Hong Kong Helps Mainland Enterprises Control ODI Risks#gerardpocquet

Capture d'écran et source: http://hong-kong-economy-research.hktdc.com/business-news

Wang Xiaogang said before going ahead with the investment, enterprises should assess different aspects of the project concerned (1).

1 Feb 2018

Hong Kong Helps Mainland Enterprises Control ODI Risks

Joint research series on Shanghai-Hong Kong co-operation in capturing Belt and Road opportunities

In tandem with China’s increasing economic activity abroad, mainland enterprises are devoting greater efforts to developing their business worldwide. As well as expanding into international markets through trade and strengthening offshore sourcing to support production at home, many are also making outward direct investment (ODI) in developed economies in Europe and America. Some are seeking investment opportunities in Asian and African countries under the Belt and Road Initiative, in the hope of tapping the potential of these markets or utilising local resources to enhance their production capacity.
But investors are reminded that the support services required in making outward investment and conducting offshore trade are not exactly the same. Investors must acquire an in-depth understanding of the business environment of their investment destinations in order to ensure that their investment projects can be implemented smoothly. The rudimentary legal systems in some Belt and Road countries can create extra risks for investment. Hong Kong’s legal professionals, with their familiarity with overseas legal environments and business cultures, and their access to global resources through their extensive networks, are in an excellent position to provide due diligence services for mainland investors and help them control risks.
Private Enterprises Become Major ODI Players
Nowadays, a large number of private enterprises in China with financial clout are aggressively tapping into international markets and accelerating their offshore investment, in order to make better use of overseas resources and promote the sustainable development of their business. As a result, private enterprises are gradually replacing state-owned enterprises (SOEs) as China’s major ODI players. According to Ministry of Commerce figures, investment from non-SOEs (including private enterprises and joint-stock companies) rose from 19% of China’s non-financial ODI at the end of 2006 to 45.7% at the end of 2016. In 2016 alone, almost 70% of non-financial ODI came from these non-public sector investors[1]. In spite of this, there are still many mainland enterprises which find themselves lacking information on offshore investment, unfamiliar with the business environment in Belt and Road countries, and in dire need of professional services to help them expand their business abroad.

Wang Xiaogang said before going ahead with the investment, enterprises should assess different aspects of the project concerned (2).

In an interview[2], Wang Xiaogang, Partner of King & Wood Mallesons, said: “China’s foreign trade is booming, and many mainland enterprises have been conducting international trade through Shanghai and Hong Kong. They use Hong Kong as a platform to handle business payments and receipts in foreign currencies, and take advantage of the innovative financial policy piloted in the Shanghai Free Trade Zone to move funds in foreign currencies or renminbi in a bid to raise financial and operational efficiency. They have thus become very skillful in trade operations. However, as enterprises make further ODI, relying on trade experience alone can no longer meet their business needs. In addition to considering issues such as business prospects and project financing of the investment concerned, they must also take note of the laws and regulations, tax policy and business environment of their investment destinations. Yet many investors are faced with the problems of insufficient information, language and cultural barriers, as well as a lack of understanding of the business practices of foreign countries, which have directly increased their risks of making offshore investment.”
He added: “Before going ahead with their investment, enterprises should assess different aspects of the project concerned. For instance, if they intend to set up production plants, transit warehouses or distribution facilities overseas, they must gain a good understanding of the business environment, labour policy and environmental requirements in the investment destination before they can identify risks and devise the necessary measures to ensure the smooth implementation of the investment project. Even in a case as simple as establishing a company in Hong Kong, they must first learn about Hong Kong’s immigration policy in order to make arrangements for management staff to come to Hong Kong. They must also have a clear understanding of Hong Kong’s tax policy so as to meet the necessary legal requirements and enjoy the relevant benefits. For example, in the Policy Address delivered by the Chief Executive of the Hong Kong SAR in October 2017, it was announced that the profits tax rate for the first HK$2 million of profits made by Hong Kong companies would be reduced from the current 16.5% to 8.25%, and that eligible R&D expenditure is entitled to 200-300% tax deduction[3]. Moreover, mainland enterprises can use the Hong Kong service platform to carry out tax planning for their international business and avoid unnecessary tax burdens.”
Professional Services Can Help Reduce M&A Risks

Chinese enterprises have been active in conducting M&A overseas in recent years (1).

Mainland enterprises have also been very active in conducting merger and acquisition (M&A) overseas in recent years. Official statistics on foreign investment show that, in 2016, ODI in M&A by Chinese enterprises involved a total of 765 projects in 74 countries and regions. The amount of ODI in M&A projects reached US$86.5 billion, accounting for 44.1% of China’s total ODI in that year. At the same time, project financing funds worth US$48.8 billion were raised overseas, accounting for 36.1% of the M&A amount involved. These foreign M&A projects mainly covered manufacturing, information transmission, software and information technology services, transportation, warehousing and postal services, and power, heat, gas and water generation and supply[4].
Wang said: “The complexity of conducting M&A overseas is no less than that of making general direct investment. Apart from the above-mentioned risk management measures, investors must also have an in-depth understanding of actual conditions such as the equity, financial profile and assets of the M&A project. Investing in Belt and Road countries, especially in less popular destinations, can incur higher transaction risks since some countries may not have a sound legal system and their business practices may not align with international practices. Mainland investors are in great need of professional services to handle these problems. Hong Kong’s legal practitioners have extensive international networks and benefit from Hong Kong’s free flow of information. They can effectively lead professional teams from all over the world to carry out due diligence investigations for mainland enterprises’ investment projects, identifying and assessing problems in order to control investment risks.”

Chinese enterprises have been active in conducting M&A overseas in recent years (2).

Asia-based King & Wood Mallesons is regarded as one of the most innovative law firms in the world. Currently, the firm has a team of over 2,000 legal professionals in 27 cities around the globe. It has set up offices in 11 mainland cities as well as in Hong Kong to help clients understand the business and investment environment in various countries and regions, and offer them the right solutions. King & Wood Mallesons’ Hong Kong office provides a comprehensive range of legal services to multinational corporations, investment banks, mainland enterprises and local clients. Using its lawyers’ professional knowledge and rich experience in the Asian market, King & Wood Mallesons also provides clients with professional services on cross-border transactions.

Note: For details of the company interviews conducted jointly by HKTDC Research and the Shanghai Municipal Commission of Commerce, please refer to other articles in the research series on Shanghai-Hong Kong Co-operation in Capturing Belt and Road Opportunities.

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[1] Source: Statistical Bulletin of China's Outward Foreign Direct Investment 2016
[2] Representatives of HKTDC Research and Shanghai Municipal Commission of Commerce jointly conducted an interview with King & Wood Mallesons (Hong Kong office) in the fourth quarter of 2017.
[3] For details, please refer to The Chief Executive’s 2017 Policy Address, The Hong Kong SAR of the People’s Republic of China.
[4] Source: Statistical Bulletin of China's Outward Foreign Direct Investment 2016

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Overseas Brands Keen to Target Thai Tea and Coffee Niche Markets#gerardpocquet

Capture d'écran et source:http://economists-pick-research.hktdc.com/business-news

Can Thailand's traditional teas and coffees ward off interlopers from across Southeast Asia?

