A weekly podcast with the latest e-commerce news and events. Episode 129 is a hot take on Amazon’s Q1 2018 results and the Jeff Bezos annual shareholder letter.
Subscribe:
This episode is a hot take of the Amazon Q1 2018 earnings
- Amazon Q1 Earnings Highlights
- $51b, which is a 43% y/y increase – 39% constant currency, 27% ex- Whole Foods
- NA was up 46% y/y which drove $1.1b in profits (26% ex WFM)
- Intl was up 21% constant currency and lost $622m
- AWS had a material acceleration up 48% y/y constant currency and profits were $1.4b
- Amazon Prime fee increasing to $119 (20% increase)
- Marketplace
- 52% 3P by Unit sales
- 3P Growing at 60% (constant currency)
- JMP GMV analysis-> 1P – $31b / 3P – $69b = $101B GMV
- Wingo GMV estimate -> 1p – $37b/ 3p – $66b = $103b GMV
- Amazon Ads – $2B quarter 132% y/y growth (72% y/y growth before accounting change vs. 60% last quarter)
- Increasing possible Amazon becomes first $1 trillion dollar company
- Bezos Annual Letter
- 100M Paid Prime Members (likely 60M in N.A vs. 124M Households)
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 129 of the Jason & Scot show was recorded on Monday, April 30th 2018.
Join your hosts Jason “Retailgeek” Goldberg, SVP Commerce & Content at SapientRazorfish, and Scot Wingo, Founder and Executive Chairman of Channel Advisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
New beta feature – Google Automated Transcription of the show:
Transcript
Jason:
[0:25] Welcome to the Jason and Scott show this is episode 129 being recorded on Monday April 30th 2018 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
Scot:
[0:39] Jason and welcome back Jason and Scott show listeners.
[0:45] Will Fox tonight we want to focus on some Amazon news because there’s been a lot of really big amazon news that his hit the wire in the last week or so and we’ve been.
Bisley publishing are shoptalk interviews and wanted to interrupt the flow of those coming out so you get something a little more timely here and so that you know how to,
did Justice Amazon news and think about what it means for your business Jason wants to kick it off.
Jason:
[1:12] Yeah so two big events that we’re going to talk about tonight early last week,
Jeff Bezos released his annual shareholder letter and as we talked about several times on the show this something that he publishes every year he publishes one for the current year and he republish is the first one he wrote which is.
97 if I’m remembering right is that.
Scot:
[1:34] That is correct.
Jason:
[1:35] Ding ding and highly recommend you read the 97 one if you haven’t,
what will you talk about that a little bit later but then later in the week Amazon did their earnings announcement and tons of interesting things from both events so that’s what we want to talk about tonight.
Scot:
[1:57] Yes we’re going to jump into the earnings let’s look at the high-level and then we can kind of dig in so one thing that’s kind of interesting is there’s a new accounting standard coming out I know you’re excited about this Jason.
Jason:
[2:10] Oh my god I’ve been like my family have been on pins and needles for months waiting for this.
Scot:
[2:14] It’s a sit-down folks it’s a it’s a big one buckle up and so the.
I know this because I am involved to the public company but the there’s a group called The General accounting standard thingy Gap,
and they have come out with a new way of recognizing Revenue that’s called accounting standard 606 and this is.
I’m packing all kinds of businesses one example of how it’s impacted Amazon is.
Amazon used to take Prime subscriptions and waited heavily towards the fourth quarter because that’s when I got a lot of sign ups in this standard says you can’t do that you have to allocate it,
equally amongst quarters you can’t do weighted averaging and things like that so it causes a little chaos and in the world of looking at these kind of results because you said we have apples and oranges so tonight on the show we will.
[3:06] Do our best kind of straighten that out whenever it comes up but it’s interesting just for folks to be aware of cuz you’ll start to see some really weird numbers coming out and if you see the 606 that’s a clue that just the rules are changing under underneath it’s not the company doing some kind of weird shenanigans.
So that being said.
Best way to come to give us a $30,000 summary of Amazon’s first quarter is it was a blowout quarter so not only did Amazon exceed pretty much every Wall Street expectation and its own kind of guidance but I watch even more closely is,
the growth rates and pretty much every growth rate we track here at Jason Scott show is accelerated,
which is pretty impressive so they had a very strong fourth quarter so to accelerate year-over-year coming off of 4th quarter.
It’s just pretty impressive it just shows they’ve they’ve kept a lot of momentum I’m also you know we haven’t had prime day it’s just kind of a few one kind of a normal.
A kind of boring quarter to be honest with you in the world of e-commerce usually it’s a breather quarter but Amazon you know it doesn’t take breathers they just soaked up a bunch of Cher.
So
[4:13] The Lucy so we’re going to talk about the marketplace briefly at but then when things you want to spend a little bit of time on is the ad business ever going to jump into that and worked at the show then we have in the past.
