in the past.

But going forward, certainly, we will certainly be very mindful and do the right thing from a treasury and corporate finance perspective as we think about those decisions.

Typically, in the past, when EGM has spiked as a percentage of your sales, it's negatively impacted gross margins a little bit. But here, EGM came in at 34% and you still posted some good gross margin upside.

So can you talk more specifically about the drivers within gross margins and also whether the mix within EGM during the quarter was any different than it has been in the past? Thank you.

Sure. In terms of the gross margins, keep in mind gross margins for the quarter were up 50 basis points year over year.

Keep in mind what I mentioned earlier relating to the wind down and termination of TRU, the impact that had on both revenue as well as gross profit and operating profit being a similar amount in terms of that termination. Now, that being said, those categories, meaning toys, baby and videogames, you should assume that as we launch those, those are like other categories that we launch, that when we launch new categories we are pricing our products very competitively and that they are lower gross margins to start with.

So it's not a full impact of that 20 that you are seeing year over year. So those are some of the dynamics related to that.

But in terms of other, we continue to have great low prices for customers. Offsetting that, we continue to be diligent on the COGS side, trying to get additional COGS out.

Also what you're seeing, to make up the balance is specifically around third party, third party being 30% of total units, up from 29%. That's certainly overlapping where some of the toys was certainly third-party business last year, Q3.

So that's taking into account that. So that would have been higher if that wasn't in there, if that makes sense.

So those are some of the key drivers.

A couple things on the operating expense line. It looks like tech expense reaccelerated a bit.

It was up $15 million sequentially. Any new initiatives on the tech side that you're excited about?

Then on the marketing side, it looks like it was up 22% year over year, below revenue growth. Are you seeing some deflation in marketing costs, or could that have been just some Harry Potter traffic benefits that you got in the quarter?

I'll take the marketing one first. Marketing was 2.2% of revenue.

If you look back, really, over the past two to three years, the range has been fairly tight; it has been anywhere from 2.2% to 2.7%. Certainly, this past quarter was at the lower end of that range.

But there's nothing really unusual about that. I wouldn't expect it to, over time, to stay at the lower end of that range as you're thinking about it.

In terms of technology and content, as we have said, we're going to continue to grow technology and content dollars. They were up about 16% year over year.

Certainly, you're seeing some very positive leverage in the quarter due to that, because last year, Q2 was up 63%. So that's the delta that you are seeing, but we continue to invest in digital and web services, improving seller platforms, this category expansion that's included in those numbers as well, and other customer experience things that we are working on.

First, on the web services, you're getting increasing traction there; maybe where you're seeing the best traction, and what do you see as the biggest opportunity, starting with Amazon web services? On the gross margin, domestic right now is about 6% ahead of international.

Any reason we should think that international can't get similar to domestic longer term, assuming that you can get to a similar level of third-party sales? Thank you.

I'll take the web services one, and Tom can take the gross margins one. We are seeing very good early traction in our web services initiatives.

It's one of the areas that we have been investing in over the last couple of years. It's very encouraging to see that traction.

We've got a lot of great customers, and the team that's doing that is creating a lot of value for those customers. They are making it much easier for those customers to do business.

This customer set is developers. A lot of them are start-up companies.

If you are a start-up company building a web scale application, there's a lot of work that has to go into that. A lot of that work is not differentiating.

So it's things like picking the right operating systems, getting your data centers set up and entering into contracts, et cetera, et cetera. There are a lot of decisions to be made and it's kind of a price of admission.

It has to be done well, but it doesn't actually move the ball forward in terms of creating your differentiated product or service. So what Amazon Web Services does is make it easy for people, for developers, start-up companies and bigger companies; we're seeing a wide range of adoption from individuals, start-up companies of a single person to venture capital-funded start-up companies, all the way to very large corporations using these services.

So we're very optimistic about the long-term potential. It's still very early, but we're working very hard on this, and we think it's, in the long-term, a very important business.

We are very, very glad and we feel very lucky to have this new set of customers to work with, these developers.

