A weekly podcast with the latest e-commerce news and events. Episode 230 is recap of Amazon’s Q2 2020 Earnings.
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Amazon Q2 2020 Earnings
- Amazon Q2 2020 Earnings Presentation
- Statement by Jeff Bezos to the U.S. House Committee on the Judiciary
- Revenue at $88.9B vs expectation of $80.7b, a 41% year over year growth.
- Earnings of $10.30 per share vs expectation of $1.90, a 51% year over year growth.
Other Earnings Updates
- Shopify revenue up 97% to $714M (GMV now exceeds eBay)
- eBay revenue up 18% to $2.87B
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Episode 230 of the Jason & Scot show was recorded live on Thursday, July 31st, 2020.
Transcript
Jason:
[0:24] Welcome to the Jason and Scott show this is episode 230 being recorded on Thursday July 30th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
Scot:
[0:39] Hey Jason and welcome back to Jason and Scot show listeners.
Well this is one of my favorite times of the quarter is when Amazon announces their results so,
this is this episode is going to be a hot take we’re going to go really deep and peel the onion on these results because I think they’re really important given where we are as an industry but also
to kind of see how Amazon’s fearing doing this this crazy pandemic times.
Before we dive into specifics though here’s kind of the setup so you Amazon had a pretty good quarter in q1 the pandemic really was mostly felt.
The shutdowns the shelter in place has kind of started what Jason like March 10th March 12th.
Jason:
[1:26] Mid-march.
Scot:
[1:27] Yeah so they had you know 75% of the corridor was pre covid and then only a small percent was kind of.
Wrapped up in covid or 1590s whatever that ends up being the.
This is a really the first quarter where we kind of understand what’s going on here so from a macro perspective we just had GDP got printed that was down
32% so that’s that’s the yardstick with which we measure the economy gross domestic product so that’s the biggest decline on record and then just to compare that you know Germany’s down 10%
China asterisks is up 3.2 percent everyone believes China kind of lies on their number so who knows what’s really going on.
Jason:
[2:11] They’re also sort of a quarter in the future like covid hit them earlier so that it that would almost comp against our yeah.
Scot:
[2:19] And then the companies one other interesting aspect is we were actually set to record this a week ago but
Amazon uncharacteristically had a little bit of an extra time this time to get the results out so last year they result they announced on the 23rd and this year it’s on the 30th,
so that led a couple companies sneak in there usually Amazon is one of the first to report and then it’s actually pretty interesting because they reported today with
the bulk of the What’s called the Fang stocks – Netflix so they Facebook was today Apple Amazon and then also.
So so that was kind of a crazy day on CNBC there are running around with their hair on fire trying to cover all of that stuff.
Jason:
[3:03] Yeah the poor financial reporters.
Scot:
[3:05] Yeah yeah they were like and then they’re all working from home so they can’t they’re talking over each other anyway and they were just it was total chaos
anyway Shopify was able announced earlier in the week and their revenue shocked by being up 97%
eBay also came out earlier this week and surprised everyone with 26% growth eBay has historically been flat to slightly down on their gmv growth so that was a really nice surprise
and then on the show last week we had talked about that Goldman report I liked that talked about the impact of covid in what they were seeing they took a their own look at things and they had a blend of input from comscore any marketer
and what they had done is they had said hey,
you know prior to this pandemic we were looking at kind of a 14% growth rate and we’re going to ratchet it up and 20 20 to 29 percent and then keep it pretty elevated going forward so
so I think we can kind of think of twenty nine percent as the Baseline here is kind of the new or at least the pandemic
level with which e-commerce oriented companies are growing so if we kind of do that and just to revisit this again so eBay kind of in line with that 29% Shopify effectively triple that.
[4:22] Coming into the pan demet a couple other interesting news tidbits that kind of
we’re building into this so the FCC announced earlier today that they have cleared Amazon to launch their own satellite Network
so that’s pretty interesting so obviously so Jeff Bezos has a rocket company I’m not exactly sure if they’re going to use that I can’t imagine they would use SpaceX to launch these
so so there’s this kind of fun billionaire thing where you know so Elon is been working on a satellite Network and then he has had
cars with Tesla Bezos just bought was a Zoosk which is the self-driving car company and then now has launched his own satellite or gotten clear.