Jason wants you kick ass off with the overall results and then we’ll will dig into the marketplace.
Jason:
[4:33] Yeah first thing that caught my attention was shortly after their announcement I saw like a Jim Cramer segment and he called this quarter for Amazon like the greatest quarterback company ever did you.
Scot:
[4:47] I did that saw that yeah.
Jason:
[4:49] He may be slightly front of hyperbole but that seems like kind of a big deal.
Scot:
[4:53] He is prone to hyperbole my favorite is when he famously wrote on his knuckles Duke 600.
Got turns out he was right but yeah so which is Facebook Amazon Netflix Google so he watches these stocks all pretty close.
Jason:
[5:12] For sure for sure answer the first time we want to talk about is the growth and before I make the big reveal let’s remind listeners like what kind of growth numbers are impressive so,
in most cases you hear folks talk about the typical annual growth rate for e-commerce is around 15%,
inter put that in perspective.
[5:37] Good a brick-and-mortar retail growth right now is maybe 4% averages like 1% so 15%.
Is much faster growth.
Then retail is a whole already which is kind of impressive but the 15% number actually has some controversy that comes with it so.
Most of the folks that site these 15% numbers in.
They vary slightly so do you know if depending on whether you’re getting in an RF number or a comscore number or a drug number from the US Department of Commerce 15 could be 17 or 16 in a lot of that has to do with.
Their definition of retail exactly what categories are are in or not in their number.
[6:22] But most of those companies based their estimates on Raw data from the US Department of Commerce and the 10 all come in with North American grow that right around 15% and so when we look at a company crossword kind of comparing it to that 15% number,
I will say that most of the companies we tracked are growing substantially faster than that 15% in it.
[6:46] Kind of throws that 15% in doubt you know it’s so for example Amazon alone is.
Right around 50% of all e-commerce you know arguably a bigger percentage of the growth some of the other big retailers Walmart and Target.
Best Buy you know if all of those huge companies are growing at north of 15% it’s it’s actually hard to figure out how you land at 15%.
In there there are some Economist that you know fine fall in the Department of Commerce is methodology for tracking e-commerce a also.
I’ll just throw that out there for your consideration but that being said.
Amazon q1 number was 51 billion in Revenue which is a 43% year-over-year increased so.
What you dramatically above that 15% if you take out currency fluctuation that’s 39% it at the constant currency if you take out the Whole Foods acquisition they grew at 27%.
In that the thing I like to remind people is usually we talk about.
The biggest players in the industry and then we talked about the fastest growers in the industry so usually you’re talking about you know.
Company X maybe it’s Walmart you know what they say the hugest percentage of the,
the retail market and then you’re talking about Warby Parker is the fastest growing or so it’s it’s extremely rare and you know frankly scary.
[8:22] When we talked about Amazon in in eCommerce and we talked about them has both the the dramatic market leader and.
One of the very fastest Growers.
[8:35] So one thing I always like to remind people like whenever you see these kind of numbers you always get someone in the room pointing out that hey that’s great but like,
you know it’s easy to grow when you’re not profitable in your you’re sort of buying buying market share and you know so there’s this common diatribe that that.
Amazon is funded by eight of us and now maybe the ads and that the the core retail part of their business isn’t profitable.
And I would really encourage people to sort of update their they’re thinking on that there’s unit significant evidence that most parts of the the retail business and mature markets.
Are profitable their operating income this year this quarter increased 92% to 1.9 billion in the first quarter so if you back in the math.
The.
The bulk of that that growth came from the business in AWS so it is fair to make the argument that,
those are the the fastest growing businesses in contributing the most to the revenue but you know remember the Jeff Bezos,
always talks about revenue and profitability not being the the the,
key success criteria and the fact that free cash flow is really wet at Amazon’s trying to optimize for free cash flow bassist the the retail businesses is like the majority contributor to their revenue.
Scot:
[10:06] Yeah that’s a good point. And the reason free cash flow is more miserable is because it’s cash right and you pay stockholders back in cash not operating income operating income is an accounting.
Space thing that,
importing a lot different businesses but it’s really hard and Amazon’s business for it to matter because you have all these rules that spread Revenue out even though you got the cash and then they also spread out cappex to appreciate it so,
I really kind of distorts what’s going on so FCF is a better way to look at Amazon and how they’re in the business so it’s when you look at that free cash flow came in at 7.2 billion best down from 10.1 a year ago,
but it’s not down because when operating reason it’s because.
What you have is you have total free cash flow you subtract out Capital Investments and then you’re left with kind of net free cash flow 7.2 this year q1 is down from the 10.1 last year.
But if you take out the Investments they’re making and quote-unquote your property and Equipment purchases and I’ll talk about that in a second the gross.
Freak Ashley was 18 billion and then they’ve invested.