In terms of the other part of your question related to gross margins, keep in mind that each of the countries that we operate in have their own local competitors. In any given quarter or time period you could have competitive dynamics which would make our gross margins on any particular category either higher or lower.

But that being said, if you step back for a moment, from a structural standpoint, we don't think that there's a lot of differences of why or reasons why that they couldn't be similar over time. So the biggest thing that we need to do is we have a lot more selection today, as we have more categories in our U.S.

web site. We have been expanding our international categories, as you have noticed over the past several years.

But inclusive of the last couple quarters, you should expect to see an additional selection being added and new categories over the next 12 months in international. We talked about the third-party piece being more meaningful in North America versus international and some of the dynamics around that.

So again, as we improve the customer experience, we think that that will be helpful to our international web sites, to bring those closer. As we get more meaningful in terms of size, in terms of negotiating better deals with suppliers, in terms of just higher rebates, just because of the sheer volume that we purchase, we think will get better.

So all those things are helpful as we continue to grow, and we will have the ability to make those closer and closer over time.

Thank you. The question relates to the U.S.

business. There doesn't seem to have been a significant change in new users or new customers to the site, but the revenue growth rate acceleration is certainly meaningful.

So I'm trying to see if you can give some detail, in terms of frequency changes in terms of purchasing patterns of the customer set, within Prime versus your other customers. I ask because the Media category, which is one of the more mature categories of the business, has accelerated now by 1,100 basis points if you go back to September of 2006.

It seems as if that category benefits most from frequency increases of the Prime customer. Thanks.

We haven't disclosed any of the frequency patterns between Prime and non-Prime customers. But certainly, to get back to the drivers of what's helping our North America growth, the value proposition, low prices and fast delivery which includes, certainly, Prime is a big deal for us.

It's certainly having an impact on our overall growth rate and becoming more meaningful as part of our overall units. It's impacting both media categories as well as EGM.

In terms of frequency, we like what we see across the board, but particularly we like what we are seeing in Prime as it relates to frequency, because that's really what the program is designed to do, and that's what we are seeing.

Obviously, your U.S. growth rate is pretty strong.

I was wondering, how should we think about the international business? What are you doing to reaccelerate that business from this level?

Not that the growth rate is bad, but reaccelerate to get to the U.S. level.

Secondly I think, Tom, you touched a little bit about improving gross profit margin in the International market. There's a 700 basis points difference between U.S.

versus International. Could you comment on that, how quickly we can see that gap narrow?

In terms of what are we doing with international, it was some of the things that I mentioned earlier, where we have been launching new categories, increasing selection and focused on improving the overall customer experience. Some of the things that we have done for Amazon.com, our U.S.

website, we're also doing in international. One example of that is we launched Prime in Japan recently, so that's certainly something that we've found certainly meaningful for our U.S.

website and are hopeful for Japan as well. So that's just another example.

But there are many things that we're working on to try to improve the overall customer experience, which includes increased selection. Another one is certainly when we launched Merchants@ International.

We showed the revenue growth. We had, actually, very solid unit growth in International, and one of the reasons why was because of launching Merchants@ International.

So giving customers more additional selection that they didn't have before, on top of our growing retail selection has been helpful. So those are the things that we're working on to try to maximize our growth in International.

Thank you and a good quarter. A lot has been talked about or asked about your third-party business.

If we actually strip out the Toys 'R' Us units or what we estimate as the Toys 'R' Us units last year, we were estimating -- this is the third quarter in a row -- of 50% third-party unit growth. You talked about some of the structural changes you made to Seller Central.

Do you think there has also been an uptick here on how you structured the actual buying experience or enabling sellers to get access to the Buy Box on Amazon on how that has impacted the third-party business? We've heard pretty big upticks in unit volume from sellers that have been able to get inside that box.

If you can talk about that. Secondly, your incremental margin in the quarter was 11%.

That's the highest I've seen in six or seven years. Tom, can you discuss a little bit, are we very quickly going to reach double-digit operating margins or are there other big investments?