2 Feb 2018

http://economists-pick-research.hktdc.com/business-news

Overseas Brands Keen to Target Thai Tea and Coffee Niche Markets

Although ostensibly over-blessed with many domestic brews and western-style coffee shops, many Southeast Asian suppliers are keen to tempt the voracious thirst of Thai consumers with bespoke brands and proprietary products.

While western-style coffee shops and tea brands pretty much dominate Thailand, there are still a number of niche opportunities to be had at the more bespoke end of the market, at least according to exhibitors at the recent Bangkok Coffee & Tea Culture expo. In particular, there is a growing appetite for organic / healthy brews, as well as novelty flavours and the kind of unusual combinations likely to appeal to a younger market demographic.
One company already happily carving out its own niche at the higher end of the market is Italasia, a Bangkok-based importer of Italian goods, including a variety of food and drink products, as well as a range of catering / hospitality equipment. It was primarily attending the expo to promote the Illy range of coffees and espresso machines in its capacity as the exclusive Thai distributor for the Trieste-based company's products. At present, Illy's range of coffees and its espresso machines are already a feature of many of Thailand's more upmarket hotels and restaurants.
Outlining Italasia's strategy and positioning for the brand, Siriwan Prayoonpong, the company's Senior Barista Trainer, said: "The majority of the young people in Thailand don't really know how a perfect espresso should taste or how it should be produced. Most of them just like their coffee chilled, maybe with ice or added flavourings.
"We see our role as showing them how coffee should be made. We specialise in premium coffees, rather than the novelty coffees on offer in many of the chains."
Hedging its bets somewhat, though, the company has now introduced the Illycrema – a blend of espresso coffee and micro-ice shards. Rebutting the suggestion that the company is diluting its brand, Prayoonpong said: "The Illycrema is a natural product, free from hydrogenated fats, dyes or preservatives. It's our way of appealing to Thai customers who like great coffee, but who also like a little ice with their drink."
Taking a rather different approach was Doi Chaang Coffee, the Bangkok-headquartered producer and distributor of high-quality Arabica coffee from Thailand's northern Chiang Rai region. In addition to its production / distribution activities, the company also operates 50 franchised coffees shops across the country.
Explaining the company's straightforward approach to the sector, Operations Manager, Nont Sumate said: "All of the Doi Chang Coffee shops only offer black coffee. It's not blended and we don't do anything too fancy. We just super-serve people who want black coffee served in a traditional style."
With coffee-drinking such an engrained tradition in Thailand, it's not necessarily easy for overseas businesses – even those based elsewhere in Asia – to make in-roads into the domestic market. This, however, has not deterred Icha Ca Tea & Coffee, a well-established Taiwanese brand, from giving it a good go.
Although the company has been producing traditional teas and coffees for more than 60 years, it didn't open its first branded tea shop until 2012. With this outlet – based in the northwest Taiwanese city of Taoyuan – offering coffee and milk teas at affordable prices, the company has had to learn to keep abreast of the changing tastes of many of its younger customers.
Reflecting on the lessons it has learnt, particularly with regard to tea preferences, Lia Abao, the company's Market Development Manager, said: "Teenagers still like to drink tea, but now they want it blended with fruit or milk. We see our role as giving them exactly what they want. So now we offer a variety of youth-oriented teas, as well as our more traditional range of products.
Among the teas Icha Ca was particularly keen to promote this year were its jasmine green, floral Oolong, Taiwan red Oolong and honey black ranges. The company was also looking to go into partnership with any keen, young individuals seeking to launch their own coffee / tea shops.

Dong Feng: Teen-friendly Taiwan tea.

Grand Berryl's durian-infused coffee range.

Targeting younger consumers was also high on the agenda for Dong Feng Black Tea, another Taiwan-based tea producer. With this in mind, it has recently completed a youth-friendly revamp of all of its packaging, with its new look also emphasising its organic / environmentally-friendly credentials.
Explaining the thinking behind this new look, Amy Li, the company's Chief Executive, said: "We wanted the packaging to reflect the quality of our tea. It is, after all, that quality that has made our teas among the most popular in Taiwan. We also thought it was important, though, to emphasise our commitment to producing specialty teas in as healthy and organic a fashion as we possibly can."
As well as several Taiwanese tea makers, the event also attracted a number of Malaysian manufactures of premium coffee blends, including Penang-based Grand Berryl. The 13-year-old business primarily produces white coffee under the Warehouse Coffee brand and is currently trialing the Thailand market prior to actively expanding into the country. In addition to its regular coffee blend, it also has high hopes that its white coffee / durian [a large spiky fruit native to Southeast Asia] blend may prove a hit with Thai consumers.
Outlining the company's Thai strategy, Managing Director Anthony Khow said: "We hope our white coffee / durian blend will appeal to the country's teenagers, as well as to anyone who enjoys a combination of coffee and fruit. We also hope to sign deals with hotels, supermarkets and other outlets. We are happy to work on an own-label basis, as well as to supply both small and large quantities."
The overseas contingent was rounded off by exhibitors from two other Asian countries – South Korea's Cafe Murisys and Japan's Maruzen Foods. In the case of the latter, the business is a joint venture between Shizuoka-based Maruzen Tea Japan and Singha Park Chiang Rai, a domestic tea plantation.
Keen to explain the joint venture's USP, Sales Executive Tannapat Jiratthanachot said: "We are now the only tea-processing facility in Thailand still using the traditional steaming process that complies with both the HACCP Halal and ISO2200 standards. Overall, we aim to produce high-quality green tea by combining fine ingredients from Thailand with Japanese tea-processing technology.
"Although we have built our reputation on traditional green teas, we are now also developing a range of products targeted at younger tea drinkers. In Thailand, young people like to drink ice tea, while older people want hot tea. With our expanded product range, we are hoping to cater to both demographics."
For its part, Café Murisys is happy to focus solely on the cooler end of the market as part of its mission to bring cold-brew bottled coffee to Thailand. While traditional iced coffees are made by adding ice to pre-boiled coffee, the company's cold brew variant sees the coffee brewed at room temperature or below over a 12-14 hour period.
Clearly evangelical about his company's product, Chief Executive Jack Kang said: "Our cold-brew coffee contains a comparatively low level of caffeine and is UV sterilised to ensure all food-safety standards are met. It's something quite new here, but – as it's both healthy and delicious – we are confident that it will be quirky accepted."

Traditional tea ingredients on show at the Bangkok Coffee & Tea Culture expo.

Coffee & Tea Culture 2017 was held from 5-8 September 2017 at the Bangkok International Trade and Exhibition Center.