10.9 billion and capex this quarter so we kind of say yourself you you made this point earlier you know if they’re so big and they continue to grow how do they do that they are still investing at a just tremendous clicking other taking about.
No more than half of that free cash flow and investing it back into growth and that’s that’s pretty crazy no not many businesses I’m not an expert on Walmart but I think they.
[11:41] They’re probably dusting I would imagine 10 to 15% into growth and hear Amazon’s ingesting like 50% of free cash flow into into growth and you know where that and it’s out what is that it’s a lie.
Buying rights for movies and things for the streaming that’s a small part of it the two biggest chunks are going to be equipment for the cloud computing and fulfillment centers you know they they continue to build fulfillment centers that just on Norma’s clip they’re building out.
Prime facility in CVG you know so just amazing amount of investment in infrastructure they’re making to keep this business growing at the pace it’s growing up.
[12:20] A year ago that that same kind of investiture.
What’s 7.4 billion say ramp that investment up from 7.4 billion to 211 billion a year of a year so that.
[12:32] Pretty sad when on capex that’s why I went down your weird but it’s because I think they’re increasingly bullish that they can grow this business for the foreseeable future at least 2 x this rate of e-commerce which is which is.
[12:42] Pretty crazy yes I’m point you do run out of.
Performance tuners to build a I would imagine they continue to invest in the.
Like the same day infrastructure with the planes and whatnot.
Jason:
[12:56] Yeah and again all those Investments are out of long-term competitive Advantage it’s a moat against everybody else.
Scot:
[13:01] Yeah and at some point when they stop doing those Investments That free cash phone number in a right now if they weren’t doing this investment would be 18 billion which would be.
A lot of cash but if you keep going 30% you know that that number you know could conceivably get up into 30 40 50 billion dollars in free cash flow and that’s why.
That’s how Wall Street salary this thing.
Because if you look at kind of though you know the the single-digit billions that they’re making an operating profit you’re like wow why is this thing worth.
Nearly a trillion dollars it’s a free cash flow and that’s what Wall Street you know it is watching and when you can see a packed free cash flow being like that it it’s it makes sense to invest at the pace that while she does.
Jason:
[13:45] Yeah and oh by the way they also drop 22.6 billion and 100 which is way more than any other company like way more than any tech company invest in R&D.
Scot:
[13:56] Take us on into the sum of the Interior results.
Jason:
[14:00] Yeah so is it a reminder like the break their revenue down into these three big lines of business that are you no material to there,
their revenue so the first is North America so North America was up 46% year-over-year so that drove 1.1 billion and Prophets,
without Whole Foods that’s 26% year-over-year growth so pretty healthy in North America which is.
Their most mature Market International was up 21% based on constant currency and they lost about 622 million on that.
So you know a couple of things to know if they’re that lost was actually.
Much smaller than most of the analyst were forecasting for international a lot of the international markets.
Are much newer in Amazon is investing to win those markets you know some of those markets India in particular is you no potentially.
The biggest prize out there either India or China but India’s largest perceived as like the the biggest potential consumer Market that that you know doesn’t have a dominant player that already has it locked up.
Like Amazon does North America or like Alibaba does China in so it it really is like the the biggest battle out there and you you wouldn’t expect to be turning a profit in those kind of you know early.
Investment markets at this point so the fact that that on their whole International portfolio they only lost 622 is actually.
[15:35] A substantial piece of good news for Amazon.
[15:39] And then the 3rd big chunk for them is AWS Amazon web services.
That also had phenomenal growth That Grew at 48% based on your VR constant currency and prophets were like 1.4 billion.
So you don’t amazon-web-services once again 48% when you’re already like the dominant market leader is super impressive.
I think in the the shareholder letter Jeff Bezos talked a little bit about how.
You know that Amazon really had this sort of 6-year Head Start before they had I think we called the like-minded.
Competitors enter the market and so they they got this like 6 year old Vantage over everyone that they’ve really you know continue to keep their foot on the gas and just kind of you know take that early lead they were given and there.
They’re using that to keep building it and and you know so far they they haven’t run out of growth opportunity there which is pretty scary and amazing.
[16:47] So
Saturday a business which we like to talk about a lot is there add business in it isn’t yet big enough that it gets its own segment so the ads are kind of blended into those.
Three buckets so there are at least they’re in a 2/3 buckets in the North American International numbers.
And what we’ll talk a little bit more about them later but then the.
The other shoes piece of news which I think it’s most of the consumer a buzz this week,
is that Amazon also announced a substantial increase in the price of a Prime Membership so they jacked up Prime 219 bucks a year,
which is like a 20% increase for consumers.
