Amazon’s Q2 2014 results from a seller’s perspective

July 25, 2014

ChannelAdvisor Scot Wingo By Scot Wingo

Deep dive into Amazon’s Q2 results from a seller’s perspective.

Yesterday, Thursday, July 24, 2014 Amazon announced their Q2 2014 results.  The results were mixed and Wall St. spent a lot of time digging into Amazon’s big investment areas where they are incurring loses such as video licensing (Amazon Prime Video content) and AWS (Amazon lowered prices and is investing in a lot of hardware).

Q2 Highlights

There was a lot to process in the Q2 results, here are the key points that we think sellers should focus on:

  • Acceleration – EGM (Electronics and General Merchandise) accelerated in NA (second Q in a row) from 27% to 29% which was good news because that’s where most of the 3P action is with our sellers.
  • Paid item growth -Paid item growth came in at 23%, flat with Q1.
  • Active users – Q2 active users grew 16% y/y to 250m (a small slow-down from Q1’s 17% growth rate).
  • Units per user – One interesting metric is the units/user – this metric shows us buyer frequency.  In other words, are buyers increasingly active or decreasing activity. Of course, increasing is good and programs like Prime, and recommendations and upsells are working.  Units per users were up 6% on a y/y basis which is an impressive metric.
  • Media share – Media hit a low-water mark of 25% with EGM at a high-water mark of 69% (the missing 6% is other -ads and AWS).
  • 3P unit share – One positive, is that 3P unit share ticked up to 41% from 40%.  While this doesn’t seem like a big move, when we look at the interior math, we see 3P GMV grew 28% y/y (an acceleration from Q1) compared to 1P GMV which grew at 23%.

There were a couple of other interesting new datapoints from the conference call and press release:

  • Amazon forecasted Q3 total revenue growth in the 15-26% range (21.5% at the midpoint)
  • Parts and accessories – Amazon mentioned that in Q2 over 1m vehicles were added to their ‘shop by vehicle’ feature in the P+A category.  They also said there are now 14m accounts with vehicles.
  • Amazon’s geographical mix for the Q was 62% North America, 28% non-domestic
  • Amazon is going to open 6 more FCs and started talking about a new concept – a “sortation facility”.  They have 15 sortation facilities now that get them closer to customers for delivery.
  • Amazon also mentioned they have added 18 more cities for their USPS powered Sunday delivery program.
  • Gross margins came in at the highest they have ever been – Amazon was tight lipped when asked about it, but the general concensus is that it is due to the 3P program.  You could make an agument that the 3P program is essentially helping Amazon invest in all of these fronts they are fighting on (China, AWS, devices, Prime Video, etc.)
  • Finally, on the conference call, Amazon’s CFO was asked if the Prime price increased caused a material slow down and he said they had that actually net Prime signups in Q2 2014 were larger than Q2 2013, so the price increase doesn’t seem to have slowed down the freight train that is Prime.

Those are the seller-oriented highlights from the Q and here is an updated dashboard with all the key metrics.

Amazon Q2 2014 Key Performance Indicators (for sellers) Dashboard

Amzn_q2_dashboard

 

Q2 2014 Amazon growth rate cube

Here is our regular matrix of the different Amazon growth rates.  The category most 3P sellers focus on is EGM (Electronics and General Merchandise) and you can see that it grew at a rate of ~2X e-commerce  domestically.

Amzn_q2_growth_cube

On the conference call, Amazon specifically called out some challenges in Japan due to a new tax that went into effect in that country on April 1.

How big was 3P in Q2 2014?

For Q2 2014  Amazon’s quarterly GMV (1P+3P) came in at $37.4b.  Here is a stack chart with the 1P and 3P GMV trends since 2011.

Amzn_q2_gmv_chart

eBay vs. Amazon GMV Q2 2014

Now that we have both Amazon and eBay reporting, we’re able to compare apples to apples (eBay’s GMV vs. Amazon’s 3P GMV):

Ebay_v_amzn_gmv

Here you can see that eBay was slightly above Amazon this Q – a difference of only ~$400m by our calculations.  With eBay’s GMV growing at 8% and Amazon’s 3P GMV growing 28%, the lines will cross as they naturally do in Q4, but most likely from that point forward, Amazon’s 3P GMV won’t dip below’s eBay’s in 2015.

 

Conclusion

From a seller’s perspective, this was a strong Q with EGM in NA accelerating and solid international EGM results (especially if we were able to strip out the impact from Japan), both of which about twice the size of the 13% e-commerce growth rate as reported by ComScore.   The colour around prime and buyer activity plus Amazon’s continual FC build out signal that we could see a Q4 from Amazon that considerably outpaces the average e-commerce growth rate.  We’ll report back in ~90 days when Amazon reports Q3 results which will give us a good idea of how things look going into the critical holiday period.

This blog post was written by Scot Wingo, CEO, ChannelAdvisor.