Jason & Scot Show Episode 194 – Amazon Q3 2019 Earnings and News

A weekly podcast with the latest e-commerce news and events. Episode 194 is a recap of Amazon’s Q3 2019 earnings report and recent Amazon News.

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Amazon Q3 Earnings

Revenue accelerated in the US and intl due to 1-day prime juicing demand

  • US – 24%  (Q1 – 17%, Q2 – 20%, Q3 – 24%)
  • Intl 21% (Q1 – 16%, Q2 – 17%, Q3 – 21%)
  • Unit growth (items sold) accelerated to 22% – 4% acceleration (18%) – fastest in 2yrs.

This came at a cost – profits were down 26% y/y and TODO wall st estimates because shipping costs grew 46%

 Specifically GAAP operating income of $3.16b came in 2% below street consensus of $3.22b  EPS was $4.31 vs street $4.56.

This caused the stock to soften by 7-9% in after-hours trading and articles are already out that bezos no longer richest man.

Amazon’s Q4 midpoint revenue was $4b below Wall St. estimates and they projected lower margins than wall st expected.

Specifically, guidance is $80b-<->$86.5b with midpoint of $83.25b – implies 15% growth, 5% below Wall St.

Amazon’s Ads biz which grew 45% y/y and represented $3.6B in the Quarter.  Brian T. Olsavsky – CFO:  “So other revenue, which is principally advertising grew 45% this quarter, up from 37% last quarter. And the biggest thing in there is advertising and advertising grew at a rate higher than that 45%.”

Amazon News

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Episode 194 of the Jason & Scot show was recorded on Thursday October 25th, 2019.

Automated Transcription of the show

Transcript

Jason:
[0:24] Welcome to the Jason and Scott show this is episode 194 being recorded on Thursday October 24th,
2019 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.

Scot:
[0:40] Hey Jason and welcome back Jason Scott your listeners Jason I want to start us off with a deeply,
personal question of personal nature and I know this is private awkward to just jump into on a podcast but do you have your episode 9 Star Wars tickets yet they just went on sale.

Jason:
[0:57] I know they went on sale I do not have them and I know you’re probably mad at me.

Scot:
[1:04] I’m not because I got you an extra ticket so all you have to do is buy a plane ticket to RDU and you can come watch it with me.

Jason:
[1:13] Is as likely I’ll be in RDU as a Chicago on that day so it’s a December.

Scot:
[1:20] But it’s an open offer to so if you have a hard time getting tickets let me know.

Jason:
[1:24] Yeah I just not a good enough plan or to know that I could get a babysitter on December 20th so we didn’t buy tickets and I have to admit a total Star Wars newbie move
I’m somewhere when the tickets went for sale and I got like a push notification on my phone and I’m like.
Wait how did I miss this is the movie about to be released and I missed it.
Of course it’s there selling tickets 2 months early.

Scot:
[1:50] Come on dude that’s that’s embarrassing.

Jason:
[1:52] I’m going to edit that out of the podcast so people think I’m cooler like you are.

Scot:
[1:58] Speaking of Star Wars the even before then we have a big event the new series Mandalorian premiers on it’s kind of one of the launch pieces of content for Disney plus that comes out November 12th so is Star Wars fans are going to have to big drops Within
what is that like 40 days so it’s going to be pretty exciting and
rise of Skywalker so it’s going to be exciting frothy times for Star Wars fans.

Jason:
[2:26] Yeah it is for sure there’s a I feels like that watch is going to be successful for a variety of reasons
I know you wouldn’t read the trade press that my company poo Bose S1 the marketing contract Market Disney blessed so so I’ve been inundated and surrounded by Disney plus content.

Scot:
[2:49] Rico does that mean we can see the content early his friends Acres.

Jason:
[2:53] No I haven’t when I say surrounded by Disney content I mean promotional mix actual show content unfortunately yeah yeah I’ll be somewhere with you on November 12th.

Scot:
[3:06] But this is not a Star Wars podcast if this is your first time you listen to it she may be confused this is actually a retail e-commerce podcast
Jason. It’s a well-known for your sisters know that Jason has I think 50 different Alexa devices in his house did you jump in on the new Alexa faucet.

Jason:
[3:26] Yes I am staring at so this is not an Amazon product has a third-party product but I am staring at a box from Delta faucet right now
which is the Alexa upgrade for my digital kitchen sink.