Jason:
[5:03] And these satellite networks are Communications net like essentially the like broadband internet or or cell phone service from space.
Scot:
[5:11] Yeah Wi-Fi from space starlink is the name of the SpaceX one and they’re there in beta program apparently it is supposed to be a really great service so I’m kind of moderately excited about that.
Jason:
[5:22] I feel like everyone is excited about that except for the astronomers because apparently it’s ruining the view of the sky.
Scot:
[5:28] Yeah yeah the day to get good coverage they have to launch thousands of these things I think the Amazon is actually 3000 and I think starlink is building up towards 3,000 and they do have solar panels and the reflections off those evidently really mess up the night sky so that’s sad,
but hey we have faster Wi-Fi so there you go trade-offs
and finally we’re not spend a ton of time on this because this is not our beat but we had these antitrust hearings yesterday
where we had both the CEOs of Google Amazon apple and Facebook
interestingly all the companies that announced today and testify yesterday and I think that was well-timed on their behalf because you didn’t want to you know if they were actually going tomorrow after they all essentially just totally crushed their numbers,
that would have been a bad optics for them so that was it.
Jason:
[6:17] Do you think that could have played any part in why Amazon reported later this year.
Scot:
[6:21] You know I actually didn’t think about that but that could be it yes I was thinking it took so just took longer to count all the money but that.
Jason:
[6:29] All the money yeah do you I seriously don’t know how it works so I can you just pick any date you want and there’s some strategy about whether you’re early or late in the reporting season.
Scot:
[6:39] Yeah so if you’re a if you’re concerned a large company which obviously Amazon is there’s a window within which you have to report and you know I think it’s 40 days
so that’s one input so they couldn’t do like you know
August 20th or something like that that would be too late but then yeah so one of the strategies is how long does it take your Finance team so you have to run an audit so you have this externality so you have to do your work and then a third party company has to come in and do it.
And at their scale I just I just came to imagine what that audit looks like.
Jason:
[7:15] A pretty good jobs program for delayed or whoever does that huh.
Scot:
[7:18] Yeah yeah I just can’t imagine
the scale that and then another thing you try to do try to do is you do try to avoid being on days with a lot of the same so in our in this world of Wall Street you have these coverage universes we’ve had several analysts on here so for this is
to 400 to listeners so what you don’t want to do is you’ve got you know you’ve got these 20 Analyst at follow you you don’t want to
have your call the same day as everyone else in their Universe well that’s essentially what kind of happened so it is highly unusual and now I think about it you mentioned that I do think
maybe that played a role the reason I bring up the antitrust thing even though I hate talk about politics is,
Jeff Bezos pindell letter that I really really enjoyed as him telling it felt very
authentic and in his voice
having read a lot of his stuff from like the 97 letter which is that famous kind of shareholder letter from the first year they were public when he outlined hey we’re going to focus on this thing called free shipping and selection and,
everyone was like what is all this stuff so this letter I thought was just really well done and I just enjoyed reading it and I thought I would
mentioned the listeners that if you have 10 minutes go read that letter it’s really really good
what did you what were you thinking coming into this quarter.
Jason:
[8:40] Yeah well so I mean I don’t think anyone was surprised to see e-commerce way up obviously with the pandemic and
it turns out when you close a lot of stores the alternative ways to buy things or more are more popular
it was interesting to me like there’s a lens you could look at like Shopify and eBay and say okay.
Demand was way up and neither of those companies would likely have a lot of capacity constraints like.
There are so many individual sellers that make up their sales like you you would kind of Imagine That.
You know they didn’t have a warehouse capacity problem but you could imagine that Amazon would have had much higher demand like everyone else.
[9:28] Even at Amazon scaling with their crazy infrastructure you could imagine that that.
Fulfillment center and delivery capacity was the limiting factor on their numbers for this quarter so I was kind of curious to see how they would do.
