Don’t panic! – Amazon’s Q3 results from a seller’s perspective

October 27, 2014

ChannelAdvisor Scot Wingo By Scot Wingo

Last week, Thursday, October 21, 2014 Amazon announced their Q3 2014 results.  The results were much worse on the expense/losses side than Wall St. was expecting and there has been quite a bit of gloom and doom in the press since the results.  In this post, we’ll parse through all that and see what it means for sellers.  First…

Don’t panic!

It’s easy to read the headlines and think that the wheels are coming off the Amazon bus.  As we dig into the results that matter for sellers, you will see that Amazon’s 1P and 3P businesses are doing quite well and the problems are in media (which grew only 4%) and  non-seller oriented areas such as the Fire phone which had a  $170m write-down for the Q and Amazon is sitting on $83m in inventory.  The most impressive metric was the acceleration of North American EGM which accelerated to 31% – more than 2X the growth of e-commerce.

Q3 Highlights

There was a lot to process in the Q3results, here are the key points that we think sellers should focus on:

  • Acceleration – EGM (Electronics and General Merchandise) accelerated in NA (third Q in a row) from 29% to 31% 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 21%, a slight deceleration from Q2’s 23%.
  • Active users – Q3 active users grew 16% y/y to 260m (in-line with Q2’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 increasing or decreasing activity. Of course, increasing is good and indicates that programs like Prime, recommendations and upsells are working.  Units per user were up 5% on a y/y basis, which is an impressive metric.
  • Media share – Media’s share came in at 25% with EGM at a high-water mark of 68% (the missing 7% is “other” -ads and AWS).
  • 3P unit share – One positive is that 3P unit share ticked up to 42% up from Q2’s 41%.  While this doesn’t seem like a big move, when we look at the interior math, we see 3P GMV grew 30% y/y (an acceleration from Q2) compared to 1P GMV which grew at 19%.
  • Amazon 3P GMV > eBay GMV – As you will see below, Amazon’s 3P GMV is now greater than eBay’s and projecting forward.  Unless something major happens to slow down Amazon or accelerate eBay, the lines have crossed for the foreseeable future, making Alibaba the world’s largest marketplace, Amazon number 2 and eBay number 3.

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

  • Amazon forecasted Q4 total revenue growth in the 7-18% range (12.5% at the midpoint) – this was not well received and if the mid-point is the result, will be a tough holiday outcome for Amazon.   ComScore and Forrester are forecasting 15%+ growth for the holiday, so if we do end up at 12.5% it will be due to softness in the media category and tough regions like Japan and China.
  • Amazon’s geographical mix for the Q was 63% North America, 37% non-domestic
  • Amazon highlighted that they have 13 net new FCs built this year and the 15 sortation centers.

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

Amazon Q3 2014 Key Performance Indicators (for sellers) Dashboard

Amzn_q3_dashboard

Q3 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_q3_cube

The biggest movement on the cube was a decrease in North American Media which grew only 5% – down from last quarter’s 13%. Intl EGM slowed down a tad compared to Q2’s 20%, but overall EGM ticked up from 25% to 26% based on the strong performance of NA EGM.

How big was 3P in Q3 2014?

For Q3 2014  Amazon’s quarterly GMV (1P+3P) came in at $40.56b.  Here is a stack chart with the 1P and 3P GMV trends since 2011.

Amzn_q3_mp_chart

eBay vs. Amazon GMV Q3 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):

Amzn_q3_vs_eBay_q3_chart

 

Here you can see that Amazon’s 3P GMV was greater than eBay’s for the first non-Q4 timeframe since we’ve been tracking.  With eBay’s GMV growing at 8% and Amazon’s 3P GMV growing 28%, if we project the lines forward, they do not cross again and Amazon’s lead increases as you can see here (this assumes a 8% growth rate for eBay and 20% growth rate for Amazon):

Amzn_q3_vs_ebay_15

 

Conclusion

From a seller’s perspective, this was a strong Q with EGM in NA accelerating and solid international EGM results, both of which about twice the size of the 15% e-commerce growth rate as reported by comScore.   The guidance on Q4 is lower than expected at 12.5% growth rate, and we’ll have to see if that is conservatism or a true concern for the fourth quarter.

 

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