Amazon Q2 2013 Results (from a seller’s perspective)

July 26, 2013

ChannelAdvisor Scot Wingo By Scot Wingo

Yesterday, Thursday July 25, after the close, Amazon announced their Q2 2013 results.

Every Q we go over the highlights from the Q that we believe online retailers/sellers should takeaway from Amazon’s results.  This quarter had a lot of interesting new information about 3P marketplaces, so let’s dig in.

Amazon Q2 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.

Here is the Q2 dashboard:

Amazn_q2_dashboard

 

Highlights from the Q:

  • Acceleration in NA – Amazon’s top-line revenue accelerated to 25% up from Q1’s 24% (ex-fx), largely driven by NA accelerating to 30% y/y up from last Q’s 26%, driven by strong EGM performance
  • 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 215m – a 19% y/y increase.
  • Paid unit growth – Paid units grew 29% which was a small decrease from Q1’s 30% rate.  Amazon didn’t specifically call it out with this metric, but when you look at the cube, you see that international growth was 20% and the high unit category, media, was only 7%, it makes sense mathmatically that the intl/media quadrant is putting a lot of pressure on the overall unit growth metric.  It would be interesting if amazon had an EGM paid unit growth metric as that would be a better metric for sellers to focus on as it wouldn’t be influenced by media and the move to digital books.
  • % paid items from 3P – Amazon reported that 40% of paid items were from 3P sellers. On the call, the CFO did mention that the move to digital goods was causing a bit of a surge in 1P and if you took that out (I’ll call that ex-digital), then 3P would have been 43% of units.  So it feels like this metric has been flat, but Amazon gave colour that you shouldn’t think of it that way.  It’s worth pausing and saying this is a ‘big deal’ – Amazon rarely, super-de-duper rarely gives any nuggets like this, so the fact they did message here that this metric is 300bps deflated was very interesting.

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

  • 58% of revenue is NA and 42% is international
  • 31% of sales were from Media and 64% were from EGM
  • On the call, I found it interesting that the CFO said (paraphrasing) – If you back out digital units, 3P would be an additional 3% of sales (43% vs. 40% is what I believe he was saying).
  • They mentioned that apparel/shoes and consumables were stand out categories during the Q
  • Amazon’s Gross Margins (GMs) increased from 27% to 29% – thanks primarily to the move to 3P and AWS).

Q2 2013 Amazon growth rate cube

Note: EGM stands for Electronics and General Merchandise – Amazon-speak for anything that isn’t a (e)book, movie, dvd, cd, mp3, videogame. Also, the industry ‘watermark’ we use is ComScore who saw e-commerce growth  in Q2 (ex travel and grocery) at 15% y/y.

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).

Amzn_q2_cube

 

Looking at the categories of media/egm – Amazon’s media business is now growing materially slower than e-commerce (7% vs. 14%), and Amazon’s EGM business is growing 2X e-commerce both domestically and internationally. From a geographical standpoint, North America, as mentioned, accelerated this Q and International continued to have some issues.

If you think of another dimension to this cube which would overlay the 1P and 3P growth rates, you can see that the fastest growing segment at Amazon would be: 3P international 3P followed by North America 3P EGM.

 

fulfilment update

Amazon has announced five more FCs in the US for 2013 so far.  One thing that is really interesting to me and sometimes makes Wall St. folks scratch their heads is Amazon’s fulfilment costs.  Here’s a chart that explains it from Colin Sebastain @RW Baird (Thanks Colin!):

Amzn_q2_shipping_costs

This chart looks at net shipping costs as a % of net sales and what you see is that over time, Amazon’s shipping costs are going DOWN.  This is at a time with thanks to Prime and Supersaver, Amazon is giving away more free shipping than ever before.

The reason why is as Amazon builds out their massive FC network, they are getting product in bulk, closer to consumers.  Therefore they have to pay the FedEx and UPS’s of the less, because the routes to consumers are getting shorter.  And of course, being Amazon, what do they do with these savings?  Yep, they pass them on to consumers in the form of value and free shipping, and the flywheel keeps on turning.

How big was 3P in Q2 2013?

Amazon provides a couple of datapoints that we 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 Q2 2013

Amzn_q2_mp_analysis

For Q2 2013, our analysis indicates:

  • $14.1b in 1P GMV
  • $15.7b in 3P GMV
  • Total GMV: $29.8b

Here’s what that looks like historically:

Amzn_q2_mp_trend

In Q4 2012, we noted that for the first time Amazon’s 3P GMV exceeded eBay’s GMV.  Our thesis was that this was a seasonal factor that was not a full-year trend.  The following chart illustrates eBay’s GMV vs. Amazon’s 3P GMV to compare the two marketplaces and shows that eBay kept a sizable lead in Q2 2013.

Amzn_q2_ebay_v_amazon_chart

Conclusion 

Amazon’s Q2 results were very similar to their Q1 results and like eBay/Google, somewhat mixed with strong domestic trend vs. macro headwinds non-domestically.

Amazon gave guidance to Wall St. that implies a before FX growth rate of 16-25% which is a very broad range similar to what we saw out of eBay and Google.  Stay tuned for our regular SSS reports on sister site eBay Strategiesfor any interesting intra-quarter trends we see.

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