Scot:
[17:34] Yeah he had that goes into effect May 11th so if you’re not a Prime member this is your chance to get it at a discount and it’s it’s it’s interesting they’re doing it now you got to presume Prime day will be sometime in early June so I think they’re kind of ramping into Prime day I think they know they did have a lot of data that shows that’s a big sign up time so there,
third there some method to the madness on that date are you going to cancel your Prime Membership Jason.
Jason:
[17:58] I am not potentially my wife and I which each one of them,
for those not in the know One Prime Membership not only covers the whole household you can actually share it with five family members,
and so someone silly that my spouse and I each have a Prime member but membership but you know those were these valuable assets that we both brought into the marriage and we’re both love to let go of our,
old old Prime memberships at work white and financially irresponsible.
Scot:
[18:31] I look forward to hearing who’s a subscribe and save as to be recreated.
Jason:
[18:35] Yeah I as with most things I think it’s pretty clear that my wife is going to win that.
Scot:
[18:41] Cool let’s see let’s do a quick review of marketplaces so long time listener still remember that Amazon does not disclose the size of the marketplace from a GMP perspective but they do disclose one metric which is the mix between and it’s a unit mix between 1 p.m. and 3 p.m.
so that came in at a new high of 52% to 52% of the units sold on Amazon or third-party and.
[19:07] We probably said this a thousand times so I’ll just run through it very quickly so Amazon’s revenue for the quarter is 51 billion and the third party is counted the other.
30 greatest between 10 and 15% I use 10% to make the math easy so really when you when you.
When you back into it what you find is there’s a huge hidden amount of sales happening at Amazon because they only can count 10% of those sales for the third party Marketplace so the ends up that about,
67 billion of that 50 billion is revenue from the third party Marketplace multiply that by 10,
her actual number so this is.
I used to be the only one that would pontificate on this so when I run it to my calculator I end up with the quarter at a hundred.
The first party stuff has a lower aov because most of the digital.
Apps books and those kinds of things are are in first party and they have a lower aov so it it kind of.
Excuse the third party tends to be higher average order value so it’s.
Unit wise is 52% but volume-wise were looking at almost like 66% or 64%.
Third party 40% first party so that people are kind of.
[20:37] Picking a part of those clues in and then figuring out so they tell you.
Seller Services Revenue in inside of their is FBA fees as well as third-party fees so if you make some educated guesses you can do something so one of the one of the Alice JMP,
baseball schiano’s pick this out there all around the same range they came in at 1 p.m. 31 billion third party at 70 billion so a total of 101 the right in the ballpark of where it where I’ve been guessing which is good so.
The punchline of this is Amazon feels like a 200 billion dollar pastry Taylor but there really a 400 billion dollar pastry Taylor so just in this quarter.
Yeah it feels like 50 billion which is the top line but there’s another 50 or 60 billion have a hidden under the mass of the ice,
which is this Marketplace in we always encourage people you and I are on a Jihad to tell all the retailers about this so that they don’t underestimate the the impact of Amazon I just just reading an internet retailer.
They’re kind of doing that they missed it at this time and that all this is frustrating what other little nugget on the marketplace side Amazon is really pushing this new functionality called Amazon Global selling they were talking a lot about it at.
[21:50] Shoptalk for example this is what allows small or businesses anywhere in the globe to search Lee use Amazon Fulfillment Network and load balance globally so you could be a seller in the UK.
And have a practice doing well and if you allow Amazon they will load balance it.
Across Europe into China and Japan that even in the United States so they had interesting stat that.
The first time I saw where they said in 2017 Global sellers sales grew more than 50%.
Exodus this kind of cohort of people doing Global selling their sales grew more than 50%,
and now it represents more than 25% of third-party sales on Amazon so strong to be a pretty material part as this kind of cross-border trade functionality that Amazon has now.
We know at Shell visor one of the red hot pass for this is China manufacturers over to the US and then to Europe in other markets.
So so Amazon is kind of got rid of all the middle men in the import world so you have these factories directly shipping product into fpa’s across the globe,
and that product is getting sold on Amazon so it’s kind of the wish model,
put on steroids and that is a huge kind of growth area but it also frustrates a lot of the sellers on Amazon because you know they’re up against I’m selling a brand in microscope,
and there’s a Chinese manufacturer signed exact same thing out of the same Factory without a brand for half price so that it does cause a lot of lot of angst out there in the world with this this program.
Jason:
[23:25] Yeah and I think it’s,
Rite Aid the program works crazy well I get super hard to move goods from country to Country in Legally sell them and customs and Tara sent by,
it used to be that that there was a huge competitive advantage to this like relatively small pool of people that have the expertise to navigate all those systems and Amazon really takes all the complexity out of that like kids in their dorm room can now do cross-border trade which,
you know what uniform was not possible and so is as more people adopt this system like,
the fact that it kind of raises all tides in it it it also makes you know counterfeit product and and all those things sort of more ubiquitous we available it is a growing concern.
