Amazon.com 2006 Annual Report Download - page 40

The International revenue growth rate was 28% in 2006. This revenue growth reflects increased unit sales
driven by our continued efforts to reduce prices for our customers, including from our free shipping offers, shift
in mix of product sales from media to electronics and other general merchandise, increased in-stock product
availability, and increased selection of product offerings in our existing categories. Additionally, changes in
currency exchange rates positively affected International net sales by $18 million in 2006.
We expect that, over time, our International segment will represent 50% or more of our consolidated net
sales. Additionally, as we continue to offer increased selection, lower prices, and additional product lines within
our electronics and other general merchandise category, we expect to see the relative mix of sales from this
category increase. See “Supplemental Information” below.
Gross profit information is as follows:
Year Ended December 31,
2006 2005 2004
(in millions)
Gross Profit:
North America ................................. $1,525 $1,267 $1,024
International ................................... 931 772 578
Consolidated ................................... $2,456 $2,039 $1,602
Gross Profit Growth Rate:
North America ................................. 20% 24% 18%
International ................................... 21 33 48
Consolidated ................................... 20 27 27
Gross Margin:
North America ................................. 26.0% 26.9% 26.6%
International ................................... 19.2 20.4 18.8
Consolidated ................................... 22.9 24.0 23.1
The increase in gross profit in absolute terms during 2006, compared to 2005 and 2004, corresponds with
increases in sales, offset by lower prices for customers including from free shipping offers and Amazon Prime.
Generally, our gross margins fluctuate based on several factors, including our product, service, and geographic
mix of sales; sales volumes by third-party sellers; changes in vendor pricing, including the extent to which we
receive discounts and allowances; lowering prices for customers, including from competitive pricing decisions;
improvements in product sourcing and inventory management; and the extent to which our customers accept our
free shipping and Amazon Prime offers. Such free shipping and Amazon Prime offers reduce shipping revenue
and reduce our gross margins on retail sales. We offer promotions, such as free membership trials for Amazon
Prime, and we expect to continue to offer these promotions in the future. We view our shipping offers as an
effective worldwide marketing tool and intend to continue offering them indefinitely.
Sales of products by third-party sellers on our websites represented 28%, 28%, and 26% of unit sales in
2006, 2005, and 2004. Since revenues from these sales are recorded as a net amount, they generally result in
lower revenues but higher gross margin per unit. Since we focus on profit dollars rather than margins, we are
largely neutral on whether an item is sold by us or by a third party.
Gross profit growth is also affected by changes in exchange rates—see “Effect of Exchange Rates” below.
North America segment gross margins in 2006 decreased by 92 basis points compared to 2005 resulting
primarily from changes in our revenue mix. Revenue in our retail business grew faster than revenue from third-
party sellers, resulting in lower gross margins. Sales from electronics and other general merchandise grew faster
than sales from media, further reducing gross margins. Additionally, we continued our efforts to reduce prices for
our customers, including from our free shipping offers and Amazon Prime.
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