Geoff de Freitas, Special Correspondent, Bangkok

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Amazon.com, Inc. (NASDAQ: AMZN) today announced financial results for its fourth quarter ended December 31, 2017.

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Amazon.com Announces Fourth Quarter Sales up 38% to $60.5 Billion

SEATTLE--(BUSINESS WIRE)--Feb. 1, 2018-- Amazon.com, Inc. (NASDAQ: AMZN) today announced financial results for its fourth quarter ended December 31, 2017. Operating cash flow increased 7% to $18.4 billion for the trailing twelve months, compared with $17.3 billion for the trailing twelve months ended December 31, 2016. Free cash flow decreased to $8.4 billion for the trailing twelve months, compared with $10.5 billion for the trailing twelve months ended December 31, 2016. Free cash flow less lease principal repayments decreased to $3.4 billion for the trailing twelve months, compared with $6.5 billion for the trailing twelve months ended December 31, 2016. Free cash flow less finance lease principal repayments and assets acquired under capital leases decreased to an outflow of $1.5 billion for the trailing twelve months, compared with an inflow of $4.7 billion for the trailing twelve months ended December 31, 2016. Common shares outstanding plus shares underlying stock-based awards totaled 504 million on December 31, 2017, compared with 497 million one year ago. Fourth Quarter 2017 Net sales increased 38% to $60.5 billion in the fourth quarter, compared with $43.7 billion in fourth quarter 2016. Excluding the $1.1 billion favorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 36% compared with fourth quarter 2016. Operating income increased 69% to $2.1 billion in the fourth quarter, compared with operating income of $1.3 billion in fourth quarter 2016. Net income was $1.9 billion in the fourth quarter, or $3.75 per diluted share, compared with net income of $749 million, or $1.54 per diluted share, in fourth quarter 2016. The fourth quarter 2017 includes a provisional tax benefit for the impact of the U.S. Tax Cuts and Jobs Act of 2017 of approximately $789 million. Full Year 2017 Net sales increased 31% to $177.9 billion, compared with $136.0 billion in 2016. Excluding the $210 million favorable impact from year-over-year changes in foreign exchange rates throughout the year, net sales increased 31% compared with 2016. Operating income decreased 2% to $4.1 billion, compared with operating income of $4.2 billion in 2016. Net income was $3.0 billion, or $6.15 per diluted share, compared with net income of $2.4 billion, or $4.90 per diluted share, in 2016. “Our 2017 projections for Alexa were very optimistic, and we far exceeded them. We don’t see positive surprises of this magnitude very often — expect us to double down,” said Jeff Bezos, Amazon founder and CEO. “We’ve reached an important point where other companies and developers are accelerating adoption of Alexa. There are now over 30,000 skills from outside developers, customers can control more than 4,000 smart home devices from 1,200 unique brands with Alexa, and we’re seeing strong response to our new far-field voice kit for manufacturers. Much more to come and a huge thank you to our customers and partners.” Highlights In 2017, more than five billion items shipped with Prime worldwide. More new paid members joined Prime in 2017 than any previous year — both worldwide and in the U.S. Fire TV Stick and Echo Dot were the best-selling products in 2017 across all of Amazon. Customers purchased tens of millions of Echo devices last year. The Alexa Skills store now offers more than 30,000 skills, including new developer tools for Alexa Gadgets and gaming experiences, such as Activision’s new Ghost skill for console game Destiny 2. Other new categories of skills include daily beauty podcasts from Hearst, All-Star game voting from the NBA, and more. Customers can also now use Alexa to control more than 4,000 smart home devices from 1,200 unique brands. Amazon launched new ways for developers to earn money building for Alexa, including paid skill content through in-skill purchasing, premium subscription content, and a more frictionless checkout experience with Amazon Pay. New skills offering premium paid content include The Ellen DeGeneres Show’s popular Heads Up! game, The Match Game, and the History Channel’s Ultimate History Quiz. Alexa Voice Service (AVS) adoption among device makers continues to grow. Brands announced new AVS products at the 2018 Consumer Electronics Show, including: new integrations for Alexa on PCs from HP, Acer, ASUS, and Lenovo; a new automotive integration with Toyota; and new devices from Polk Audio, Anker, Jabra, and more. Amazon also introduced new tools and developer kits, including the Alexa Mobile Accessory Kit and Alexa Premium Far-Field Voice Development Kit, to make it easier for developers to bring Alexa to more devices. Amazon hired nearly 130,000 employees globally in 2017, excluding acquisitions. Additionally, Amazon now employs more than 17,500 veterans and military spouses across the U.S., and plans to hire over 10,000 more by 2021. Amazon welcomed several new device makers to the Dash Replenishment program to enable their smart appliances to automatically reorder consumables when supply runs low, including 3M, Hewlett-Packard, Kenmore, and Bluestream. Amazon celebrated the 10th anniversary of Kindle by releasing the all-new Kindle Oasis, the most advanced Kindle with a 7-inch, 300 ppi display, waterproof design, and access to the world’s largest library of audiobooks with Audible support. Since the Kindle launch in November 2007, customers have purchased tens of millions of Kindle e-readers. Amazon announced that the Prime Video app is now available on Apple TV in over 100 countries. Prime members now have more ways to stream award-winning and critically-acclaimed titles, including Amazon Original Movies and Prime Originals. Amazon Studios’ Original movie The Big Sick was nominated for an Academy Award for Best Original Screenplay, written by Emily V. Gordon and Kumail Nanjiani. The Amazon Original Series The Marvelous Mrs. Maisel won two Golden Globes for “Best Television Series - Musical or Comedy” and “Best Actress - Musical or Comedy” (Rachel Brosnahan), as well as two Critics Choice awards for “Best Comedy Series” and “Best Actress in a Comedy Series” (Rachel Brosnahan). Amazon Studios debuted the highly-anticipated second season of The Grand Tour. Additionally, Prime members can look forward to new and returning series this year such as Goliath season two, Sneaky Pete season two, The Man in the High Castle season three, Bosch season four, Mozart in the Jungle season four, and new episodes from The Tick, Tom Clancy’s Jack Ryan, and The Romanoffs. NFL Thursday Night Football on Amazon Prime Video saw a total of 18.4 million views in 11 games. Prime members in more than 200 countries and territories streamed games on living room devices, including