Scot:
[24:14] Yeah. I don’t think that people underestimate it’s just like just kind of Fino translation so because Amazon has this a sand catalog if they take a certain widget,
and translate it you know it gets translated into for five languages the next person to come sell that widget doesn’t have to do the translation for just kind of say,
yeah yes that’s the same Mason and they get the automatic translation that’s been done they get to ride on that investment so,
if you’re doing your website or something like that you don’t get that benefit you going to translate it over and over and over again for every SKU where’s Amazon gets this really nice kind of I reuse out of their catalog which is another huge benefit of this program.
Jason:
[24:52] Yeah you know one thing I’ve never asked you know Diddy translate like the reviews or the reviews country-by-country.
Scot:
[24:59] Country by country.
Jason:
[25:01] Okay so they still have to build up the start of social proof in each welcome Market.
[25:06] Anything else we want to talk about in the marketplaces this week.
Scot:
[25:12] Dallas jumping to ads.
Jason:
[25:14] Yeah so you know they have this Revenue line they call other services which we think is mostly their ad business you know what else is in other services anything meaningful Scott.
Scot:
[25:27] The do some of the do a branded credit card and they do some other,
they do on-site advertising so that ever tizing were talking about is a mg and a mess that tends to be 95 to 90% of the Intensive purposes it’s the advertising business which is the new helping sellers promote their products.
Jason:
[25:49] Got it yep and said that whole pool guy grew a hundred 32% year-over-year to 2 billion dollars for the quarter so I think that is one of the this is one of those categories that was affected by the 606 Gap.
Reporting is that true.
Scot:
[26:05] Yeah if you if you met that out in group a paltry 72%.
Jason:
[26:09] Well then I don’t know why we’re even wasting their talking about it.
So like this is more than one of these classic models where you know Google and Facebook are the dominant digital advertising platforms that have the bulk of the revenue and,
you know Amazon it at a much more base is there for able to grow much more quickly.
But 72% is is still a red-hot growth and I think they worked that’s up from 60% growth last quarter so I.
The pace of growth is accelerating.
[26:42] And you know as a reminder for somebody games on the one of the reasons ad revenue is super exciting is.
It’s highly profitable like you. Much more so than been selling physical Goods you know to the extent that it successful.
It’s an ear recurring Revenue stream and so it’s almost like a more valuable dollar of Revenue than some of Amazon’s other sources of.
Of Revenue in the Amazon is really quickly and merging.
As kind of the the third digital advertising platform and so you know you seen a lot of buzz in the trades about it.
You know when people try to analyze that number they get to a couple different places like I think I’ve seen some estimates in the like 5 to 6 billion dollars a year.
I seen some people estimating 8 or 9 billion dollars a year for 2018 I have a feeling some of that has to do with.
Whether they’re looking at the old accounting of the new accounting there is some seasonality that advertising for a for a lot of these products.
[27:52] The I think there is an anise out there that kind of try to forecast this Revenue out to 2023 and they got 236 billion.
So that put you in the order of magnitude of Google and Facebook although you know presumably those will both be a lot bigger by.
By 2023 than they are today but today Facebook said about,
like just under a 50 billion dollar run rate so like 48 billion dollars so they Amazon’s really able to get there that’s a meaningful third competitor and that’s a pretty nice,
like ancillary Revenue stream for Amazon on top of all the other well-established businesses that they have.
Scot:
[28:29] Yeah and we will talk about this we’ve been pounding this drum for probably 2 years that you know a lot of folks think this will be the third leg so that retail being one actually,
marketplaces I would call the second and then AWS the 3rd and then adds the 4th you have billion dollars and then you and I have talked about,
a voice like Alexa being number 5 so so I think there’s kind of five legs to the store which is just not fair that you only need three but anyway that’s the life of the Amazon.
Jason:
[28:56] It’s a very stable stool.
Scot:
[28:57] It is a very stable stool and you know I said I think.
It’s going to be really interesting so Facebook’s had some stumbles here you know,
Google has some headwinds in certain areas in fact Google had a really nice quarter and they’re shocked and removed much and I think a lot of it is people are starting to think when does this you know,
so if Amazon is growing this business at cause 72%,
when is the start to eat into Facebook and Google and it’s long been an industry metric that something like 25% of Google’s revenue comes from product-based terms which makes sense cuz they’re you know if you kind of think about the verticals at Google you have time for a retail vertical I finance vertical Auto those kinds of things,
the feels like it would be a pretty big one Facebook also and I either Superior amount of product that’s advertised on Facebook we had them on the show several times talk about all the great offering they have there so it’s going to be really nice to see is this wraps up.
Do yo at some point there’s got to be some share that gets taken and,
maybe maybe the lines cross faster than we think there are if maybe if Amazon on its path that 36 billion maybe Facebook doesn’t keep growing it kind of the pace it is because there’s going to be some loss of share somewhere in there,
I am when we at Chalmers are we talked to Brands specifically they are moving big dollars to this in a lot of it comes from your Prime.