You know just to see whether they they would say that there was any impact of that and so.
Super impressive that they had such a big quarter there was a school of thought that they lost a little share to some other retailers because obviously they had where their delivery promise and they constrain some product for some period of time and so other retailers.
Got to jump in on some of those non-essentials that Amazon had to be emphasized so I was curious how it all played out.
It was totally fascinating I agree the Bezos letter was interesting you know.
[10:18] He has a good backstory and he tells this nice story about being adopted and and his.
Adopted father and all this stuff that’s very heartwarming and then he talks about what a small part of retail they are which is of course.
Isil store serving story in the in the context of being accused of antitrust and so he in the letter he mentions we’re less than four percent of us retail which is just interesting.
Um take that with a grain of salt there’s a lot of different ways to Define retail and I’m going to presume he pick the.
The one that made him seem the smallest but if you sort of back into some math from that it’s interesting what that would mean based on like Foresters sizing of retailgeek.
Four percent would put the him at a GM V of like 218 billion.
Assuming he was talking 2019 numbers and that 218 billion would be approximately 36 percent of 2019 s e-commerce Revenue so.
I just find that interesting because there’s a lot of estimates out there around Amazon’s gmv.
And a chair and you know these are on the low side of the typical estimates I see so it kind of it generally passes the smell test.
[11:40] And you know there are some crazy estimates out there that have Amazon at 50% of e-commerce so.
I just found that interesting and then if you actually watch the live hearings there was kind of a even more absurd analogous moment in Mark Zuckerberg is testimony where he’s talking about how.
[12:00] Facebook is basically losing to all its competitors at everything and it’s pretty funny he’s like,
Amazon’s advertising business is growing much faster than ours and Google’s advertising business is much bigger than ours and I’m like and I’m like that’s pretty carefully selected facts to make it you know you sound like a pauper but yeah.
Scot:
[12:18] Okay so that was the set up and now let’s dig into Amazon’s Q2 results with a hot tea.
Jason:
[12:31] Sun News new your margin is their opportunity.
Scot:
[12:41] Yes it’s the best way to characterize this will probably run out of superlatives but this was a monster result and it’s fascinating because
Amazon it also set it up in there the guidance they gave in q1,
saying hey we’re really having to spend a lot of money on covid related things for,
you know our fulfillment centers are not running at capacity because of social distancing we’re investing a ton and PPE we’re going to give extra pay to people for hazard,
they had really set it up that said yeah we’re going to see a spike in sales but really you should not expect a commiserate the spike in profitability in fact.
I think the number was we’re going to spend over 4 billion dollars on covid related expenses which is pretty pretty material number so that was that was kind of the they’ve done a really good job I think
tamping down expectations and then they just really blew it away here so
you know in Wall Street language you have kind of a beat Miss A Beat
kind of coming in a whisper number there’s all this stuff on how you did and then wall Street’s always like what have you done for me lately so really people are kind of already thinking about Q3 so then you think about
the current quarter in the future quarter so a beat and raise or a beat and lower this was a crush in a crush or a Smash in a smash I don’t know what to call it so.
[14:03] So let’s dive into it so you know
as a result of these results the stock was up over 5% after hours and that’s that’s not a huge amount but you have to remember
this this cohort of companies were talking about specifically Microsoft Apple and Amazon there in the trillion-dollar-plus club so when I
when a trillion dollar market cap stock goes up 5% that’s a lot of a lot more Capital coming into the market than even like a Shopify or IBM or.
All those are kind of like micro caps compared to what we see with the Amazon and apple off-topic apple actually really surprised people to so.
