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Amazon “Primes” the pump for Q4 – Q3 results from a seller’s perspective

October 25, 2013 | Posted at 6:08 am | By Scot Wingo

Yesterday, Thursday October 24, after the market close, Amazon announced their Q3 2013 results.

Amazon put together a gem of a quarter in Q3 with accelerating growth rates in many key segments.  They achieved this while e-commerce according to comScore decelerated a bit in the Q down to 13.2% from 15.5% y/y growth rate in Q2 2013.

Surprises from Amazon this Q

Before we dig into the normal coverage, there were a couple of surprises this Q that I wanted to cover up front:

  • For the first time EVER, Amazon gave a hint about prime, saying in the press release that in Q3 they signed up “millions of new Prime members”. Wall St. analysts were besides themselves with both the implied number and the reason why Amazon broke their silence on the program.  The general conclusion is that Amazon’s work on Prime (adding video catalogueueue, increasing the promotional efforts, adding prime-eligible selection via FBA/3P, etc.) is the root-cause of the acceleration in North America
  • Amazon announced that 8m sq-ft of FC space came on line in the Q and this is interesting – they also (for the first time ever) announced they have deployed 1,382 Kiva robots across 3 FCs.  One person I spoke to in the logistics world speculated that Kiva was being leveraged primarily for AmazonFresh which would make sense since there are 3 FCs that are active with Fresh (so far!).
  • For the first time since 2010, 1P GMV and units grew faster than 3P.  The reason behind this is digital items are all in 1P now.  Last Q Amazon gave enough data  to back that out (providing ex-digital growth rates), but for some reason they did not provide the ex-digital last time.  If we assume it was in-line, the 1P and 3P were essentially a tie.
  • For Q4, Amazon’s guidance was pretty solid on the high end, but with a wide range of 10-25% y/y growth and 18% at the mid-point.  One interesting point made in the Q+A – Amazon’s guiding 19% growth, but has increased the number of workers 29% – some analysts feel that Amazon is being extremely conservative in their Q4  guidance.

With those interesting tid-bits behind us, let’s look at the quarter from a number of angles.

Amazon Q3 2013 Key Performance Indicator (for sellers) Dashboard

Each Q we look at the key metrics that are important to sellers and they are collected in this handy dashboard that has columns for the results, Wall St’s consensus estimates and Amazon’s guidance.     Let’s dig in and understand what led to such a strong quarter.

Here is the Q3 dashboard:

Amazon_q3_13_dashboard

 

Highlights from the Q:

  • Acceleration in NA – Amazon’s top-line revenue accelerated  again this Q to 26% up from Q2’s 25% (ex-fx), largely driven by NA accelerating to 31% y/y up from last Q’s 30%, driven by strong EGM performance (Up a very strong 33% in NA)  All of these figures are a solid 2X+ faster than e-commerce indicating that Amazon continues to gobble share.
  • Other growth rates  – These are detailed in our regular feature, the quarterly Amazon growth rate ‘cube’, found in the next section.
  • Active users – Amazon grew active users to ‘over’ 224m – a 19% y/y increase (in line with last Q)
  • Paid unit growth – Paid units grew 29% which was in-line with Q2.
  • % paid items from 3P – Amazon reported that 40% of paid items were from 3P sellers – the same rate as the last 2-3 quarters.

From the conference call there were some other points of interest:

  • 60% of revenue is NA and 40% is international (swung towards NA this Q 2% due to the accelation in the region)
  • EGM hit a new high-water mark at 65% of sales compared to 29% Media (the reason those don’t add up to 100% is a category called other that we don’t cover)

Q3 2013 Amazon growth rate cube

Note: EGM stands for Electronics and other General Merchandise – Amazon-speak for anything that isn’t a (e)book, movie, dvd, cd, mp3, videogame.

In the following cube we summarize all of the different Y/Y growth rates that Amazon reports (ex-FX).  We find this helpful as you can quickly see where the growth is (NA EGM) and where things are slowing (intl media).

Amazon_q3_13_cube

 

Looking at the categories of media/EGM – Amazon’s media business is now growing in-line with e-commerce thanks to an acceleration in the NA/Media component, and Amazon’s EGM business is growing 2X e-commerce both domestically and internationally.

The growth cube is helpful, but it doesn’t give you a trend.  This chart shows the growth of each segment over the last year:

Amazon_q3_chart

I mentioned early the acceleration Amazon is showing and this chart really illustrates it well (Note all these metrics are ex-fx):

  • First you can see the green line (EGM US) is really cranking – going from 24% y/y growth 4 Q’s ago (Q412) to 33% in Q313.
  • Next the purple line shows some deceleration – that’s international EGM.  Most likely this is due to EU headwinds.
  • The next line (light blue/aqua) shows the overall Amazon growth rate trend as NA EGM has lifted the tide.
  • Finally the two Media lines have shown some nice improvement – likely driven by kindle e-book sales, apps, and mp3 sales that are filling the hole created by the lack of physical sales in those categories.

 

How big was 3P in Q3 2013?

Amazon provides a couple of datapoints that we regularly use to triangulate the 3P GMV.  For our analysis, we choose to use the % of items that are 3P as the ‘anchor’ and use some educated (and conservative) guesses around take rate, and 1P/3P average prices.

Here’s our analysis for Q3 2013

Amazon_q3_gmv_calculator

 

For Q3 2013, our analysis indicates:

  • $15.4b in 1P GMV
  • $17.1b in 3P GMV
  • Total GMV: $32.5b

Here’s what that looks like historically, and since Amazon gave Q4 guidance, we took the midpoint and added it to the chart as an Estimate (denoted by an E):

Amazon_q3_gmv_chart

This chart really illustrates that Amazon is teeing up for a very solid (even at their conservative mid-point) performance for Q4.  In fact, by our estimates, if Amazon can come in for Q4 slightly above that mid-point, they have a shot at $50b in GMV between 1P and 3P for the Q which would be a whopping $10b above Q4 2012’s $40b!

 

Conclusion 

Amazon’s Q3 results were nothing short of spectacular.  Here is a ~$120b run-rate GMV business that has accelerated thanks to the heavy investments in Prime, 3PM and FC capabilities.  You can really see this playing out in NA EGM where the macro-environment is neutral/favorable and the fact their growth rate non-domestically is still materially higher than e-commerce even in face of macro headwinds.

Every datapoint we look at in Amazon’s Q3 bodes very well for a strong Q4.  We’re all looking to see how consumers react to the much shorter holiday (6 fewer days, CyberMonday in Dec, and we lose a critical weekend) – Amazon seems to be signaling that they believe it will be pretty intense given the amount of hiring they are doing.

We’ll be watching the SSS data closely over on sister-site eBay Strategies to see if we can read anything in the tea leaves for October that indicates these new users are buying more on Amazon.

Written by Scot Wingo, CEO, ChannelAdvisor.  eBay is an investor in ChannelAdvisor.