More you got more data than I do on this but a lot of it’s coming out of old school media but it’s coming out of Google budget some things that because they’re just feeling like this is actually more miserable than the Google stuff because if you’re a brand is hard to go buy Google ads because you usually have to find a retailer to do it and it’s really complicated you have to trust their data and it gets really.
[30:44] Really murky but if your brand you get really good data back from Amazon on exactly what’s going on so so to the Brand’s it feels like one of those measurable things are doing,
hi the last point we we had,
Jamie from Darrell on and remember he was talking about how they can actually measure offline impact of Amazon advertising because so many people are starting their product searches Amazon they saw.
Stop sales at like Walmart and Costco go up when they did a very kind of isolated programming Amazon so this is a pretty interesting area of Amazon and we’re keeping a close eye on it and courage to run to,
to watch this because and if you haven’t experimented in your business this is where I be.
Putting a lot of effort heading into holiday at 18 because I think it’s going to be a really big opportunity.
Jason:
[31:29] Yeah for sure to so one thing I don’t you mention Jamie just a piece of side news Jimmy is actually left her out and he’s now running e-commerce for Keurig which is a,
interesting to report having a back on the show to talk about his experience there in the near future.
[31:46] In your two interesting things about advertising the.
At the moment the reason that you probably don’t feel like Amazon’s growth coming out of Google and Facebook is because it,
it is like all digital advertising is growing very rapidly as it’s coming out of the traditional sort of dead tree media right so so print in intellivision and if you think about,
the the traditional base advertising,
your most advertising comes from Brands not retailers and they start they do two kinds of advertising like they do advertising to build awareness for the brand so they’ll buy a Super Bowl at the by ad in a magazine that just says you know Mercedes-Benz cars are great or you know Bounty towels are the quicker picker-upper or whatever whatever the case may be,
and the success criteria for those ads are just how many people saw.
[32:41] Or maybe they’ll do some study to say how many people remember our brand as a result of seeing that at rights of the the the.
The outcomes of those ads are that the ad reached a person and that maybe the person remembered it.
And then brands do this other kind of advertising with a partner with a retailer and what they called trade advertising and most of that advertising is like.
Ads in the paper for their products you know what we call store circulars.
Or even a lot of the advertising in the store the the point-of-purchase advertising is funded by manufacturers.
So when you think about digital the.
A lot of the Google advertising is replacing that brand awareness advertising I’m in it has the same kind of success criteria like how big was the audience that’s on my Google ad,
one of the things that super you know interesting and appealing about the Amazon ads are that you your success criteria is,
how much good you sold rights are you you do get much lower on the funnel as people start to lose confidence in these advertising Vehicles the safe place to be is the advertising Vehicles where you can actually measure a true Roi.
And so Amazon actually has a big competitive advantage over Google and Facebook and being able to quantify the value of the ads which is super interesting.
But the other interesting thing is Amazon can actually draw ad Revenue.
[34:12] From both of those old school models right so Amazon can get ads from the CMO at Procter & Gamble that used to buy a Super Bowl ad,
an Amazon can credibly make the argument that you’ll get more eyeballs on our platform then you will on the Super Bowl,
but they can also get ad revenue from those trade teams that were you know historically buying store circulars in it and advertising in store at Walmart and instead get them to advertise next to the products,
an Amazon and so systemically those are two big advantages over the other big digital platforms it in the long run make Amazon a real scary competitor to Amazon Facebook and Google.
Scot:
[34:51] Absolutely and there’s a fair amount of add load on the site.
But you know if there’s an auction underneath there so there’s a fair amount of room to run so Google for example has had you have near the same ad load the tweet that but you know call it around the same ad load and and they continue to grow the last 10 years so so just within the current system,
but but Amazon hasn’t even there kind of version 1 L on a lot of their tools and they haven’t even really started with video so one of the smartest Acquisitions I think Amazon did a lot of people don’t pay attention to his twitch so you see all these people now that are making,
there’s this guy ninja he makes like $500 a month streaming fortnite and other games,
well that uses switch for that and you can imagine that’s a pretty interesting audience for people to monetize so there’s.
This really interesting things that they can do and they’re also doing the Thursday night NFL so you could even say.
Musterbrand let’s run in NFL ad and I can sell you exact exactly how much tide you sold this ad versus just eyeballs.
Jason:
[35:54] For sure which is very powerful I think that NFL deal maybe one of the main reasons they’re able to get away with a hundred twenty bucks.
Scot:
[36:01] Yeah absolutely.