[14:42] Even though I think Amazon’s going to Leap Forward into this north of trillion-dollar Club I think apple is going to even go further so so it’s kind of pretty rarefied air up here
so the stock was up five percent to 30 201 analysts I’ve seen is already kind of nudging up from kind of 3,000 to 3,500 just on these results
so let’s put it in perspective so from an overall Revenue perspective Wall Street expected Q2 to come in at 80 point seven billion and Amazon surprised coming in at eighty eight point nine billion
the the math on that is they beat the estimates by eight billion dollars or ten percent so that’s
bu the billion not million that’s an eight billion dollar beat I don’t know how to put that in perspective how it’s like several beat by like
I don’t know how big JCPenney is it these days probably a billion dollars is like 8 JC Penney’s or something so it’s hard to even put it in perspective how big of a crush that is,
and then you know what’s exciting about that is that’s 41 percent growth year over year.
[15:46] You may hear us say some percentages and see some different articles out there with different percentages we always go with counting out the any impact from currencies the call it FXR Finance,
this collects changes so foreign exchange so 41 percent year-over-year growth again
yeah I think the Baseline right now is twenty nine percent so Amazon took share at their scale of over 80 billion dollars taking sharers just like,
massive just draining the bucket this was the fastest growth they’ve had since 2011 and back in 2011 they were a 48 billion dollar company
annually so that’s just kind of crazy so they’re there.
[16:34] Does nine years ago they’re going this fast so not only do they have the large the rule of large numbers that they seem to be able to you know,
break but it’s just kind of crazy how fast they’re growing
and yet another another kind of weird thing and this kind of speaks to the impact of the pandemic is usually the Amazon you have the previous q 4 sets of this bar and then q1 comes down
pretty significantly Q 2 you get to kind of like maybe 80% of that previous q 4 q 3 you kind of flirt with the last Q4 and then Q for you set a new bar and then you reset so it’s got that that stuff
pattern you see if you look at a growth chart of Amazon this Q2 was substantially higher than Q4 of 2019 so obviously do the pandemic that was this huge tailwind and they’ve benefited from it massively.
Jason:
[17:23] Yep and remind me traditionally where would primed a land in Q2 or Q3 for Amazon.
Scot:
[17:29] It would be June so it would be Q 2.
Jason:
[17:33] Q2 yeah so like the previous year’s numbers that they beat had this this huge holiday spending spree in it that they didn’t have this year as well.
Scot:
[17:43] Yeah so yeah so even further impressive did it all this without a prime day and then Jason you were watching carefully the split between North American International would you see there.
Jason:
[17:54] Yeah and reminder North America is the mature market for Amazon and so you know they they tend to have more profit they’re investing a lot internationally and tend to not have.
As a significant profit and it’s a smaller business so it should grow faster but basically whilst the expectation was.
That.
They would have about 50 billion in sales which would be thirty percent growth in North America and the Chi Minh at.
55 billion in sales so that’s a 44 percent year-over-year growth which is redonkulous.
Um for you know a company of their size and then internationally the expectation was 19 and a half billion which would have been up 22 percent and they came in at 20 2.7 billion which was again up.
Forty-one percent so like the you know.
[18:59] Growth across the board in a variety of different markets that were all experiencing covid very differently so.
Phenomenal and super impressive.
To me the most interesting thing though is earnings I feel like people are kind of used to Amazon putting ridiculous sales numbers up on the board and the,
the annoying retort we often get is yeah but anyone could sell a lot you know when you’re not making money and of course we’ve tried to consistently debunk that so.
This year that coming in the expectation was a buck ninety earnings per share,
and they fairly significantly beat that they came in at $10.30 earnings per share which is eight dollars and forty cents this year above estimate or or you know.
About six times the the estimated earnings.
The last year was a good year for profitability for them and they earnings were five point two dollars per.
Per share so you know the expectation was earnings would be down this year because of all these covid expenses and yet earnings were double what they were last year.
[20:14] Even with them spending four billion dollars on one time covid expenses so that’s just crazy.
You know they’ve always been good,
cash flow and again it was a you know operating cash flow increase 42% to 51 billion dollars and the free cash flow which is of course this number Jeff wants us all to
to focus on increased 31.9 billion so across the board.
Pretty ridiculous in addition to the four billion they spent on covid they still spent nine billion on capital projects which was a lot of incremental.
Fulfillment centers it was interesting I was having a conversation with someone today and you know over the last several years.
