Our macroeconomic issues are principally on inflation, and we’ve been pretty transparent on that. I think the new thing this quarter is additional pressure on the energy electricity rates in our data centers because of the ramp-up in natural gas prices if you’ve seen that. And then the other inflationary factors, well, some of them are coming down slightly.
- So those are some of the opportunities and challenges that as you think about kind of where we are in the U.S. versus international that are out there, the network complexities.
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- So not to mention a lot of the new content, especially on the video side that will be coming in the fall.
- So on the Prime fee increase earlier in the year, we’re happy with the results we’re seeing in the Prime program.
So it’s a very strong partnership, and it’s been getting stronger. And I think you’ll see also that they had a very big part in our Prime Day earlier this month. And so I think continuing to https://bigbostrade.com/ focus on building out, building out to customers, working on that pipeline, and building longer commitments, finding customers that are making longer commitments is really important to that.
Again, a reminder that this year, our Prime Day sales event occurred on July 12th and 13th, and is incorporated into our third quarter guidance. For revenue, note that our guidance includes an estimated approximately 390 basis points of unfavorable impact from year-over-year change in foreign exchange rates. The estimated FX impact to operating income is not significant. Before we get the questions, I’ll make some comments about our Q2 performance and the outlook for Q3.
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Right now, we see a stabilization in the workforce. We’ve invested a lot in tools and capabilities and, of course, the delivery capabilities and all the things that go along with that. And so really excited about, of course, getting to be able to launch this program over the last few months and dialing it up for more sellers as the year progresses. I think it was — Eric, it was a question around kind of the interactive work. I mean we’ve got — one of our main priorities is building relevant and engaging ad experiences. And so of course, we introduced interactive ads last year for streaming video content, things like Freevee.
Some of your peers in the cloud space have talked about some slowdown in booking rates just as customers take longer to work through deal terms and duration. So if you could comment on whether AWS is seeing similar dynamics? And then also when you think about margins, the 35% for AWS in 1Q going to 29% in 2Q, what are some of the puts and takes that we should think about going forward just given decreasing server life benefits and tougher macro environment? Joining us today to answer your questions is Brian Olsavsky, our CFO.
We’re all about obviously is price selection and convenience. And when it’s part of FBA can also help as being more Prime eligible and available to ship in one, two days or whatever the Prime offer happens to be. So we’re happy with the selection that we’ve added from third-party sellers. And I think that shows in the percentage mix that you see. We’re proud of the investment we’ve made to build tools and products that allow sellers to be successful on our site. And it’s a great partnership and it’s worked really well.
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In short, expectations are on the rise as we await Q2 results. On the headcount, yes, I think it was more as we mentioned last quarter – last year – excuse me, in Q1, we added – to give you a flavor for it, we added 14,000 workers in Q1, prior year we had reduced our net headcount by 27,000. So that is dominating the quarter-over-quarter reduction in headcount.
We’ve invested a lot in tools and capabilities, and of course, the delivery capabilities and all the things that go along with that. But that’s an opportunity for us to support merchants who may or may not be FBA sellers with the tools and the opportunity just to sell their products online and scale their business and build their brand. And so I think I’m really excited about, of course, getting to be able to launch this program over the last few months and dialing it up for more sellers as the year progresses. And the second part would be away from the e-commerce-driven parts of advertising.
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It sounds like you’re going to have revenue up nicely. You talked about the efficiencies of the $1.5 billion quarter over quarter and some of the incremental investments in content, etc. On the transportation side, we continue football stocks to improve delivery, route density, and improve package deliveries per hour. Our guidance also assumes, among other things, that we don’t conclude any additional business acquisitions, restructurings, or legal settlements.
- For AWS, these quarter-over-quarter increases are primarily driven by higher infrastructure investments to support continued strong customer growth, including larger depreciation on a growing fixed asset base.
- Our third-quarter operating income guidance range is $0 to $3.5 billion.
- We also provided our third-quarter financial guidance as part of our earnings release.
- So I’d challenge the premise a little bit there about incenting mix or I believe is how I interpret your question.
It’s — we’re interested in learning and working with FBA sellers that we’ve known and had good trust with but also expanding it. So those are some of the opportunities and challenges that as you think about kind of where we are in the U.S. versus international that are out there, the network complexities. Of course, there are some regulatory hurdles and other differences out there.
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And as I mentioned in-stocks never been higher, delivery speed is increasing. So not to mention a lot of the new content, especially on the video side that will be coming in the fall. In our established international locations, UK, Germany, Japan, over time, we’ve continued to improve the profitability of that business as we build out and established stronger customer relationships and work on the cost structure and how we serve folks.
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Fears of recession also could threaten AWS’s growth in the medium-term. For instance, analysts at Mizuho Securities — James Lee and Wei Fang — worry that recession fears will cause corporate spending on cloud services to decline in the foreseeable future, a shift that could negatively affect AWS, according to a July 20 note. The e-commerce giant also reported better than expected guidance for next quarter of $125 billion to $130 billion versus $126.5 billion. For the twelve months ended June 30, 2020 and 2021, this amount relates to property included in “Principal repayments of finance leases” of $10,504 million and $11,435 million. For the twelve months ended June 30, 2020 and 2021, this amount relates to equipment included in “Property and equipment acquired under finance leases” of $13,110 million and $9,976 million. I would note that we’re still up 188,000 year-over-year and nearly double the headcount of what we had heading into the pandemic in early 2020.
While we primarily focus our comments on operating income, I’d point out that this net loss includes a pre-tax valuation loss of $3.9 billion, which is included in nonoperating expense from our common stock investment in Rivian Automotive. In the U.S., we have started making customer deliveries using the Rivian electric delivery vehicles. This rollout is the start of what we expect to be thousands of EDVs in more than 100 cities by the end of the year and 100,000 vehicles across the U.S.
On the bridge to Q2 to Q3, so again, you have the — mentioned three items, ops improvement that we see of $1.5 billion and offsetting that is increased costs in AWS as we build out depreciation. We also are adding — continuing to add people in that space, product engineers, sales people, customer support. Speaking more broadly, we know AWS is a huge opportunity. Our comments and responses to your questions reflect management’s views as of today, July 28, 2022, only and will include forward-looking statements. Additional information about factors that could potentially impact our financial results is included in today’s press release and our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings.
So we feel good about the program and the state of the Prime members after a very rough couple of years of pandemic turmoil, and we think it’s a good base to build upon. Eric, I’ll just add a little more on advertising because you’re probably wondering again about softness — potential for softness in that or macroeconomic factors. Again, it’s got to be a positive both for the customer and for the brand. The first one, Brian, I wanted to talk a little bit about the bridge from 2Q to 3Q EBIT guide a little bit.