Cool last little piece on the quarterly earnings everyone Wall Street is very much a what have you done for me lately things are like good job great quarter what’s coming next work so it’s Amazon’s practice to provide for guidance and they released their Q2 guidance,
and it’s going to come in at a growth rate between 34 and 42% which is 38% of the midpoint this the succeeded what all Wall Street was thinking there so,
I am kind of classic Wall Street parlance it was a beat so the current quarter.
[36:35] Expectations and then they race was being raised which is kind of what you want and it was a it wasn’t kind of a wallet and a huge jump up kind of thing,
so correspondingly you saw the stock really take a nice move and then most analysts have raised their price targets up into the socks kind of in the 1500 right now most people have raised the stock up to the highest I saw this 20/20 which was actually a,
a phone number where that is that’s right when they get to $20 so Scott debit over at stifel raised it up to 2020 kind of saying,
county is Chester this will be the first trying dollar stock,
I’m to the point we we pretty regularly about once a quarter when we do these shows we talk about this race to a trillion dollars so when you.
Public companies you have a market cap and that’s essentially taking the number of shares outstanding of multiplying it by the share price niggachu a market cap,
use Yahoo finance or something it’s already calculated for either so last time we visited this Jason Amazon was kind of going back and forth.
What’s number 3 and 4 with Microsoft so today if we look at this the number for company is Microsoft at a 718 billion dollar market cap.
[37:47] Number three is Google at 7:06 and Amazon is now number two so this move they’ve had up in the stock from about a thousand to 1500 over the last.
8 months.
It’s beautiful up to the number to market cap company is 760 billion which is only about in a 340 billion shy of a trillion and 10% away from the lead the lead right now Apple + 838 billion.
Apple is announcing tomorrow Tuesday or Wednesday there’s a lot of concern around Apple there,
you know we talked about the the new speaker they have you were not a huge fan of that one and,
that has been kind of dud the iPhone x hasn’t been blowing off shelves and they have a China problem so there could be.
Because you have this kind of combination of looks like Amazon how to blow out there’s a lot of concerned about Apple watch can see how they come out.
But but anyway long-term if we can’t think about this leading up number 5.
Is Facebook at 497 think I should drop pretty considerably since this whole Russian interference thing is going to come up and in Autumn so.
The the number for listeners to keep in mind is when Amazon gets to 1700 they should be in the lead and then when they get to just around that 20/20 number,
they should hit a trillion dollars so it weave,
I’ve been calling that they would be the first to get to Troy and for a couple years and it seems like that was a long shot and it’s increasingly looking like it’s theirs to lose so we’ll see.
Jason:
[39:23] How much will you personally make it they do that.
Scot:
[39:26] No,
Jason:
[39:31] So we mentioned in the outset that Jeff also released his annual shareholder letter so you know there’s a bunch of interesting facts in that way every year but this is one huge Marquee fact that caught everyone’s attention and was at,
some of the big reveal and that fact is the Jeff Bezos does not know how to do a handstand.
Scot:
[39:56] They’re so yeah so kind of a painful personal admission.
Jason:
[40:01] Yep. So he told a little personal story that involve the fact that he’s going to do a handstand and after he got through that he mention that oh by the way we have a hundred million paid Prime members.
Scot:
[40:12] This is a surprise cuz they’ve been very private about this for since Inception so I think everyone was caught off guard when they’re reading the letter to see that and it caused quite a frenzy.
Jason:
[40:24] Yeah I feel friend the show Jason Del Rey like predicted back in in like 2015 that he thought this was going to be the big year that Amazon Finally Revealed their prime number and so he was was only off by 3 years which is.
Better than some people but so that we were talking a little bit before the show that number.
[40:45] It requires a little bit of context but it certainly was in the range of a lot of the estimates,
the verse folks have been making right like I mean certain order magnitude would you you call that like soda in The Sweet Spot of those estimates.
Scot:
[41:01] Yeah there’s so the washer guys were kind of clustered right around this hundred million number and so couple,
couple things so she act all these parts would but these guys a very closely so that person why they said over so that gives us some pretty big range you know something somewhere over,
I got a hundred million and one up to Infinity so there’s there’s a big range there but I think we can assume,
you know I doubt it would be more than 110 so I think I would guess it’s between 100 and 110 I don’t think they would.
Jason:
[41:30] He would have said over a hundred ten million if it was over a hundred ten.
Scot:
[41:33] Maybe but then they’re very catty to so for all I know it could be like a hundred fifty so it’s really hard to guess what you guys.
But that being said so if you take that hundred million and it’s paid so just remind folks do see a couple free entries into Prime and if she’ll does off when used to be Amazon mom’s now,
if wrap that up in the family program Jason was talking about we can have multiple people on a Prime account and then so it’s kind of more of a household thing and then number to used to have free for students,
this is largely to get their textbook business which is quite lucrative,
I’m in Amazon now doing it does that to give 6 months free for students that’s a very long extended trial program and then four-year discounted until they graduate.