[21:01] Amazon was opening fulfillment centers based on a location to get like closer to customers and filling gaps in their Network and you know this person who is heavily involved in in the
construction of Amazon’s fulfillment
network was saying that that’s no longer the case that now what’s driving new fulfillment centers is where they can get space like that they’re no longer like filling in dead zones.
With new fulfillment center they’re just adding capacity to the reach they already have and the biggest constraining Factor at the moment is,
places they can lease that are that are big enough not you know specific locations that are close to particular market so.
[21:41] A lot of investment in growth they also hired a bunch of people
I want to say they brought in like a hundred seventy five thousand temps so you know it’s crazy to think they did all these like holiday like things to meet this holiday like demand,
there was completely unplanned and they I think they said they’re going to convert a hundred and twenty-five thousand of those two full-time employees so,
that’s that’s enormous growth on that side and
you know they’re they’re investing significantly in in all these high-growth areas for them so you know they’re still fighting.
Tooth and nail to win a share in India there you know investing significantly in growing their their ad Network you know I,
a lot about their efforts in grocery which we’re continuing to follow and obviously they made further
investments in in the health space and new Alexa capabilities so.
A lot of stuff going on in Amazon what did you take away from all that Scott.
Scot:
[22:44] Yes I think the I think they were probably surprised about how much profit squirted out of this thing and they couldn’t spend it fast enough it’s a high-class problem I’m super jealous I don’t I don’t typically have this problem.
Jason:
[22:58] As when you buy it you that’s when you decide to shoot a bunch of satellites into space.
Scot:
[23:02] Yeah might as well put pallets of cash on him and watch him out there to just just in case.
Um I did listen to The Wall Street call it was pretty terseness the prepared remarks they don’t like to.
Amazon’s General position which is actually probably pretty smart comes from Game Theory where you reveal as little as possible so some of the little tidbits I did Paul from there.
They one of these measures they look at is paid unit growth and that was up 57%.
That compares to last quarter’s growth rate of 32 and then q1 and it slowed down to 10%.
So this is like q1 of 19 I believe that is so.
That’s you know so to go from like ten percent and at that time frame up to here it’s just pretty amazing I was a little bit amazed they had the capacity to ship this much because.
That’s a.
[23:59] But at the scale there at its heart of back in the number of packages on the call they did talk about one of the things that kind of helped them a lot is Will to things around.
Around April in March and April they really kind of limited to Essentials.
Not being stuff for code and they started kind of blend that through the corridor.
They said by June april-june sorry May June they had guns kind of like more of what they called a normal balance
but they did say one of the things that was helpful to ship all this was third-party so they’ve had this program I always call it Merchant fulfilled Prime mfp they called it MF in on the call I,
I don’t know what that is that may be Network so whatever you call it though they you know,
they’ve always had this ability so if you’re not in Prime then you’re just filling your own packages but that’s
not a prime experience so then they created this middle one where you can live up to the prime promise and be a 3rd party seller and it seems like they really leaned on that a lot this quarter and their larger sellers really kind of helped them
get to these kinds of numbers and we’ll talk about 33 p.m. in more detail in a minute.
[25:13] So there’s some interesting color there about the kind of went into Essentials and they kind of mixed back into their normal mix there then.
[25:22] David said that they were just surprised by how high demand was that you never see you know you never hear them
say that you know they said a lot of it was driven by Prime members so they were like super engaged bigger baskets grocery they called out several times as being a really good success area for the quarter
one of the Wall Street guys I do is I guess we’ve had on our Stone Mark mahaney he kind of said how far
how long till you get back to kind of like that one day Prime that we’ve been talking about for so long and they admitted on the call that they’re still behind on shipping and then.
[25:59] They didn’t really commit to when they can kind of get back to quote unquote on par so,
yeah it sounds like they’re still there infrastructure is still just really creaking under this this massive load and it’s not just the growth it’s the scale you know that that extra eight billion dollars if you figure $80,
average selling price on something or something like that that’s a lot more packages you’ve got a ship so so I thought that was interesting color that they are kind of busting at the seams on this whole infrastructure
I wouldn’t be surprised you know they talked about investing a big chunk in this and you know
I kind of Envision there’s something like 40,000 Sprinter vans out there I could see him like tripling that program yet at some point.