If you can talk about some of the other areas you are going to invest in in the next 12 to 18 months? Thanks.

Well, in terms of seller experience, there's a number of things that we're working on with seller experience. I'm not sure really, what you're referring to as it relates to the Buy Box in terms of changes.

But there's a number of things we're working on to improve the seller experience. You mentioned some of them in Seller Central.

Another one which improves the customer experience and we think the seller experience is Fulfilled by Amazon or FBA. That's something that's very, very early for us.

But again, it allows customers to buy from third-party merchants with us as the fulfiller. So that's something that we think is worth noting, even though it's still very early.

So it's a way to improve the seller experience so the seller can focus on all of the other aspect associated with running their business, but not have to worry about the fulfillment side. So we think that that's clearly important.

Again, a number of other seller experience initiatives as well. In terms of the operating margins as we've said in the past, nothing has changed.

Our focus is to grow, to provide a great customer experience which we think will translate into maximizing free cash flow per share, and we are very focused on that over time. In terms of the level of operating margins, we've said that we think that double-digit operating margins are possible.

That's not a projection, but they are possible. But what we're going to do is focus on maximizing free cash flow per share.

If it works out to be that that's double-digit operating margins or some high single digits, that's fine. But again, the way to do that is to drive operating profit dollars, continue to work on leveraging our operating cycle as well as our fixed investment.

We think those are the things that will help us get there.

I would just add on Fulfillment by Amazon, that the early sellers who are using that program, we're getting very positive feedback from them. It does accelerate their sales, because the consumers on Amazon, the buying customers, as soon as a seller starts using Fulfillment by Amazon, the buyers get to enjoy Free Super Saver Shipping; they get to enjoy the privileges of Amazon Prime membership on those items.

So when a seller switches to Fulfillment by Amazon, a lot of the things that customers associate with items sold directly by Amazon all of a sudden apply from a customer experience point of view to those seller-sold items as well. That's a big deal for Amazon Prime members to be able to buy those items.

So, as sellers join Fulfillment by Amazon, they can see an acceleration in sales, because of the improved customer experience of having Amazon do the fulfillment: offer free shipping, offer Fulfillment by Amazon, gift wrapping, next-day air shipment, et cetera, et cetera, all the things that we have worked hard over the last dozen years to get good at, those things automatically become something that's easy for sellers to offer their customers as well.

International growth was good, but not as good as the U.S. I'd like to ask, why was this?

Is it a product mix issue? Could we assume that international will eventually catch up with the U.S.?

It's some of the things that I mentioned earlier in the call. Clearly, we're seeing what I would consider very solid growth in international today, and North America certainly has accelerated.

Again, it's really driven by the value proposition, the pricing as well as fast delivery and fast delivery Prime being the big piece of that. Certainly, one way to help do that, which is what we're doing is in this case, launching Prime in Japan as one example of a way to make that happen.

Also, we have a bigger selection in our North America business or our U.S. website, and we're expanding selection rapidly in our international websites as well.

So that's another way of trying to get an experience that's better and better for customers.

Thank you. In the past, you've talked about using the margin leverage or the incremental leverage that you had in the business as fuel to lower prices and drive more free cash flow growth through the model.

Should we assume that the margin growth that we're seeing here suggests that you guys feel like you have hit the sweet spot as far as lower prices are concerned, and that lower prices from here won't necessarily drive higher free cash flow and that we really should start to expect more margin exchange?

No, you shouldn't assume that. You should assume that we're going to continue to make sure it's a very dynamic environment.

There are many, many competitors out there in each of the categories that we sell in, on all of our websites around the world. Again, so we're going to continue to make sure that we have great prices for customers, and that's critical to the customer experience that we provide.

It's one of the pillars that we have talked frequently about, so ultimately we're trying to make sure that we offer that great value proposition, which includes pricing, and it's the foundation of what we do. Nothing has changed there.

Thank you for joining us on the call today and for your questions. A replay will be available on our Investor Relations website at least through the end of the quarter.

We appreciate your interest in Amazon.com and look forward to talking with you again next quarter.