smart TVs and Fire TVs, as well as the Prime Video mobile app and the web. CBS All Access is now available through Amazon Channels, the over-the-top streaming subscription program for Prime members. CBS is the first Amazon Channels partner to offer a linear feed of a subscriber’s local broadcast station in addition to video on-demand. Amazon acquired the global television rights to The Lord of the Rings, based on the novels by J.R.R. Tolkien, with a multi-season commitment. Amazon Prime Video continues to launch local Original Series, including Breathe in India, as well as Pastewka and Glory is Gone in Germany. Amazon introduced all-new Alexa experiences built from the ground up for customers in Japan, India, Canada, Australia, and New Zealand. Additionally, Amazon expanded Alexa, Echo, and Amazon Music Unlimited to 30 new countries, offering customers access to tens of millions of songs, thousands of hand-curated playlists and stations, and enabling customers who purchase Echo devices the ability to experience Amazon Music Unlimited with natural voice controls powered by Alexa. Amazon launched two furniture brands: Rivet, offering affordable and versatile mid-century modern furniture ideal for smaller spaces; and Stone & Beam, offering durable and stylish furniture for the modern household. Amazon Go, a new kind of store with no checkout required, is now open to the public in Seattle. The checkout-free shopping experience is made possible by the same types of technologies used in self-driving cars: computer vision, machine learning, and sensor fusion. Fulfillment by Amazon (FBA) shipped billions of items for small and medium-sized businesses, selling on Amazon worldwide in 2017. Amazon launched its retail and third-party marketplace offering in Australia with fast delivery on millions of products, including items from thousands of small and medium-sized businesses. Amazon launched Prime in the Netherlands and Luxembourg, and added the ability for customers in Belgium to join Prime and shop in Dutch. These programs offer members access to unlimited free one-day and two-day delivery, unlimited streaming of Prime Video, Twitch Prime, and early access to Prime Lightning Deals — all for an introductory price of €3.99 per month. Amazon launched Prime in Singapore, offering members access to unlimited free shipping on millions of local and international items, unlimited access to popular movies and TV shows on Prime Video, and video game benefits with Twitch — all for an introductory price of S$2.99 per month. Prime selection in India now offers members more than 25 million local products from third-party sellers. Amazon.com.br continues to expand its third-party marketplace, including the launch of Consumer Electronics, Home & Kitchen, Tools & Home Improvement, and Office Products. Customers in Brazil now have access to hundreds of thousands of products as well as more than 13 million print and digital books. Amazon celebrated its 10th holiday season of Frustration-Free Packaging — an invention designed to reduce waste and delight customers with easy-to-open, 100% recyclable packaging. As of the end of 2017, Amazon’s sustainable packaging innovations have helped to eliminate nearly 215,000 tons of packaging material and 360 million boxes. Amazon, Berkshire Hathaway, and JPMorgan Chase & Co. announced a partnership to address healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs. In December, Amazon’s “Delivering Smiles” holiday tour stopped in over 30 communities where Amazon employees live and work, donating thousands of items to women, children, and families fighting homelessness. For each mile traveled along the delivery route, Amazon donated $1 to the National Alliance to End Homelessness. Amazon reviewed 238 proposals from across the U.S., Canada, and Mexico to host HQ2, the company’s second headquarters in North America, and selected 20 metropolitan areas to move to the next phase of the process. Amazon expects to invest over $5 billion and create as many as 50,000 high-paying jobs at its new second home. Amazon Web Services (AWS) announced several enterprise customers during the quarter: Expedia, Ellucian, and DigitalGlobe are going all-in on AWS; The Walt Disney Company and Turner named AWS their preferred public cloud provider; Symantec will leverage AWS as its strategic infrastructure provider for the vast majority of its cloud workloads; Expedia, Intuit, the National Football League (NFL), Capital One, DigitalGlobe, and Cerner announced they’ve chosen AWS for machine learning and artificial intelligence; and Bristol-Myers Squibb, Honeywell, Experian, FICO, Insitu, LexisNexis, Sysco, Discovery Communications, Dow Jones, and Ubisoft kicked off major new moves to AWS. AWS continued to expand its infrastructure in 2017 to best serve customers, launching a new region in France and a second AWS Region in China during the quarter. AWS plans to open 12 more Availability Zones across four regions (Bahrain, Hong Kong, Sweden, and a second GovCloud Region in the U.S.) between now and early 2019. AWS now operates 52 Availability Zones across 18 infrastructure regions globally. AWS continues to accelerate its pace of innovation with the release of 497 significant new services and features in the fourth quarter, bringing the total number of launches in 2017 to 1,430. AWS announced Amazon SageMaker, a fully managed service that removes the heavy lifting, complexity, and guesswork from each step of the machine learning process, empowering everyday developers and scientists to use machine learning much more expansively and successfully. Amazon SageMaker makes model building and training easier by providing prebuilt development notebooks, popular machine learning algorithms optimized for petabyte-scale datasets, and automatic model tuning, enabling developers to build, train, and deploy models in a single click. Since its launch two months ago, Amazon SageMaker is already helping thousands of developers to easily get started and become competent in building, training, and deploying models. AWS launched EC2 P3 instances which are optimized for machine learning and high performance computing — providing up to six times better performance than any other GPU instances available in the cloud today. P3 instances significantly reduce the time it takes to train machine learning models, providing a substantial boost in agility for developers experimenting and optimizing machine learning applications. The combination of EC2 P3 instances and Amazon SageMaker provide developers and data scientists access to the industry’s most powerful and easy-to-use solution for building machine learning applications. AWS introduced four Artificial Intelligence (AI) services that allow developers to build applications that emulate human-like cognition: Amazon Transcribe for converting speech to text; Amazon Translate for translating text between languages; Amazon Comprehend for understanding