Scot:
[3:42] So what commands does it know on off.

Jason:
[3:45] Yeah so I’m a I’m utterly convinced this is going to be the least useful home automation product I’ve ever owned but I have.

Scot:
[3:53] The Alexa toilet.

Jason:
[3:54] But I had to have it yeah.
Like when you hear about it you’re like oh my god do I really need Alexa to flush a toilet Siri is,
it’s a it’s an it’s a very expensive way to put on an Alexa device in your bathroom and the hope is
that we control music lights and your shower in your bathroom which kind of makes sense right like walk in and have some some music playing in the the proper lights and have your shower preheat so you can get in when it’s Altos.

Scot:
[4:29] Does the music come out of the toilet.

Jason:
[4:31] It does not.

Scot:
[4:33] Wait are you talking about substance use are you talking about the faucet of the toilet.

Jason:
[4:38] I was so I was given into the toilet because you went there.
And that the toilets are these Kohler toilets that are few that have an Alexa embedded in them in the one that’s most like.
Talked about because it’s so ridiculous there is a $10,000 toilet that has the additional amenity of it has a motorized widtsoe in addition to flushing the toilet Canon fax.
Put the way it up and down by voice commands and it also has a multicolor LED so you can set your own color scheme for your toilet.

Scot:
[5:14] Brickell and then tell us more about the faucet.

Jason:
[5:17] Yeah to the faucet is a Delta products and.
It lets you so you can turn off and on the faucet you can specify a water temperature like not a specific degrees but you can say,
hot water or cold water and then you can specify a volume so you can say like Alexa fill the Delta Fire ask the Delta faucet for 60 oz of water.

Scot:
[5:45] Pickle unfortunately the only time we can talk about it cuz once you get it installed Wii U you can’t talk about it without turning the water on and off soon.

Jason:
[5:55] That I had to hit I had to hit mute on the device in this room like when I realized you were going to ask me about the faucet so we’re safe.
And yeah this is an upgrade to an already smart faucet that Delta cell so it also has like,
its own website and its touch-sensitive so you so if you don’t want to use voice you can touch anywhere on the metal.
Fixture to turn off and on the faucet which that feature is at I have actually found to be useful and I now can’t use anyone else has kitchen sink because I just touched there.

Scot:
[6:27] Tap it nothing happens you like what’s wrong with this thing.

Jason:
[6:29] Yeah I’ve lost it.

Scot:
[6:31] People live in like 19 2019.

Jason:
[6:34] The Flintstones exactly.

Scot:
[6:37] Well if this is your first time listening to podcast it is not a Star Wars podcast nor is it a plumbing podcast that are actual topic du jour is an Amazon Q3 hot take
it wouldn’t be a Jason Scott show without talking about Amazon.

Jason:
[6:58] News new your margin is there opportunity.

Scot:
[7:06] So it was an interesting week in e-commerce we had back-to-back eBay and Amazon releases so I can want to set the table before we dig into some specifics
first of all kind of the macro table is 2/3 is really important in the world of e-commerce because it’s leading quarter into the all-important fourth quarter which is the holiday quarter I’m in
still is true even though Amazon has Prime day and and,
you know we don’t see any of these like Toys R Us anymore and that separates each category where you had like seventy 80% of of their business done in Q4 but we still all retail Ducey a super sized before so it’s very important
time frame and so we like to we like to kind of it also kicks off kind of our holiday coverage on the podcast so kind of read the tea leaves a few 3 and then we’re going to start to get some of the
forecast of holiday coming in and then that’ll see us up to then talk about the results of things like singles day and then Black Friday Cyber Monday and and all that good stuff
Scot of the kick-off the holiday season oddly enough even though you know I’m here in October doesn’t feel like we’re quite that yet there yet here
they make you jealous Jason here in North Carolina we had like an 85 degree day so it doesn’t feel Christmassy but definitely right around the corner.

Jason:
[8:29] But you are drinking like a peppermint latte right.

Scot:
[8:32] No not yet not yet wait till have to wait till after Halloween to get in the spirit.
To eBay announced yesterday and Amazon announced today and personal a quick disclaimer when we when we talk about
these kind of financial results on the Jason Scott show we always like to go with a constant currency measures in
and US results it doesn’t matter but when Amazon eBay these other folks announce International you could talk about euros and then you weren’t that $2 but that
that exposes the results to the degrees of currency changes so currency constant currency you look at Euros vs Euros or
basis vs. bases whenever the currency is so it’s more true indication of actual growth rate of the company’s stripping out the the different
currency exchange rates between periods in the retail we always look at your rear because of the all the seasons that we have in retail
okay that being said eBay was interesting because you had to set up the air oven September the CEO kind of shockingly announced his departure and I think use Twitter as the platform for that one
Island usually got a lot of Co departures lately.

