Imran Khan (JP Morgan): You talked about the inventory and stock selection increase, but it seems like your inventory grew 61% year-over-year, up from 36 and 33 in first and second quarter. Is there anything you are seeing into the quarter that increases your confidence to increase that inventory at that level?
Tom Szkutak: The two key drivers of that is expanding selection. Year-over-year, we have increased our selection in our warehouses up 50% year-over-year. That is part of what you are seeing in inventories. We are also improving our in-stock levels. We are having more quantities on hand to better service customers. Those are two aspects that you are seeing. What you have seen in the past as you look at third quarter as a reminder, that we have started to bring in inventory to get ready for the holiday season. You are seeing some of that reflected in the balance. Then in terms of investment, as you see the inventory rising, you are also seeing the payable balance rise substantially as well. Our days at the end of second quarter were 53 days. At the end of third quarter they were 63 days. Then it was also up year-over-year from 58 days to 63 days.
Imran Khan (JP Morgan): Your revenue growth guidance is guiding an acceleration. What are you seeing into the quarter?
Tom Szkutak: The range that we have given for fourth quarter is 22% to 33%. That also includes favorable exchange of approximately 225 basis points. That is the range that we have given. We are cautiously optimistic as we enter fourth quarter because of the selection that we have added which relates back to the inventory question, the in-stock improvement that we are working on as well as throughout the year, the lower prices. In addition, with the Amazon Prime becoming more meaningful, having Amazon Prime customers taking advantage of all the selection that we have, for the first time toy customers will be able to have the advantage of that during fourth quarter as well as Supersaver Shipping. All of those things we think are reflected in the guidance that we have given today.
Mark Mahaney (Citigroup): What impact you could see on margins from the rollout of Merchants@ internationally?
Tom Szkutak: It is difficult to predict what the ultimate third-party mix will be in each of our geographies. What we have said in the past is that as you look at our overall third-party units as a percentage of total worldwide, that we are further ahead in North America than we are in International. The launch of Merchants@ International in the countries that I have mentioned will help that over time from a third-party mix standpoint. It is difficult to predict exactly where that is going to end up. Ultimately the customer will decide. We will continue to add retail selection as well as third-party selection. The Merchants@ will help us do that.
Mark Mahaney (Citigroup): While you increased your revenue guidance for the fourth quarter you did lower your operating income guidance. Was there something you saw that made you more concerned about margins or less confident about margins in the December quarter?
Tom Szkutak: In terms of the guidance on CSOI, we tightened the range from what we gave you 90 days ago. The CSOI guidance for the year was 430 to 560. We tightened that during this guidance period to be 452 to 542. We increased the lower end of the range by 22. We decreased the top end of the range by 18. The midpoint increased on the year. Given the fact that we exceeded the midpoint for third quarter, you are seeing fourth quarter come down.
Safa Rashtchy (Piper Jaffray): How much of the leverage in fourth quarter is due to the normal seasonality that you always see?
Tom Szkutak: When you look at our third quarter technology and content spend, you can see that the growth rate declines versus what we have seen recently. On a percentage of revenue it declined versus second quarter. For four quarter you should expect the growth rate will decline further, but still growing. So that is certainly one of the key drivers from a leveraged standpoint. The other one thatI would not view it as seasonal, but as the growth rate. When you look at the range of growth that we are expecting, the growth rate is also helping us get leverage in fourth quarter. Those are the key drivers as it relates to fourth quarter.
Safa Rashtchy (Piper Jaffray): Could you give an outlook or guidance as to what factors will be impacting margins going forward beyond fourth quarter?
Tom Szkutak: In terms of going forward, we are not giving guidance, consistent with what we did last year. We are not giving guidance beyond fourth quarter.
Doug Anmuth (Lehman Brothers): For the last several quarters you have been talking about investing in seller platforms, digital web services and search. It seems like this quarter you dropped Search from that mix given the recent scale back in A9. Why is the change in strategy around A9 and Search?
Tom Szkutak: We still have a substantial investment in search. A9 was doing a few things for us; and one was product search, which we continue to invest in. We continue to learn a lot of things from our resources there. You should not expect to see savings from that. We have reallocated some resources to areas that we think are more beneficial to customers and shareholders over time, and that is what we are doing there.
Mark Rowen (Prudential): It looks like your fulfillment cost deleveraged by about 20 basis points year-over-year and that is the first time that has happened in a while. Is that because of the new facility in Europe?
Tom Szkutak: One piece of that is capacity. You mentioned the facility. We are operational in Leipzig, Germany, which is a piece of that. Other things that are going on there, the selection that we have been adding as well as improving in-stocks and you can see the build up in inventory. Those are all factors that are also impacting our operational costs as a percentage of revenue.
Mark Rowen (Prudential): Wal-Mart talked about how the toy business was one of the categories they were going to be aggressive on and rolling back prices on certain items. Do you feel you need to beat them on price?
Tom Szkutak: We have a long-standing practice of not talking about any specific company. I can not help you with that one.
Scott Devitt (Stifel Nicolaus): On the fulfillment center utilization, particularly in domestic you have added groceries, toys, jewelry, and third-party fulfillment services just in the past year. Is there going to be a need for additional capacity in terms of actual fulfillment centers over the next year?
Tom Szkutak: Yes. In terms of any type of guidance for next year, we are not providing. We will look, we learn a lot as we go through our seasonal time of the year so we will be going through that in the next few months. As we go through that and learn from what we see, we will make our plans more specifically for next year and we can update you as we go there.
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