relationships and finding insights within text; and Amazon Rekognition Video, a deep-learning powered video analysis service that tracks people, detects activities, and recognizes objects, celebrities, and inappropriate content. AWS launched AWS DeepLens, a deep-learning enabled wireless video camera that pairs an HD camera developer kit with a set of sample projects to help developers learn machine learning concepts, including computer vision and deep learning. AWS introduced several services and capabilities for connected devices at the edge: AWS IoT 1-Click makes it easy for simple devices to trigger AWS Lambda functions that execute a specific action; AWS IoT Device Management helps to securely onboard, organize, monitor, and remotely manage customers’ IoT devices at scale throughout their lifecycle; AWS IoT Device Defender allows customers to secure their fleet of IoT devices on an ongoing basis; AWS IoT Analytics enables customers to cleanse, process, enrich, store, and analyze IoT device data at scale; Amazon FreeRTOS is an IoT operating system for microcontrollers that makes small, low-powered edge devices easy to program, deploy, secure, connect, and maintain; and AWS Greengrass Machine Learning (ML) Inference makes it easy to perform ML inference locally on AWS Greengrass devices even when they are not connected to the cloud. In its second year of availability, the number of databases migrated to AWS in 2017 using the AWS Database Migration Service is accelerating — growing more than 100% over 2016 to a total of more than 54,000 databases migrated since the introduction of the service. AWS launched the Amazon ML Solutions Lab, a program that connects machine learning experts from across Amazon with AWS customers to help identify practical uses of machine learning inside customers’ businesses, and guide them in developing new machine learning-enabled features, products, and processes. The Amazon ML Solutions Lab combines hands-on educational workshops with brainstorming sessions to help customers “work backwards” from business challenges, and understand the step-by-step processes for developing machine learning-based solutions. AWS introduced several new database capabilities: Amazon Aurora Serverless is an on-demand auto-scaling configuration for Amazon Aurora that saves customers time and money by automatically adjusting database capacity to match application needs; Amazon DynamoDB with Global Tables is the first fully managed database service that provides true multi-master, multi-region read and writes, offering high-performance and low-latency for globally distributed applications and users; and Amazon Neptune is a fast, reliable, fully managed graph database service that makes it easy for developers to build and run applications that work with highly connected datasets. AWS announced two new container capabilities that make it easier to deploy, manage, and scale container workloads on AWS. Amazon Elastic Container Service for Kubernetes (Amazon EKS) brings Kubernetes to AWS as a fully managed service, enabling customers to run Kubernetes applications on AWS without the need to become experts in operating Kubernetes clusters. AWS also introduced AWS Fargate that allows customers to launch and run containers without provisioning or managing servers or clusters. AWS launched three new Amazon EC2 instances: the I3 High I/O family introduces a brand new capability with Amazon EC2 Bare Metal instances that enable customers to run workloads directly on AWS hardware, or bring their own hypervisor or virtualization stack; H1 is a new family of Storage Optimized instances designed for applications that require low cost, high disk throughput and high sequential disk I/O access to very large data sets; and M5, the next generation of General Purpose instances, provides higher performance and lower prices for general purpose workloads, delivering even better compute, memory, and networking performance, powered by the latest 2.5 GHz Intel Xeon Platinum 8000 series processors. AWS announced Amazon GuardDuty, a fully managed intelligent threat detection service that helps customers protect their AWS accounts and workloads by continuously monitoring and analyzing account activity for malicious or unauthorized behavior. Amazon GuardDuty applies machine learning to identify anomalies and alert customers. AWS introduced the preview of Amazon S3 Select, which lets customers pull out only the data they need from an S3 object instead of retrieving the entire object, dramatically improving the performance and reducing the cost of applications that need to access data in Amazon S3. AWS also announced Amazon Glacier Select, which allows companies in highly regulated industries to easily query cold, archived data in Amazon Glacier, and unlock new business value for archived data. AWS launched Amazon Sumerian, a new service that makes it easy for any developer to quickly and easily build virtual reality, augmented reality, and 3D applications to run on mobile devices, head-mounted displays, digital signage, or web browsers. Apps created in Amazon Sumerian will run in any browser that supports WebGL or WebVR graphics rendering, including Daydream, HTC Vive, Oculus Rift, and iOS mobile devices. AWS announced AWS Media Services, a family of five integrated broadcast-quality media services that make it easy for video providers of all kinds to create reliable, flexible, and scalable video offerings in the cloud. These five services enable customers to build end-to-end workflows for both live and on-demand video with the professional features, image quality, and reliability needed to deliver premium video experiences to viewers across a multitude of devices. By combining the proven video solutions from AWS Elemental with the security, durability, availability, and scalability of AWS, video providers can focus on innovating and making great content instead of spending time building and maintaining on-premises video infrastructure. AWS launched Alexa for Business, a new service that brings Alexa into the workplace to help employees be more productive and organized on both personal and shared Echo devices by simply using their voice. Employees can use Alexa for Business to find an open conference room, make phone calls, check calendars, schedule and start meetings, manage to-do lists, set reminders, and even find information in popular business applications like Salesforce, Concur, or Splunk. At re:Invent, AWS and VMware Inc. announced that VMware Cloud on AWS is expanding availability from the U.S. West (Oregon) region to include the AWS U.S. East (N. Virginia) region. AWS also announced additional VMware capabilities and support for more AWS services, making it even easier for customers to move, run, and protect mission-critical applications at scale. Financial Guidance The following forward-looking statements reflect Amazon.com’s expectations as of February 1, 2018, 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 