[9:42] Olive public companies Under Armour for example I’m had one as well so see you there Devin when he got out of line with the board board wants to break parts of eBay further apart so that the kind of
obviously split out PayPal about a year-and-a-half ago now and I think the board wants to split out there classifieds Division and StubHub and then Devon didn’t wasn’t on board with that so they have split up
it’s always scary when someone leaves a company kind of before the quarters announced so there’s little bit of pins and needles going on around what’s going on inside of their
and if shirt off eBay has been on a little bit of a decline and their gmv went into negative territory on a year-over-year growth rate to – 5%
a year ago their year-ago comparisons of Q3 at 18217 was plus 5% that’s a 10% swing of a really really.
Free large pool of Jim be there so you be as losing share and you know there’s the world of eBay there’s a lot of different reasons why I kind of feel like Amazon is a nut
reason for that,
eBay definitely kind of place that more value on a consumer in Amazon the convenience ring consumer the bifurcation we talked a lot about on the show so there is a world there’s room for eBay I just think they’re not really executing really well and they are distracted by a lot of these kind of corporate.

[11:05] Mechanics that they’re dealing with like the split of eBay PayPal and now StubHub and I was going to stop
so heading so so that was kind of little bit of a Dark Cloud over the world of e-commerce and uneven retail
and then today we had Amazon and the set of four Amazon is they announced that they were taking Prime from two day service level to one day in April and they even talk about how
you know there’s something like fifty million Prime eligible products and they talk about how,
I’m each quarter they would add 10 to 12 million products into the one-day Prime bucket,
and it’s clearly on the site you know you when you add something to your car even before then you you can see if its 2 day primer one day Prime Saudi Amazon has been doing is turning that dial and trying to get
the bulk of the Prime eligible products to be one day instead of just today so.
So that that’s interesting and you know what so it’s listed in the results so the.

Jason:
[12:08] I was just going to say one fun fact before you jump into the actual Amazon results about eBay CEOs another one of the surprising CEO changes last week was Mark Parker the CEO of Nike.
Announced that he was stepping down in the the reason I bring that up is his replacement was announced who is John Donohue who I think used to be
a CEO at eBay.

Scot:
[12:34] Yeah it’s Donohoe and it’s really interesting cuz the CFO of eBay in John’s regime is now the CEO of Intel so it’s kind of funny I oddly
I’m not a name-dropper in but I have like a Forrest Gump weird thing where I have met some folks there but they miss so I now know the CEO of Nike and until.

Jason:
[12:56] That’s not remotely surprising to me but very cool.

Scot:
[13:00] Feels feels odd and here I am wearing Crocs so mean I need to get some Nikes.
Star Wars Crocs that stick their own brand for me digging in the Amazons Q3 results the good news so it’s kind of a good-news-bad-news kind of thing the good news is one day Prime has really accelerated to man so
urea revenue for Amazon grew 24% in the third quarter and here’s kind of the trajectory so the first quarter
and then you ask this so this is North America the growth was 17% and then Q to 20% and now in Q3 24%,
Just 4 percentage points higher than Q2 and so that that’s pretty impressive and then internationally also saw acceleration to 21% so when you pull in those together Amazon grew about 20 to 23%.

[13:54] The international progression goes to one of this year’s 16% and then 17% and noun in Q3 21% sewing,
also about a 4% acceleration on the international side
another metric that we look at really closely as Amazon talks about paid units Nicole that unit growth that’s a metric that it’s slow down to about 12% and it is accelerated to 22%,
how much is it straight in the last 2 years so so kind of packaging that together
consumers love when they Prime and it is actually accelerated demand materially for free Amazon which I think is really good Top Line set up going into holiday
now the bad news is this just comes at a pretty steep cost because you know his listeners know the difference between if you went to your your any carrier and you said what’s the difference in price between 1 and 2 day shipping.

