Amazon.com 2013 Annual Report Download - page 37

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Operating Expenses
Information about operating expenses with and without stock-based compensation is as follows (in millions):
Year Ended December 31, 2013 Year Ended December 31, 2012 Year Ended December 31, 2011
As Reported Stock-Based Compensation Net As Reported Stock-Based Compensation Net As Reported Stock-Based Compensation Net
Operating Expenses:
Cost of sales $ 54,181 $ — $ 54,181 $ 45,971 $ — $ 45,971 $ 37,288 $ — $ 37,288
Fulfillment 8,585 (294) 8,291 6,419 (212) 6,207 4,576 (133) 4,443
Marketing 3,133 (88) 3,045 2,408 (61) 2,347 1,630 (39) 1,591
Technology and content 6,565 (603) 5,962 4,564 (434) 4,130 2,909 (292) 2,617
General and administrative 1,129 (149) 980 896 (126) 770 658 (93) 565
Other operating expense (income), net 114 — 114 159 — 159 154 — 154
Total operating expenses $ 73,707 $ (1,134) $ 72,573 $ 60,417 $ (833) $ 59,584 $ 47,215 $ (557) $ 46,658
Year-over-year Percentage Growth:
Fulfillment 34% 34% 40% 40% 58% 58%
Marketing 30 30 48 47 58 59
Technology and content 44 44 57 58 68 73
General and administrative 26 27 36 36 40 46
Percent of Net Sales:
Fulfillment 11.5% 11.1% 10.5% 10.2% 9.5% 9.2%
Marketing 4.2 4.1 3.9 3.8 3.4 3.3
Technology and content 8.8 8.0 7.5 6.8 6.1 5.4
General and administrative 1.5 1.3 1.5 1.3 1.4 1.2
Operating expenses without stock-based compensation are non-GAAP financial measures. See “Non-GAAP Financial
Measures” and Item 8 of Part I, “Financial Statements and Supplementary Data—Note 1—Description of Business and
Accounting Policies—Stock-Based Compensation.”
Cost of Sales
Cost of sales consists of the purchase price of consumer products and digital content where we are the seller of record,
including Prime Instant Video, inbound and outbound shipping charges, and packaging supplies. Shipping charges to receive
products from our suppliers are included in our inventory, and recognized as cost of sales upon sale of products to our
customers.
The increase in cost of sales in absolute dollars in 2013, 2012, and 2011, compared to the comparable prior year periods,
is primarily due to increased product, digital content, and shipping costs resulting from increased sales, as well as from
expansion of digital offerings.
Consolidated gross profit and gross margin for each of the periods presented were as follows:
Year Ended December 31,
2013 2012 2011
Gross profit (in millions) $ 20,271 $ 15,122 $ 10,789
Gross margin 27.2% 24.8% 22.4%
Gross margin increased in 2013, compared to the comparable prior year periods, primarily due to services sales
increasing as a percentage of total sales. Services sales represent third-party seller fees earned (including commissions) and
related shipping fees, and non-retail activities such as AWS, advertising services, and our co-branded credit card agreements.
We believe that income from operations is a more meaningful measure than gross profit and gross margin due to the diversity
of our product categories and services.
Fulfillment
Fulfillment costs as a percentage of net sales may vary due to several factors, such as payment processing and related
transaction costs, our level of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled,
timing of fulfillment capacity expansion, the extent we utilize fulfillment services provided by third parties, mix of products
and services sold, and our ability to affect customer service contacts per unit by implementing improvements in our operations