customer spending, world events, the rate of growth of the Internet, online commerce, and cloud services, and the various factors detailed below. First Quarter 2018 Guidance Net sales are expected to be between $47.75 billion and $50.75 billion, or to grow between 34% and 42% compared with first quarter 2017. This guidance anticipates a favorable impact of approximately $1.2 billion or 330 basis points from foreign exchange rates. Operating income is expected to be between $300 million and $1.0 billion, compared with $1.0 billion in first quarter 2017. This guidance assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded. A conference call will be webcast live today at 2:30 p.m. PT/5:30 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 and services sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income or other taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of legal proceedings and claims, fulfillment, sortation, delivery, and data center optimization, risks of inventory management, seasonality, the degree to which the Company enters into, maintains, and develops commercial agreements, proposed and completed acquisitions and strategic transactions, payments risks, 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, 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, which may contain material information about us, and you may subscribe to be notified of new information posted to this site. About Amazon Amazon is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking. Customer reviews, 1-Click shopping, personalized recommendations, Prime, Fulfillment by Amazon, AWS, Kindle Direct Publishing, Kindle, Fire tablets, Fire TV, Amazon Echo, and Alexa are some of the products and services pioneered by Amazon. For more information, visit www.amazon.com/about and follow @AmazonNews.   AMAZON.COM, INC. Consolidated Statements of Cash Flows (in millions)     Three Months Ended December 31,   Twelve Months Ended December 31, 2016   2017 2016   2017 (unaudited) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 13,656 $ 12,767 $ 15,890 $ 19,334 OPERATING ACTIVITIES: Net income 749 1,856 2,371 3,033 Adjustments to reconcile net income to net cash from operating activities: Depreciation of property and equipment, including internal-use software and website development, and other amortization, including capitalized content costs 2,297 3,498 8,116 11,478 Stock-based compensation 887 1,179 2,975 4,215 Other operating expense, net 31 56 160 202 Other expense (income), net 21 (5 ) (20 ) (292 ) Deferred income taxes (282 ) (308 ) (246 ) (29 ) Changes in operating assets and liabilities: Inventories (1,043 ) (2,255 ) (1,426 ) (3,583 ) Accounts receivable, net and other (1,924 ) (2,781 ) (3,367 ) (4,786 ) Accounts payable 7,283 8,907 5,030 7,175 Accrued expenses and other 2,254 2,061 1,724 283 Unearned revenue 714   136   1,955   738   Net cash provided by (used in) operating activities (1) 10,987 12,344 17,272 18,434 INVESTING ACTIVITIES: Purchases of property and equipment, including internal-use software and website development (2,414 ) (3,619 ) (7,804 ) (11,955 ) Proceeds from property and equipment incentives 409 583 1,067 1,897 Acquisitions, net of cash acquired, and other (3 ) (81 ) (116 ) (13,972 ) Sales and maturities of marketable securities 1,233 3,564 4,733 9,988 Purchases of marketable securities (3,399 ) (2,479 ) (7,756 ) (13,777 ) Net cash provided by (used in) investing activities (4,174 ) (2,032 ) (9,876 ) (27,819 ) FINANCING ACTIVITIES: Proceeds from long-term debt and other 537 61 621 16,231 Repayments of long-term debt and other (84 ) (1,170 ) (354 ) (1,372 ) Principal repayments of capital lease obligations (1,004 ) (1,472 ) (3,860 ) (4,799 ) Principal repayments of finance lease obligations (41 ) (66 ) (147 ) (200 ) Net cash provided by (used in) financing activities (1) (592 ) (2,647 ) (3,740 ) 9,860 Foreign currency effect on cash and cash equivalents (543 ) 90   (212 ) 713   Net increase (decrease) in cash and cash equivalents 5,678   7,755   3,444   1,188   CASH AND CASH EQUIVALENTS, END OF PERIOD $ 19,334   $ 20,522   $ 19,334   $ 20,522   SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest on long-term debt $ 144 $ 174 $ 290 $ 328 Cash paid for interest on capital and finance lease obligations 61 84 206 319 Cash paid for income taxes, net of refunds 95 92 412 957 Property and equipment acquired under capital leases 2,038 2,770 5,704 9,637 Property and equipment acquired under build-to-suit leases 416 843 1,209 3,541 ______________________________ (1)   As a result of accounting guidance adopted in Q1 2017, we retrospectively adjusted our consolidated statements of cash flows to reclassify excess tax benefits of $336 million for the three-months ended December 31, 2016 and $829 million for the twelve-months ended December 31, 2016 from financing activities to operating activities.   AMAZON.COM, INC. Consolidated Statements of Operations (in millions, except per share data)     Three Months Ended December 31,   Twelve Months Ended December 31, 2016   2017 2016   2017 (unaudited) Net product sales $ 30,629 $ 41,325 $ 94,665 $ 118,573 Net service sales 13,112   19,128   41,322   59,293   Total net sales 43,741 60,453 135,987 177,866 Operating expenses: Cost of sales 28,958 38,494 88,265 111,934 Fulfillment 5,719 8,974 17,619 25,249 Marketing 2,513 3,440 7,233 10,069 Technology and content 4,545 6,314 16,085 22,620 General and administrative 717 1,044 2,432 3,674 Other operating expense, net 34   60   167   214   Total operating expenses 42,486   58,326   131,801   173,760   Operating income 1,255 2,127 4,186 4,106 Interest income 30 66 100 202 Interest expense (133 ) (339 ) (484 ) (848 ) Other income (expense), net 14   18   90   346   Total non-operating income (expense) (89 ) (255 ) (294 ) (300 ) Income before income taxes 1,166 1,872 3,892 3,806 Provision for income taxes (414 ) (16 ) (1,425 ) (769 ) Equity-method investment activity, net of tax (3 ) —   (96 ) (4 ) Net income $ 749   $ 1,856   $ 2,371   $ 3,033   Basic earnings per share $ 1.57   $ 3.85   $ 5.01   $ 6.32   Diluted earnings per share $ 1.54   $ 3.75   $ 4.90   $ 6.15   Weighted-average shares used in computation of earnings per share: Basic 476   483   474   480   Diluted 486   496   484   493     AMAZON.COM, INC. Consolidated Statements of Comprehensive Income (in millions)     Three Months Ended December 31,   Twelve Months Ended December 31, 2016   2017 2016   2017 (unaudited) Net income $ 749 $ 1,856 $ 2,371 $ 3,033 Other comprehensive income (loss): Foreign currency translation adjustments, net of tax of $(68), $10, $(49), and $5 (412 ) 47 (279 ) 533 Net change in unrealized gains (losses) on available-for-sale securities: Unrealized gains (losses), net of tax of $22, $4, $(12), and $5 (54 ) (29 ) 9 (39 ) Reclassification adjustment for losses (gains) included in “Other income (expense), net,” net of tax of $0, $0, $0, and $0 3   (1 ) 8   7   Net unrealized gains (losses) on available-for-sale securities (51 ) (30 ) 17   (32 ) Total other comprehensive income (loss) (463 ) 17   (262 ) 501   Comprehensive income $ 286   $ 1,873   $ 2,109   $ 3,534     AMAZON.COM, INC. Segment Information (in millions)     Three Months Ended December 31,   Twelve Months Ended December 31, 2016   2017 2016   2017 (unaudited) North America Net sales $ 26,240 $ 37,302 $ 79,785 $ 106,110 Operating expenses 25,424   35,610   77,424   103,273   Operating income $ 816   $ 1,692   $ 2,361   $ 2,837     International Net sales $ 13,965 $ 18,038 $ 43,983 $ 54,297 Operating expenses 14,452   18,957   45,266   57,359   Operating income (loss) $ (487 ) $ (919 ) $ (1,283 ) $ (3,062 )   AWS Net sales $ 3,536 $ 5,113 $ 12,219 $ 17,459 Operating expenses 2,610   3,759   9,111   13,128   Operating income $ 926   $ 1,354   $ 3,108   $ 4,331     Consolidated Net sales $ 43,741 $ 60,453 $ 135,987 $ 177,866 Operating expenses 42,486   58,326   131,801   173,760   Operating income 1,255 2,127 4,186 4,106 Total non-operating income (expense) (89 ) (255 ) (294 ) (300 ) Provision for income taxes (414 ) (16 ) (1,425 ) (769 ) Equity-method investment activity, net of tax (3 ) —   (96 ) (4 ) Net income $ 749   $ 1,856   $ 2,371   $ 3,033     Segment Highlights: Y/Y net sales growth: North America 22 % 42 % 25 % 33 % International 18 29 24 23 AWS 47 45 55 43 Consolidated 22 38 27 31 Net sales mix: North America 60 % 62 % 59 % 60 % International 32 30 32 30 AWS 8   8   9   10   Consolidated 100 % 100 % 100 % 100 %   AMAZON.COM, INC. Consolidated Balance Sheets (in millions, except per share data)     December 31, 2016   December 31, 2017   ASSETS Current assets: Cash and cash equivalents $ 19,334 $ 20,522 Marketable securities 6,647 10,464 Inventories 11,461 16,047 Accounts receivable, net and other 8,339   13,164   Total current assets 45,781 60,197 Property and equipment, net 29,114 48,866 Goodwill 3,784 13,350 Other assets 4,723   8,897   Total assets $ 83,402   $ 131,310   LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 25,309 $ 34,616 Accrued expenses and other 13,739 18,170 Unearned revenue 4,768   5,097   Total current liabilities 43,816 57,883 Long-term debt 7,694 24,743 Other long-term liabilities 12,607 20,975 Commitments and contingencies Stockholders’ equity: Preferred stock, $0.01 par value: Authorized shares — 500 Issued and outstanding shares — none — — Common stock, $0.01 par value: Authorized shares — 5,000 Issued shares — 500 and 507 Outstanding shares — 477 and 484 5 5 Treasury stock, at cost (1,837 ) (1,837 ) Additional paid-in capital 17,186 21,389 Accumulated other comprehensive loss (985 ) (484 ) Retained earnings 4,916   8,636   Total stockholders’ equity 19,285   27,709   Total liabilities and stockholders’ equity $ 83,402   $ 131,310     AMAZON.COM, INC. Supplemental Financial Information and Business Metrics (in millions, except per share data) (unaudited)     Q3 2016   Q4 2016   Q1 2017   Q2 2017   Q3 2017   Q4 2017   Y/Y % Change Cash Flows and Shares             Operating cash flow — trailing twelve months (TTM) (1) $ 15,004 $ 17,272 $ 17,634 $ 17,885 $ 17,077 $ 18,434 7 % Operating cash flow — TTM Y/Y growth 51 % 43 % 53 % 37 % 14 % 7 % N/A Purchases of property and equipment, including internal-use software and website development, net of proceeds from property and equipment incentives — TTM $ 6,040 $ 6,737 $ 7,417 $ 8,207 $ 9,027 $ 10,058 49 % Principal repayments of capital lease obligations — TTM $ 3,579 $ 3,860 $ 3,891 $ 4,003 $ 4,331 $ 4,799 24 % Principal repayments of finance lease obligations — TTM $ 131 $ 147 $ 155 $ 170 $ 175 $ 200 36 % Property and equipment acquired under capital leases — TTM $ 4,998 $ 5,704 $ 6,717 $ 8,019 $ 8,905 $ 9,637 69 % Free cash flow — TTM (1) (2) $ 8,964 $ 10,535 $ 10,217 $ 9,678 $ 8,050 $ 8,376 (20 )% Free cash flow less lease principal repayments — TTM (1) (3) $ 5,254 $ 6,528 $ 6,171 $ 5,505 $ 3,544 $ 3,377 (48 )% Free cash flow less finance lease principal repayments and assets acquired under capital leases — TTM (1) (4) $ 3,835 $ 4,684 $ 3,345 $ 1,489 $ (1,030 ) $ (1,461 ) (131 )% Invested capital (5) $ 36,722 $ 39,126 $ 42,114 $ 45,537 $ 52,690 $ 60,368 54 % Common shares and stock-based awards outstanding 496 497 497 502 503 504 1 % Common shares outstanding 475 477 478 480 482 484 1 % Stock-based awards outstanding 21 20 20 22 21 20 1 % Stock-based awards outstanding — % of common shares outstanding 4.4 % 4.2 % 4.1 % 4.5 % 4.4 % 4.2 % N/A Results of Operations Worldwide (WW) net sales $ 32,714 $ 43,741 $ 35,714 $ 37,955 $ 43,744 $ 60,453 38 % WW net sales — Y/Y growth, excluding F/X 29 % 24 % 24 % 26 % 33 % 36 % N/A WW net sales — TTM $ 127,993 $ 135,987 $ 142,572 $ 150,123 $ 161,154 $ 177,866 31 % WW net sales — TTM Y/Y growth, excluding F/X 28 % 28 % 26 % 26 % 27 % 31 % N/A Operating income $ 575 $ 1,255 $ 1,005 $ 628 $ 347 $ 2,127 69 % FX impact — favorable (unfavorable) $ 8 $ 7 $ (31 ) $ (38 ) $ (39 ) $ (33 ) N/A Operating income — Y/Y growth (decline), excluding F/X 40 % 13 % (3 )% (48 )% (33 )% 72 % N/A Operating margin — % of WW net sales 1.8 % 2.9 % 2.8 % 1.7 % 0.8 % 3.5 % N/A Operating income — TTM $ 4,040 $ 4,186 $ 4,120 $ 3,462 $ 3,234 $ 4,106 (2 )% Operating income — TTM Y/Y growth (decline), excluding F/X 128 % 83 % 34 % (9 )% (17 )% 1 % N/A Operating margin — TTM % of WW net sales 3.2 % 3.1 % 2.9 % 2.3 % 2.0 % 2.3 % N/A Net income $ 252 $ 749 $ 724 $ 197 $ 256 $ 1,856 148 % Net income per diluted share $ 0.52 $ 1.54 $ 1.48 $ 0.40 $ 0.52 $ 3.75 143 % Net income — TTM $ 2,105 $ 2,371 $ 2,583 $ 1,922 $ 1,926 $ 3,033 28 % Net income per diluted share — TTM $ 4.38 $ 4.90 $ 5.31 $ 3.94 $ 3.94 $ 6.15 26 % ______________________________ (1)   As a result of accounting guidance adopted in Q1 2017, we retrospectively adjusted our consolidated statements of cash flows to reclassify excess tax benefits from financing activities to operating activities. The amount of the adjustment was $401 million for TTM Q3 2016 and $829 million for TTM Q4 2016. (2) Free cash flow is cash flow from operations reduced by “Purchases of property and equipment, including internal-use software and website development, net of proceeds from property and equipment incentives,” which both are included in cash flow from investing activities. (3) Free cash flow less lease principal repayments is free cash flow reduced by “Principal repayments of capital lease obligations,” and “Principal repayments of finance lease obligations,” which are included in cash flow from financing activities. (4) Free cash flow less finance lease principal repayments and assets acquired under capital leases is free cash flow reduced by “Principal repayments of finance lease obligations,” which is included in cash flow from financing activities, and property and equipment acquired under capital leases. In this measure, property and equipment acquired under capital leases is reflected as if these assets had been purchased with cash, which is not the case as these assets have been leased. (5) Average Total Assets minus Current Liabilities (excluding current portion of Long-Term Debt and current portion of capital lease obligations and finance lease obligations) over five quarter ends.   