[14:51] Quite pricey right so Amazon profits were down 26% on a year-over-year basis and that created a headwind on wall Street’s bottom-line estimates because shipping cost effectively Groove 46%.
This this makes a lot of sense and you know an Amazon philosophy that,
that we talked about on the show but I live everyday is the Amazon philosophy is first figure out the man and then you can figure out the cost and.
I’m doing this on a daily basis and it really work so if you can go put a product out there and get a lot of demand for it,
decreased scale and scale is how do you drive the per-unit cost down
it’s hard to solve that equation at the same time so so I have a lot of confidence that these are one-time cost and we also see is an Amazon doesn’t report this will see a little bit later
you know in and you talk a lot about this Jason is we’re getting to somewhere around half of the package has been delivered
are Amazon delivering them and I think that’s what they’re going to do I think I think as that goes to 100% that’s how they’re going to get the cost down is by using that driver Network that they filled up,
taking the third party shippers increasingly out and which is better user experience and War costume.

Jason:
[16:12] The interesting Lee they were to ask what the the ratio of Amazon deliver packages to carrier deliver packages was on their earnings call and they sort of coyly dodged the answer to that.

Scot:
[16:25] Yeah some people report on it I’m not exactly sure where they’re getting their data so it’s it’s interesting
but I can save for me you know what when you order from Amazon and look at the tracking number she can tell if it’s a FedEx UPS USPS or are UPS never see FedEx any more rarely ups and,
you may be 20% USPS so I’m almost at like 70% Amazon delivery 80%.

Jason:
[16:54] Also very high maintenance before but Chicago is a a test market and so we’ve had,
Amazon doing their own deliveries along before that was a program they rolled out and we we’ve actually had one like all my Amazon packages are one day so.
And it’s like there still are some some ups and USPS deliveries but the overwhelming majority
of of mine are Amazon carriers and I think you’re right like so Amazon hasn’t disclosed the exact breakdown but there are a couple of these companies that scrape.
Email boxes.
And so that’s all you 1010 data and rocket on a data which intelligence which you speak sliced and we talked about in the show but they reported like quite,
quite significant growth in the the the Amazon delivery percentage in I’m I’m sure at the end of Q3 it’s even much.

Scot:
[17:59] So what you would call in Wall Street parlance what you call this quarter is a top-line beat in a bottom line Miss so specifically the bottom line and there’s a couple different ways to look at this there’s this guy property income earnings per share
Yap operating income came in at 316 billion which was 2% below while she’s consensus and EPS was $4.31 per share versus the street estimate of 4
56 now it’s interesting is Amazon print out their own guidance and Wall Street and crap that up and kind of didn’t listen to Amazon Amazon it tried to tell everyone last quarter hey this one day Prime things kind of expensive so.

[18:37] We’re lowering our ups and while she kind of said that they were wrong Amazon,
I’m after hours this caused the stock to slide pretty significantly started judge after hours things like I’ll look tomorrow and see what’s going on,
I bruised down as much as 9% and of course you know everyone was jumping with Glee that that Bezos because of that slide was no longer Richest Man that,
Bill Gates was back on top and see how that goes,
another kind of cause for concern was Amazon also in the current quarter they they tell you what their projection is for next quarter and their guidance was a midpoint on the revenue side that was below what Wall Street had estimated,
about my belt for billion that sounds like a huge amount but at Amazon scale couple points
percentage points so specifically the guidance was a bottom range of 8 revenue for sale 80 billion to 86.5 billion – 83 and a quarter billion.

[19:47] That place at 15% growth rate and that was all she did kind of thought it would be about a 20%,
to hear so it’s I put out a lot of data there until let’s go back up to 30,000 feet I’ve been falling Amazon for a good 15 plus years there lies
pretty prudent going to queue for cuz you do have you know
sitting here today we know the consumers in pretty good shape to condoms in pretty good shape but we got a lot of potential negatives out there around these terrorists and and there’s a lot of sessions coming in,
like noise in the market so it’s always prudent to be pretty conservative going to queue for especially because it is such a
big quarter but you know I’m going to go ahead and call it as a side from some externality that that I can’t see I think they’re just going to Absolute
blow that away that midpoint in and I think I think even the top of the range is pretty conservative because you know what.