So
All those programs up now pretty much converted to two paid so the only free Prime out there are people that are either in their 30-day trial or their 6-month trial with their students so it’s a largely survey people and they say their Prime I think,
but she can be paid maybe plus or minus 10% but but pretty small. There is a global number so most Wall Street people had,
weed when you take Amazon and you want to take their Global number and parse it I usually go 6040 so 60 us 40 International which is kind of how there,
their GMP goes so some example that add number at 2 billion is probably 60% us 40% International now ads are probably less developed International so I made fudge that look at 7030 or 8020 but I do think for her prime,
pretty mature and all the markets so I would say that hundred mine is going to be 60 us.
Jason:
[43:07] Although there are a bunch of Prime benefits that are exclusive to North America still right like grocery a lot of the digital video content.
Scot:
[43:18] Video ethics National now.
Jason:
[43:21] Okay the the like the prime the grocery delivery from Whole Foods is certainly unique to the US.
[43:34] Okay so I’ll give it to you so 60.
Scot:
[43:39] But in the UK you get same-day so it’s kind of.
Jason:
[43:43] Yeah but that’s a tiny little island that’s cheating.
Scot:
[43:45] There’s a pretty big part of your 2.
Jason:
[43:51] Oh they’re not part of your anymore he didn’t get the memo.
Scot:
[43:54] It hasn’t happened yet we’re working Liam.
The the one outlier is there’s this company called cirp in a few what it is like consumer information research protocol and they had Amazon it 99 in the US so I think they kind of are off a bit now.
you guys find out to do surveys of really small numbers in the extrapolating so they like survey 10 people in 9/2 Prime and I like well certainly 90 million people in the US have,
it’s not that bad but I think that’s the little bit off so.
You know the way to think about this I always see this like 60-70 80% of us households have Prime if you take this number and we see it 60 million there’s a hundred twenty six million households in the US so this puts a right at 50%,
I’m so 50% of households in the US have Prime that that feels right to me and then I think if you know if you parse that and look at demographics.
Yeah if for household this is the way the Census Bureau defines it for household incomes over a hundred and twenty K you’re going to look at like 80 90% penetration then as you go lower it’s going to get off.
Yeah down at the sub 50k it’s going to be 20 30% of us households so so at that all fuels and checks out to me.
Jason:
[45:08] Yeah two things are interesting to me so you crank up Prime membership to a hundred twenty bucks a year you have a hundred million page users you,
start the every year with 12 billion in Revenue before you sell I think.
Which is a pretty nice asset versus every other retailer on the planet that starts in zero every year with one exception which is our friends at Costco.
Scot:
[45:36] Give me.
Jason:
[45:40] And so I always like to compare Prime Membership with Costco so Costco has 90 million paid members in Costco is almost exclusively and I think is exclusively North America so not so there still,
significantly ahead of Amazon which is interesting and just a reminder on on Costco’s model,
what is an oversimplification but Costco almost drives to break even on all their sales and essentially make.
There their annual profit be that that Costco membership fee that they earn every year.
[46:26] Inside like pretty interesting you know Costco membership is less expensive than a Prime Membership but like it’s Costco members tend to skew older than Amazon members at the moment so it’s kind of interesting you,
you would certainly think that if you’re looking for with a cap is on Prime members it’s certainly not the 60 million there at now it’s at least the 90 million and since Amazon has a much broader demographic than Costco.
In North America.
You know you can imagine it’s even north of that so you know maybe one day after Amazon passes that that trillion-dollar Mark you you know we could see them.
I’m in that 90 or hundred million just in North America.
Scot:
[47:07] Yeah I’ve seen analysts do a bunch of surveys on this and there’s a pretty high enough it’s almost like 85% overlap of Costco and Prime members is pretty high.
Jason:
[47:18] Yeah for sure and then the other interesting thing to me about crime is there was also some news it was alluded to in the shareholder letter,
but the Whole Foods is actually in the process of turning off all of their existing Affinity programs and it’s a pretty clear that they’re going to be replacing.
The the Whole Foods Affinity programs with Prime in those Whole Food stores and that’s going to be.
What a real interesting set of new experiences and you know another lucrative reason that that people might.
[47:58] Become Prime members or at the very least retain their Prime Membership.
[48:05] And with that it is happening again we’ve used up all our a lot of time we tried to be a little more concise for this deep.
But if you have questions or you feel like Scott or more likely I got something horribly wrong we love to hear your point of view on our Facebook page so jump on over there and leave us a comment and we’ll try to respond as quickly as possible.
You’re always welcome to reach out to us on Twitter and if you found this show useful or valuable we would certainly appreciate it if you’d spend 30 seconds and jump over to iTunes and leave us that 5-star review.
Scot:
[48:42] Thanks for this five stars everyone and thanks for joining us this week.
Jason:
[48:46] Until next time happy commercing.
Leave a Reply