Seller-oriented deep dive into Amazon’s Q1 2015 results.

April 28, 2015

ChannelAdvisor Scot Wingo By Scot Wingo

On April 24th, Amazon announced their Q1 results.   The biggest excitement of the call was Amazon’s lifting of the cloak of secrecy on their cloud (Amazon Web Services, or AWS) business.  Turns out this is a ~$5b business growing 50% and very profitable – much more profitable than Wall St. guesstimated.  That’s a good news/bad news situation.  The good news is Amazon has this amazing highly valuable software business inside of it.  The bad news is the retail business is less profitable than Wall St. believed.   The trick is it’s not entirely clear how that splits between the US and non-US businesses.  Some on Wall St. think the whole retail business is less profitable, others believe the US is a high single digits margin business and the International growth/investment is what drags down the overall profitability.

Other than an interesting fact about Amazon we now all know, there’s no impact on third-party (3P) sellers from that disclosure.   The rest of the results that Amazon provided around the retail business showed that 2015 is off to a strong start for Amazon.

Amazon Q1 2015 Dashboard

Here is the dashboard of key seller-oriented metrics we track for Amazon and how Q1 performed:

amzn_q1_dashboard_completed

Amazon’s results – the good and bad for 3P sellers

Benchmarks:

A quick reminder that e-commerce (ComScore) is growing at 15% and eBay reported (our coverage here and here) 5% global GMV growth with the US at 2% and intl at 7%.

The good:

  • Amazon had acceleration in many areas of the business on top of a robust Q4.  Most important to 3P’s: EGM increased both in NA and Internationally.  NA EGM grew 31% in Q1 and Intl EGM grew 21% for a combined 29%.  For comparison, in Q4, NA EGM was 27% and Intl was 19%.  This is especially impressive given the scale that Amazon operates at.  A small 2-3% acceleration means billions of dollars of transactional share they are taking from offline and online players.
  • Items from 3P hit a new high-water mark of 44%.  Further in the report we show the relative growth rates of 1P and 3P and it looks like we should see this number continue to move up through 2015 if the growth rates hold.
  • Interesting fact – EGM is 77% of US and only 68% of International, so it seems there is a lot of room to grow EGM internationally.
  • Total GMV of $46.4b in the Q – $20.1 from the 1P business and $26.3b on the 3P business.  Even though 3P is only 44% of units, the GMV is much higher than 50% because most 3P is EGM and 1P is Media and EGM has much higher AOV compared to media.
  • Overall in Q1, Amazon grew 22% y/y – impressive against the 15% e-commerce benchmark especially given the weakness in the media category.
  • Amazon’s forecast for Q2 shows 20% y/y growth at the midpoint.

The mediocre:

  • This was such a good report it’s hard to call anything bad, so we’ll call it mediocre.
  • Q1 2015 Active user growth was flat with Q4 at 14% bringing the number of active buyers up to 278m.  This metric is slowing recently, which could mean Amazon is hitting some level of saturation in its current markets.
  • Units/customer and Revenue/customer were flat with Q4 at 5% and .7% respectively.  As Amazon adds new features to Prime we would expect to see possible acceleration here.
  • Media category growth was sluggish at 5% as Amazon faces the transition from physical->digital->subscription across music, video and books.

Those are the highlights, further in the report we dig into some details of interest to sellers.

Amazon’s Growth cube

One way I like to look at Amazon is breaking down the 4 segments that Amazon gives into a growth cube (geos: NA/Intl, cat: media/EGM):

amzn_q1_15_cube

1P vs. 3P growth rates

As mentioned, Amazon’s 3P business hit a new high water mark of 44% of the items from 3P in Q1.  Since Q1 2014, Amazon has been really hitting the gas pedal on 3P vs. 1P as you can see from this chart where we break out the growth rate of the two (based on our proprietary analysis):

amzn_q1_15_1P_v_3P

The pre-2014 time frame where the growth rates were similar was due to a FC buildout where Amazon had to slow down the adoption of FBA because they were literally out of FC capacity.  That doesn’t seem to be an issue now with ~15 new FCs coming on-line globally and efficiencies (e.g. sortation centers) coming for existing FCs.

Amazon’s total GMV (1P and 3P combined)

When you look at Amazon’s total GMV trends, you see both steady growth and the Q4 seasonality.  What’s interesting is every Q4 sets a new watermark, and then in Q1 Amazon keeps a lot of the gains and builds on them through the year for another record Q4.  Projecting out to Q4 2015 if we assume current growth rates, Amazon has a shot at a $70b Q4 (1P+3P).

amzn_q1_15_gmv_chart

Amazon vs. eBay through Q1 2015

When you compare eBay and Amazon’s apples-to-apples performance from 2011-2015, you can see that Amazon is really pulling away from eBay and gobbling up share.  Note that this chart compares eBay’s global GMV to Amazons 3P-only GMV.

amzn_q1_15_vs_ebay_q1

Amazon vs. eBay through 2015 (estimated)

Projecting forward based on current growth rates, you can see that by this Q4 if growth rates remain the same as they were in Q1, Amazon will effectively be $20b ahead of eBay.  Projecting even further, Amazon’s 3P business would be 2X the size of eBay by Q4 2016.  Time is running short for eBay to get through their split and execute on their new strategy to try and turn things around.

amzn_q1_15_vs_ebay_15

This blog was written by Scot Wingo, CEO, ChannelAdvisor