[20:47] What you see in Q3 is it’s really clear consumers a loved one day Prime its accelerated this business and it was really amazing to me is 300
billion dollar business accelerating its Revenue up to 23%
yeah I don’t think I ever seen anything like that Walmart is kind of just this kind of General size and growing
Buttes low-single digits like you know for Walmart to accelerate their business to 24% if something like that after like
add 24% more stores or their e-commerce would have to go up like
math is probably like 300% or something like that so we’ve never seen a company scale like this
I’m in the world of retail now some of the pure digital companies like a Facebook a Microsoft hey Google they’ve had periods of acceleration like this but never a company that has you where houses and shipping products in these kinds of things
it’s pretty crazy I’m so kind of help.

[21:49] We talk about such a big numbers I always kind of like to try to ground it and something we can all kind of get our mental image around since here’s my stab at that most will see if the Slants with you so,
Amazon is forecasting about an 80 billion dollar fourth-quarter each percent they grow in their.
800 million JCPenney is they do 3 billion a quarter so effectively each 4% than Amazon grows in court 4th quarter is a JCPenney,
I didn’t Tire JCPenney so yo at like a 24% growth like let’s say their growth is straight line from Q3 to Q4 and its 24% that is.

[22:32] That’s essentially six JCPenney’s that that Amazon’s going to have you no incrementally take out of the market if they grow that much your rear
so last thought if you if you kind of piece this together and you look at Amazon’s growth trajectory here’s kind of what 2019 looks like
let me see if you can pick out the dew point that doesn’t really kind of fit in here so q1 they did 17% year-over-year growth due to 19%.

[23:01] Q3 22% now they’re saying oq for is going to be
15% do we really think Amazon’s going to slow down to their slowest quarter in the fourth quarter after they spent all this money and time getting everything to one day Prime,
he actually kind of look at that Trend you could kind of say well I could see that it could be 23 24% so,
so the last thought is Wall Street is really fickle right now so eBay did better on the bottom line but didn’t show growth that punished Amazon showed tremendous growth at the scale
punished so young,
when the world saying you’re kind of in a lose-lose situation you might as well just kind of like rip the Band-Aid off and be super conservative out there and what I think’s got the market in this choppy Waters is the the
rough IPOs that have come out from Uber and Lyft
and withdrawals of IPOs and then we work is got a whole Market on a spooked and let you know this company set to go public at something like
you have 50 billion dollars and now it just had to raise Capital at 8 billion dollars to a bottom-line Bill Gates I know you’d listen to the podcast and so does Jeff Bezos don’t worry Jeff I think you’ll be back on top of Bill here shortly.

Jason:
[24:15] As you’re saying that I’m getting like Iams from Bill and he’s like pointing out dude I’m trying to give away all my money so.

Scot:
[24:24] She’s stroking $500 checks here and there so yeah he’s doing his best.

Jason:
[24:28] Exactly so I don’t I’m not sure it is his aspiration to stay out of jail so that was quite the earnings call,
I am. I’m with you on the revenue side for sure it seems like,
one day shipping is going to drive a lot of incremental revenue for Q4,
I guess the bigger question is like half how expensive that will be in it and you know it is there a commensurate drag down on earnings as a result of a lot more expensive deliveries for Q.

Scot:
[25:04] Yeah they framed that on the call I forget the exact amount but they did put in a pretty.

Jason:
[25:10] It’s a big number is 1.5.

Scot:
[25:12] Pretty big number and I I suspect you know that number
is the number if they had 24% growth and they put in 15 but yard is they have a blowout quarter I think they could have a blowout bottom line now I think what we’ll see Amazon thing on a 10-year chunks
I think over the next five years you’re going to see them in criminally
you’ll get those they will figure out a way to get one day Prime to cost the same as two different and get it to scale first but then what’s going to be killer is once they figure that out then they can probably just turn the dial on same day Prime,
and probably without too much cost.
It’s not going to be as big of a jump it probably like half or less the jump from two to one day the same day I’m so so if you listen to this in your thinking how do I compete with Amazon that’s that’s what you’re up against you know so they’re they’re going to be because they know that this is.
So clearly created so much demand for consumers they’re going to continue to turn the dial on on this in a lowering the the shipping time on Prime,
and clean more and more season 2.

