Amazon.com 2006 Annual Report Download - page 43

Information about operating expenses with and without stock-based compensation is as follows (in
millions):
Year ended December 31, 2006 Year ended December 31, 2005 Year ended December 31, 2004
As
Reported
Stock-Based
Compensation Net
As
Reported
Stock-Based
Compensation Net
As
Reported
Stock-Based
Compensation Net
Operating Expenses:
Fulfillment .............. $ 937 $ (24) $ 913 $ 745 $ (16) $ 729 $ 601 $ (10) $ 591
Marketing ............... 263 (4) 259 198 (6) 192 162 (4) 158
Technology and content .... 662 (54) 608 451 (45) 406 283 (32) 251
General and
administrative .......... 195 (19) 176 166 (20) 146 124 (12) 112
Other operating expense .... 10 — 10 47 — 47 (8) — (8)
Total operating
expenses .......... $2,067 $(101) $1,966 $1,607 $ (87) $1,520 $1,162 $ (58) $1,104
Year-over-year Percentage
Growth:
Fulfillment .............. 26% 25% 24% 23% 21% 24%
Marketing ............... 32 34 22 22 27 29
Technology and content .... 47 50 59 62 10 21
General and
administrative .......... 18 21 34 30 20 27
Percent of Net Sales:
Fulfillment .............. 8.7% 8.5% 8.8% 8.6% 8.7% 8.5%
Marketing ............... 2.5 2.4 2.3 2.3 2.3 2.3
Technology and content .... 6.2 5.7 5.3 4.8 4.1 3.6
General and
administrative .......... 1.8 1.6 1.9 1.7 1.8 1.6
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.”
Fulfillment
The increase in fulfillment costs in absolute dollars during 2006 in comparison with the prior years relates to
variable costs corresponding with sales volume and inventory levels; our mix of product sales; payment
processing and related transaction costs, including mix of payment methods and costs from our guarantee for
certain third-party seller transactions; and costs from expanding fulfillment capacity.
Fulfillment costs as a percentage of net sales may vary due to several factors, such as payment processing
and related transaction costs, including those from our guarantee for certain third-party seller transactions, our
level of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled, the extent
we utilize fulfillment services provided by third parties, and our ability to affect customer service contacts per
unit by implementing improvements in our operations and enhancements to our customer self-service features.
Additionally, because payment processing costs associated with third-party seller transactions are based on the
gross purchase price of underlying transactions, and payment processing and related transaction costs are higher
as a percentage of revenue versus our retail sales, our third-party sales have higher fulfillment costs as a percent
of net sales.
We expanded our fulfillment capacity in 2006 and 2005 through gains in efficiencies as well as increases in
leased warehouse space. This expansion is designed to accommodate greater selection and in-stock levels and
meet anticipated shipment volumes from sales of our own products as well as sales by third parties for which we
provide the fulfillment.
Marketing
We direct customers to our websites primarily through a number of targeted online marketing channels,
such as our Associates program, sponsored search, portal advertising, e-mail campaigns, and other initiatives.
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