Brian T. Olsavsky
Senior Vice President and Chief Financial Officer at Amazon.com
Thank you for joining today's call. Before we get to questions, I'll make some comments about our Q2 performance and the outlook for Q3. Let's start with Q2. During the quarter, we saw improvement in many of our key operational metrics, including in-stock levels and delivery speed, and saw a subsequent step-up in consumer demand. For the quarter, worldwide net sales of $121.2 billion exceeded the top end of our revenue guidance range and represented an increase of 10% year-over-year, excluding approximately 320 basis points of unfavorable impact from changes in foreign exchange rates. This was a larger foreign exchange headwind than the 200 basis point impact we had incorporated into our Q2 guidance. As a reminder, our revenue growth accelerated to over 40% growth from the period between May 2020 and May 2021. While demand has remained strong, the lapping of this high-growth period depressed our revenue growth rate for the following 12 months, ending in May of this year. Our growth rates going forward will no longer require this historical explanation. Q2 of last year was also when vaccines have become more available, particularly in the United States, and we began to see more normal shopping patterns. Prime Day also occurred in Q2 last year and contributed about 400 basis points to our Q2 2021 year-over-year revenue growth rate.
This year's Prime Day sales event occurred on July 12 and 13 and is incorporated into our third quarter guidance. As the impacts of the last two years are normalizing, we're happy with how we've served customers and how they have responded. Our compound annual growth since the start of the pandemic stands at 25%, a growth rate higher than what we were seeing prior to the pandemic. Prime members have meaningfully increased their spend since the start of the pandemic. Over that period, we've seen stronger usage of Prime benefits by Prime members and a greater reliance on Amazon for their shopping and entertainment. We continued to improve the customer experience in Q2, including quarter-over-quarter improvements in delivery speed and inventory in-stock levels. We have also moved quickly to adjust our staffing levels and improved the efficiency of our significantly expanded operations network. We have slowed our 2022 and 2023 operations expansion plans to better align with expected customer demand. While there's still work to be done, we made good progress in Q2. Our Prime membership program remains a key driver of our worldwide stores business, and we continue innovating to make the membership even more useful and valuable. That includes the upcoming premier of The Lord of the Rings: The Rings of Power on September two and exclusive access to NFL Thursday Night Football games starting September 15. Our seller community also had a strong Q2. Third-party sellers represented 57% of all units sold on Amazon in Q2, the highest percentage ever. Selling partners help to expand the selection we can offer customers, while Fulfillment by Amazon provides sellers the ability to offer fast delivery. Operating income was $3.3 billion in the quarter, above the top end of our guidance range.
Last quarter, I discussed several cost pressures facing our worldwide stores business: inflationary costs, fulfillment network productivity and fixed cost deleverage. Recall that these amounted to approximately $6 billion of incremental costs in Q1 when compared to Q1 2021. We've made solid progress in reducing these costs. For the second quarter, incremental costs were in line with our expectations at approximately $4 billion when compared to Q2 2021. Inflationary pressures remained at elevated levels in Q2, similar to what we saw in Q1. These include pressures from higher fuel, trucking, air and ocean shipping rates, which we expect will continue into Q3. We made strides to improve fulfillment network productivity in Q2. Staffing levels were more in line with rising Q2 demand, and we saw better optimization of our fulfillment network. On the transportation side, we continued to improve delivery, route density and improved package deliveries per hour. We are encouraged by the progress during the quarter and see opportunity to further improve in the second half of the year. Lastly, the year-over-year negative impact of fixed cost leverage was relatively consistent with Q1.
There are two main drivers when talking about fixed cost leverage. First is the unfavorable comparison to very high holiday-level utilization rates that we saw in the first half of 2021, and second is the normal step-down in volumes off of our Q4 peak that we saw in the first half of 2022. On the first point, we expect this challenging year-over-year comp will have ended in Q2. On the second point, we expect fixed cost leverage to improve in the second half of the year as we continue to grow into our capacity. We have also taken steps to slow future network capacity additions. Let's turn to AWS. We saw another strong quarter of innovation and customer engagement in AWS, where net sales were $19.7 billion in Q2, up 33% year-over-year, and now represent an annualized sales run rate of nearly $79 billion. AWS continues to grow at a fast pace, and we believe we're still in the early stages of enterprise and public sector adoption of the cloud. We see great opportunity to continue to make investments on behalf of AWS customers. We continue to invest thoughtfully in new infrastructure to meet capacity needs while expanding AWS to new regions, developing new services and iterating quickly to enhance existing services. Developers at organizations of all sizes, from governments and not-for-profits to start-ups and enterprises, continue to choose Amazon Web Services. Companies like Delta Air Lines, Riot Games, British Telecom and Jefferies Investment Bank, to name a few, announced new agreements and service launches supported by AWS. AWS operating income was $5.7 billion in Q2. As a reminder, this includes a portion of our seasonal Q2 step-up in stock-based compensation expense. AWS results include a greater mix of these costs, reflecting wage inflation in high-demand areas, including engineers and other tech workers, as well as increasing technology infrastructure investment to support long-term growth.
Now let's talk about capital investments. As usual, we will discuss the combination of capex plus equipment finance leases. In 2021, we incurred approximately $60 billion in capital investments. About 40% of that is comprised of technology infrastructure, primarily supporting AWS as well as our worldwide stores business. Another 30% of the $60 billion was fulfillment capacity, and a little less than 25% was for transportation. The remaining 5% was comprised of things like corporate space and physical stores. For full year 2022, we do expect to spend slightly more on capital investments than last year, but the proportion of capital spending shifts among our businesses. We expect technology infrastructure spend to grow year-over-year, primarily to support the rapid growth in innovation we're seeing with AWS. We expect infrastructure to represent a bit more than half of our total capital investments in 2022. For the worldwide stores business, we've continued to moderate our build expectations to better align with customer demand. We expect the fulfillment and transportation dollars spent on capital projects to be lower in 2022 versus the prior year. Finally, I'd highlight a few additional items. We reported an overall net loss of $2 billion in the second quarter. While we primarily focus our comments on operating income, I'd point out that this net loss includes a pretax 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. by the year 2030. Additionally, note that all of our share and per share information included in our financial materials has been retroactively adjusted to reflect the 20-for-1 stock split, which was effective on May 27. We also provided our third quarter financial guidance as part of our earnings release. Again, a reminder that this year, our Prime Day sales event occurred on July 12 and 13 and is incorporated into our third quarter guidance.
Prime Day occurred in Q2 in 2021. 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. Our third quarter operating income guidance range is $0 to $3.5 billion. This compares to Q2 operating income of $3.3 billion. This third quarter guidance assumes we see approximately $1.5 billion in quarter-over-quarter sequential cost improvement in our fulfillment network operations, which we expect will be largely offset by investments in AWS and additional digital content for Prime members. 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. We also expect increased energy costs as we continue to see volatility in utility prices around the world in operating our AWS data centers. Quarter-over-quarter increase in digital content primarily relates to new Prime video content in Q3, including Thursday Night Football and The Lord of the Rings: The Rings of Power. Thank you. And now let's move on to your questions.