Jason:
[26:20] That. Hundred percent agree I feel like the
they’re very confident didn’t however much pain it takes them to get to one day shipping if it will be orders of magnitude more painful for anyone else to match them cuz no one has close to there
there’s a film in infrastructure right so you know if if they give themselves a cold by doing this like they’re giving their competitors Ebola.
So very good play there was an interesting comment from Bezos he was playing up the fact that one day delivery is greener than two day delivery.
Which it was not immediately intuitive but what he saying is,
ultimately the only way we’ll will cost-effectively get to one day delivery everywhere is.
Way better Logistics and staging more of what people want closer to those people like it just not going to be possible to put stuff on planes everyday.
For next day delivery and so,
so his you know it it’s for your point it seems like they’re just investing in the infrastructure to Stage more Goods closer to customers and get them there quickly.
Via cost-effective delivery mechanisms mostly their own sew-in the interns chimed in while while you were chatting in the
but that data point we had from rocket on intelligence has Amazon at 47% of their own packages so just.

Scot:
[27:48] Daniel is kind of round hat that’s a little bit I haven’t seen an update that and it’s it’s kind of like the spring so.

Jason:
[27:55] Ya no soy it very likely has passed and that that update still have 1.6% of packages being delivered by FedEx which is no zero so yeah so.
Yeah all interesting stuff that one of the things I knows about the earnings call they hired a hundred thousand people in Q3.
Which is a big number and it’s very likely that a lot of those people are.
Delivery drivers and extra shifts in warehouses.

Scot:
[28:29] Those are 1099 they wouldn’t show up in here I got to get spyware house and they’re adding to AWS like crazy right now.

Jason:
[28:35] Yeah but that’s so not all delivery drivers are 1099 so for example a lot of the the Chicago delivery Force are W-2 employees.
So there.

Scot:
[28:47] Hi some Union thing.

Jason:
[28:48] There’s a blend.
I’m getting there as that has all the teachers on strike here in Chicago this week but yeah so huge hiring thing, and Sebastian I’m from Baird like he called that hiring number
the most surprising metric in the room,
I always like to keep an eye on the brick-and-mortar number which in the overall scheme of Amazon isn’t isn’t a.
Is usually financially relevant number but it is interesting because it is.
Absolutely going down. The rate of growth is like brick-and-mortar sales than Amazon actually declined and when we say brick-and-mortar sales what we’re really saying is Whole Foods because the rest of the Amazon free is in.
Really economically significant enough to impact the Whole Foods numbers so whole food sales are lower today than they were in 2017 when Amazon acquired them which is pretty interesting.
And obviously there’s a lot of Buzz about some new retail formats that are you seem like they’re very close to opening and you know I’ve been speculating that there’s a new grocery format that’s going to open in Los Angeles here imminently.
Going to be interesting to see.

[30:04] What they do because you know is we both of observed Amazon doesn’t always win with their first effort in something but you know they also don’t tend to tuck their tails between their legs and retreat.

[30:20] So that’s going to be big you mention AWS that is also a declining its growth rate which you know.
Pretty prodigious so they were they grew at 37% last quarter and then they drop down to 35%.
Let you know there’s a method gets repeated too much that all of Amazon’s profit is AWS that’s not true retail is profitable but but AWS is the,
biggest contributor to profit and so is the fact that it still growing at 35%.
Is certainly very robust and obviously the law of large numbers is that you would expect that rate of growth.
To be slowing and what’s interesting is you know they have two competitors Google and Microsoft who they sort of had a six-year Head Start Over.
Until they have much bigger share than either of those two competitors we’ve actually seen those competitors.
Rates of growth which are you know they’re much smaller business is slow and worse than Amazon so it seems like.
There’s a little bit of plateauing in these cloud services and it’s you know in Amazon is the least affected by that Plateau so.
Yeah I would call that mostly positive signs for them.

[31:39] I know you are a big fan of the marketplace side at.
The Amazon business and you know that the marketplace sellers have for awhile accounted for over half of all sales.
On Amazon but the it seems like the Knicks slightly to Klein this quarter so it went from.

[32:00] 54% last quarter at to 53% this quarter and I’m assuming that’s because.
100% of Amazon stuff is probably one day Prime and a lot of the and in some you know a significant amount of the.
The 3p is not one day Prime and so the the.
Shift to one day Prime probably uses a first-party sales a little bit disproportionate.
And then the last thing that I always like to follow in his earnings calls is the advertising business right and so this is
you saw the famous we listed as other in an Amazon parlance
but other Groove 45%,
so that was 3.6 billion dollars in Revenue in the quarter and Brian the CFO like answered a question about ad revenue and he kind of.
Confirmed what we had all been saying other revenue is principally advertising advertising grew at 45% and you know.
Advertising is the biggest part of other in fact,
advertising had to grow bigger than 45% to cause other overall to grow at 45% so so the ad piece of business and Amazon is actually growing even bigger than 45%.