AMAZON.COM, INC. Supplemental Financial Information and Business Metrics (in millions) (unaudited)     Q3 2016   Q4 2016   Q1 2017   Q2 2017   Q3 2017   Q4 2017   Y/Y % Change Segments             North America Segment: Net sales $ 18,874 $ 26,240 $ 20,992 $ 22,370 $ 25,446 $ 37,302 42 % Net sales — Y/Y growth, excluding F/X 26 % 22 % 23 % 27 % 35 % 42 % N/A Net sales — TTM $ 75,045 $ 79,785 $ 83,781 $ 88,476 $ 95,048 $ 106,110 33 % Operating Income: Operating income $ 255 $ 816 $ 596 $ 436 $ 112 $ 1,692 107 % FX impact — favorable (unfavorable) $ 6 $ 11 $ 4 $ 11 $ (12 ) $ (8 ) N/A Operating income — Y/Y growth (decline), excluding F/X 34 % 26 % 1 % (40 )% (51 )% 108 % N/A Operating margin — % of North America net sales 1.3 % 3.1 % 2.8 % 1.9 % 0.4 % 4.5 % N/A Operating income — TTM $ 2,182 $ 2,361 $ 2,369 $ 2,102 $ 1,960 $ 2,837 20 % Operating margin — TTM % of North America net sales 2.9 % 3.0 % 2.8 % 2.4 % 2.1 % 2.7 % N/A International Segment: Net sales $ 10,609 $ 13,965 $ 11,061 $ 11,485 $ 13,714 $ 18,038 29 % Net sales — Y/Y growth, excluding F/X 28 % 23 % 21 % 22 % 28 % 22 % N/A Net sales — TTM $ 41,860 $ 43,983 $ 45,477 $ 47,119 $ 50,224 $ 54,297 23 % Operating income (loss): Operating income (loss) $ (541 ) $ (487 ) $ (481 ) $ (724 ) $ (936 ) $ (919 ) 89 % FX impact — favorable (unfavorable) $ 22 $ 5 $ (32 ) $ (59 ) $ (13 ) $ 20 N/A Operating income/loss — Y/Y growth (decline), excluding F/X 171 % 354 % 272 % 393 % 71 % 93 % N/A Operating margin — % of International net sales (5.1 )% (3.5 )% (4.4 )% (6.3 )% (6.8 )% (5.1 )% N/A Operating income (loss) — TTM $ (905 ) $ (1,283 ) $ (1,644 ) $ (2,233 ) $ (2,629 ) $ (3,062 ) 139 % Operating margin — TTM % of International net sales (2.2 )% (2.9 )% (3.6 )% (4.7 )% (5.2 )% (5.6 )% N/A AWS Segment: Net sales $ 3,231 $ 3,536 $ 3,661 $ 4,100 $ 4,584 $ 5,113 45 % Net sales — Y/Y growth, excluding F/X 55 % 47 % 43 % 42 % 42 % 44 % N/A Net sales — TTM $ 11,088 $ 12,219 $ 13,314 $ 14,529 $ 15,882 $ 17,459 43 % Operating income: Operating income $ 861 $ 926 $ 890 $ 916 $ 1,171 $ 1,354 46 % FX impact — favorable (unfavorable) $ (20 ) $ (9 ) $ (3 ) $ 10 $ (14 ) $ (45 ) N/A Operating income — Y/Y growth, excluding F/X 106 % 61 % 48 % 26 % 38 % 51 % N/A Operating margin — % of AWS net sales 26.6 % 26.2 % 24.3 % 22.3 % 25.5 % 26.5 % N/A Operating income — TTM $ 2,762 $ 3,108 $ 3,395 $ 3,593 $ 3,903 $ 4,331 39 % Operating margin — TTM % of AWS net sales 24.9 % 25.4 % 25.5 % 24.7 % 24.6 % 24.8 % N/A   AMAZON.COM, INC. Supplemental Financial Information and Business Metrics (in millions, except employee data) (unaudited)     Q3 2016   Q4 2016   Q1 2017   Q2 2017   Q3 2017   Q4 2017   Y/Y % Change Net Sales:             Online stores (1) $ 21,590 $ 29,548 $ 22,826 $ 23,754 $ 26,392 $ 35,383 20 % Online stores — Y/Y growth, excluding F/X 20 % 16 % 16 % 18 % 22 % 17 % N/A Physical stores (2) $ 1,276 $ 4,522 N/A Third-party seller services (3) $ 5,652 $ 7,456 $ 6,438 $ 6,991 $ 7,928 $ 10,523 41 % Third-party seller services — Y/Y growth, excluding F/X 46 % 39 % 36 % 40 % 40 % 38 % N/A Subscription services (4) $ 1,532 $ 2,130 $ 1,939 $ 2,165 $ 2,441 $ 3,177 49 % Subscription services — Y/Y growth, excluding F/X 47 % 33 % 52 % 53 % 59 % 47 % N/A AWS $ 3,231 $ 3,536 $ 3,661 $ 4,100 $ 4,584 $ 5,113 45 % AWS — Y/Y growth, excluding F/X 55 % 47 % 43 % 42 % 42 % 44 % N/A Other (5) $ 709 $ 1,071 $ 850 $ 945 $ 1,123 $ 1,735 62 % Other — Y/Y growth, excluding F/X 74 % 99 % 58 % 53 % 58 % 60 % N/A   Stock-based Compensation Expense Cost of sales $ 7 $ 9 $ 8 $ 12 $ 13 $ 14 54 % Fulfillment $ 165 $ 190 $ 163 $ 261 $ 230 $ 256 35 % Marketing $ 85 $ 102 $ 94 $ 133 $ 135 $ 148 46 % Technology and content $ 434 $ 493 $ 441 $ 633 $ 595 $ 637 29 % General and administrative $ 85 $ 93 $ 86 $ 119 $ 112 $ 124 34 % Total stock-based compensation expense $ 776 $ 887 $ 792 $ 1,158 $ 1,085 $ 1,179 33 % Other WW shipping costs $ 3,897 $ 5,634 $ 4,383 $ 4,568 $ 5,401 $ 7,368 31 % WW shipping costs — Y/Y growth 43 % 35 % 34 % 36 % 39 % 31 % N/A WW paid units — Y/Y growth (6) 28 % 24 % 24 % 27 % 25 % 23 % N/A WW seller unit mix — % of WW paid units (6) 50 % 49 % 50 % 51 % 50 % 51 % N/A Employees (full-time and part-time; excludes contractors & temporary personnel) 306,800 341,400 351,000 382,400 541,900 566,000 66 % Employees (full-time and part-time; excludes contractors & temporary personnel) — Y/Y growth 38 % 48 % 43 % 42 % 77 % 66 % N/A ________________________ (1)   Includes product sales and digital media content where we record revenue gross. We leverage our retail infrastructure to offer a wide selection of consumable and durable goods that includes media products available in both a physical and digital format, such as books, music, videos, games, and software. These product sales include digital products sold on a transactional basis. Digital product subscriptions that provide unlimited viewing or usage rights are included in Subscription services. (2) Includes product sales where our customers physically select items in a store. (3) Includes commissions, related fulfillment and shipping fees, and other third-party seller services. (4) Includes annual and monthly fees associated with Amazon Prime membership, as well as audiobook, e-book, digital video, digital music, and other non-AWS subscription services. (5) Includes sales not otherwise included above, such as certain advertising services and our co-branded credit card agreements. (6) Excludes the impact of Whole Foods Market. 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, AWS 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. AWS Customers References to AWS customers mean unique AWS customer accounts, which are unique customer account IDs that are eligible to use AWS services. This includes AWS accounts in the AWS free tier. Multiple users accessing AWS services via one account ID are counted as a single account. Customers are considered active when they have had AWS usage activity during the preceding one-month period. Units References to units mean physical and digital units sold (net of returns and cancellations) by us and sellers at Amazon domains worldwide as well as Amazon-owned items sold through non-Amazon domains. Units sold are paid units and do not include units associated with AWS, certain acquisitions, rental businesses, or advertising businesses, or Amazon gift cards. View source version on businesswire.com: http://www.businesswire.com/news/home/20180201006454/en/ Source: Amazon.com, Inc. Amazon.com Investor Relations Dave Fildes, amazon-ir@amazon.com www.amazon.com/ir or Amazon.com Public Relations Ty Rogers, amazon-pr@amazon.com www.amazon.com/about

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