Scot:
[33:28] Yeah there’s some kind of in this kind of rough on the add thing there was a couple reports out there is a is this a competitor of yours or part of your sperm dick Merkel put out some stuff about,
yes I’m trans they saw I thought it was even more interesting though emarketer had a report out where,
for the first time that I’ve seen how you can fax at me on this they did talk about search ownership or search.
Pie chart of of search this kind of always been boring look at this cuz it’s kind of like Google it 90% then you have like a little bit of
Microsoft in a little bit of Verizon and like you know ask to use her ass or something like that
so for the first time Amazon is listed as number 2 with about 13% share of search I’m So it seems like there now, expanding the definition of search from what we would think of is that you know that you know ask Google anything kind of a search to include
product search and when you do that Amazon has cross the materiality threshold we’ve all known this
because there’s been surveys that just look at product search and Amazon’s ahead of Google in that so this is another kind of interesting Awakening out there in the ad world that you know
Amazon is actually compete with Google and it really interesting way that a lot.

Jason:
[34:54] Oh yeah and I think it’s very clear that Amazon is taking advertising dollars from Google the.
Like I am slightly skeptical about some of the like surveys that say,
Amazon is leading Google in product search cuz I would just point out those tend to be tiny surveys of i2000 users and they’re just kind of these like silly stated surveys like they just ask people
and nobody has a consistent definition of what a product search is right so if if I die Pizza.

[35:28] Is that in your definition of a product search or searching for a product of pizza you know there’s a lot more pizza searches that happened on Google then that happened on Amazon,
so you don’t really have Amazon surpass Google you have to have a pretty narrow definition of product but but I absolutely think like.
In that narrow definition Amazon is very big they’re generating a bunch of dollars those daughters are clearly coming from Google and what super interesting to me is.
Amazon actually had their first.
Conference for advertisers this year is very beginning of October 2nd and 3rd in in Seattle and the big take away from this conference was.
That they don’t just want to be a search advertising engine so that the huge Focus was,
I9 using Amazon for what we would call top of funnel advertising so like high-level brand-building not just the very specific product searches.
And you know they’re they’re one of the biggest media properties out there with traffic to Amazon and all their video properties and everything else so it’s.
It’s a little bit of stretch but it’s it’s totally credible that you know Amazon has it set set not just on Google’s product search but on it so it’s entire at business.

Scot:
[36:47] Anderson.

Jason:
[36:49] So that being said there’s actually a fair amount of other interesting Amazon news over the last couple weeks that we should we should cover briefly.
I mention Amazon had their their first advertising con conference adcon.
So that’s interesting you know Amazon’s conference for for AWS is actually quite big event now so it won’t surprise me to see this advertising show start to expand dramatically as well.
I actually saw an interesting article this week from a former guest of our show and I I’m going to Massacre Joe’s last name do you know how to pronounce it properly.

Scot:
[37:30] Concha.

Jason:
[37:31] Yes we’re going to call in a joke a and he’d been studying all the private labels on Amazon and he noticed that like,
32 of the hundred apparel brands that Amazon has launched are no longer for sale on Amazon so it sort of highlighting the fact that that a lot of those.
Those like quickly launched house Brands like don’t appear to have a lot of legs in the Amazon has has taken them down which is interesting.

[38:02] Another news item that really caught my eye first written about by Jason Delray and then confirmed on the earnings call today.
It seems like Amazon is scaling way back on.
Sort of enforcing what they historically have called crap which is the acronym for can’t realize a profit.
You know historically Amazon you know his put a lot of pressure on manufacturers to make products profitable of the cell and what that usually means is.
They don’t want to sell items that are difficult to ship and that are inexpensive so you can’t buy a single roll of paper towels for example that you don’t cost $2 and it’s pretty Bowl.

[38:43] And historically they would do things like at make that an add-on only sale that you can only add to a box when you had a bunch of other stuff in the box or they’d asked the manufacturer to provide a bigger bundle or things like that,
and it now seems like Amazon is much more content.
To sell one or two dollar items and include them in the Amazon Prime one-day shipping.
Into it a lot of items that were formerly add-on only are now available for sale with free shipping witch.
You again says that like Amazon appears to be willing to forego some profitability in exchange for.
Fulfilling customer to man and catching more more share your point earlier.
And I assume that the strategy is you get a big enough share of wallet you do a bunch of deliveries they all become much more cost-effective I just you know habitualized in the customer to buy everything from you.

[39:40] Amazon has been expanding this program they call Amazon counter so there now a bunch of retailers in addition to Kohl’s with that you can.

[39:50] Have your packages shipped to and pick up so Rite Aid is in there.
A number of other retailers are now providing the amenity of letting you ship Amazon packages to their store and come pick them up there.
So that’s an interesting play I think just today Amazon announced that they bought a new health company which is called Health Navigator.
So listeners may remember that Amazon bought pillpack a couple years ago so this is a second acquisition in this space and my understanding is that Health Navigator is primarily like.
Online symptom checking in remote diagnosis so.
It sounds like some sort of friend in tool that you could imagine Amazon building into a future health offering and you know Amazon is already announced that they’re doing a health pilot for their employees and they said they’ll use this as part of the.
The offering for their own place so it seems like there as everyone expects continuing to invest in hell.
The most interesting private labeling as when I seen from Amazon in a while as a product I wouldn’t have necessarily expected them to private label they launched their own,
brand of gin last week so we may have to do a,
a test on on the shelf or whenever episode Scott but they invented a new brand called tovis in their they’re now selling their own premium gin.

Scot:
[41:12] Yep seems like a deep dive we could tied into a fun drinking game.

Jason:
[41:15] Exactly I’m sure they’re already are some bad drinking games for a podcast drink every time Jason says um for example would be a good one and I just got two drinks right there so.
When they got a bunch of Buzz that I don’t think it’s so surprising Amazon prints this a holiday catalog every year physical catalog that you know mostly focuses on what all the hot toys are going to be and it came to light that Amazon sells
slots on the internet catalog so you can you no pay to have your product listed as the hot hot toys for the holiday.
Retail have been doing that for a long time it’s not super surprising the the slight Nuance here is when someone buys an ad on amazon.com,
Amazon does the note that is a paid at like they they put a sponsor badge on it and the catalog.
Doesn’t have a disclaimer like that so it does sort of look like Amazon’s claiming its editorial content and so you know it may surprise some listeners or viewers to know that they could.

[42:19] That a lot of the products in that catalog to be in there because the the manufacturer paid for them.
And then the the final thing that I think it’s worth pointing out to our listeners is there were two really interesting long-form articles.

[42:35] Primarily about Amazon and maybe even more about Jeff Bezos that came out in the last couple of weeks it’s all put links in the show nose to both of them but one of them is called Jeff Bezos master plan.
And that was in the Atlantic and there’s a really long form article kind of talking about.
The five phases of Jeff Bezos Evolution from juice or pre Amazon aged.
Sort of his is space in Hollywood age today and that it’s a really interesting Deep dive into some of his personality traits and how they’ve helped.
Help the company grow and then there was also a really long expose in the New Yorker that was called is Amazon Unstoppable.
And you know the big Travis there was Amazon is dominant not because they have a particularly you know a single.
Interesting product or capability or piece of Ip that the real secret sauce on Amazon,
is the Amazon culture and the business process that they’ve adopted and so it it focuses a lot on Jeff in the leadership style and the culture and process that they didn’t still on the premises.
Did that that culture has served them really well to dominate a bunch of different Industries so both really good reads if you haven’t.

Scot:
[43:54] Yeah the spoiler alert the answer is Amazon’s probably Unstoppable.

Jason:
[43:59] Yeah I think that might be the conclusion they’re both a little balance so they both like in Meijer lot of Jeff Bezos traits and they also probably point out some.
Some things that like some of us might be was personality flaws so I’ll leave it to the two listeners to draw their own conclusions but.
They’re pretty interesting and Scott that’s going to be a good place to leave it cuz we’ve slightly surpassed the amount of time that we budgeted for tonight show but as always is
we’ve spawned a question or comment feel free to continue the conversation on Facebook or Twitter and as always if this is the show that finally got you over the hump
we’d love it if you jump over to iTunes and give us that five star review that’s really the best way to thank us for producing all this content.

Scot:
[44:46] Things are what we hope you’ve enjoyed this Q3 Amazon hot take.

Jason:
[44:52] And until next time happy commercing.

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