It’s got to be bigger than UPS and FedEx on all this deliveries there’s not a lot of good third party validation data on that but at some point they just got to be like way bigger than that so that was my Takeaway on that.
Jason:
[26:54] Yeah yeah I thought there were a bunch of interesting things I they did talk a lot about the mix shifting to Essentials and interestingly you would.
The conventional wisdom is that the essentials mix is less profitable than the traditional mix you’re selling like a lot of cpg items and toilet paper and that’s those aren’t like the,
the high gross margin items traditionally so so the earnings are even more impressive given.
That they had this you know mix that so heavily skewed.
Two Essentials the mfn comment I found interesting too because we had heard from several people that like.
[27:37] It’s really difficult to get into the mfn program and therefore there aren’t a lot of people taking advantage of it and then it’s not all that.
That significant in terms of shipping volume but the comments is Quartermaine make you think that it must be more significant than.
Then some people thought so I thought that that was super interesting and then.
This this whole Logistics War thing is coming up in a lot of my conversation with retailers you know if you’re not Amazon and don’t own your delivery Network one of the things that’s happened is there was all this unint.
Unexpected demand for e-commerce right so superficially you’re like hey this is great everyone wants to buy.
You know all our stuff on the web well you got to deliver all that stuff and UPS and FedEx didn’t you know Flex for Holiday capacity.
And so you know those carriers are going to other retailers in there saying hey we’re only going to take 80% of your orders right and if your Footlocker you don’t have a lot of other.
Places to go if UPS doesn’t want to deliver all of your orders and then the next conversation is even worse now.
What volume do you want to commit to for holiday and these are our new hire surcharge drink.
[28:58] Um and that’s a double whammy because like the unit economics were already challenging and now the shippers are going to take a richer mix from you and you’re having to commit to your holiday.
Volumes in the most uncertain holiday period most retailers of ever face so it’s really difficult to forecast demand so so if you’re someone that’s dependent on the third-party carriers.
[29:24] You’re you’re having a lot of logistical challenges right now and so you know Amazon’s ability.
Deliver a lot of their own packages and you know pull a lever to make that bigger.
Um is is increasingly widening the Gap versus a lot of other e-commerce players.
Scot:
[29:43] Yeah I didn’t have a chance to dive into it but I saw UPS as stock surged in they had some kind of a massive beat themselves I don’t think FedEx is announced yet but yeah UPS is profitability on a surge is at the.
That could have be margin that retailers effectively paying for.
Jason:
[30:03] And then on top of all that there’s this other you know whammy that could drop like the.
Um the the economics of the US Post Office a really unsound and an all of these bail out conversations that I haven’t heard any conversation about a package for the post office so there’s.
You know if they were to fall down that would take a huge chunk of everyone’s capacity as well so it’s scary times.
Scot:
[30:29] How about let’s talk about the forward guidance that Amazon provided.
Jason:
[30:34] So I think the Wall Street expectation for Q3 was 85.5 billion,
um and Amazon’s guidance was Slightly North of that so they gave this 87 to 93 billion range which would be.
24 to 33 percent year-over-year growth,
um so you split the difference and you call that you know twenty seven and a half percent growth is what they’re forecasting for next quarter
and they are forecasting further one-time covid expenses but significantly less than last quarter so they’re expecting another
two billion in covid cost versus four billion this quarter I think Amazon has formally said that they’re going to stop doing the.
The fulfilment employee bonuses so I assume that’s a big chunk of those
those costs and I assume you know a lot of the the four billion dollars was capital investment in in new protective technologies that they still benefit from this quarter so so I think the forecast was operating income in that
225 billion dollar range.
Scot:
[31:48] Turning to third-party marketplaces so one of the
one of the areas we track is what share of paid units was third-party market shares that was kind of like in line whether it’s been it’s been kind of hovering in this kind of It kind of bounces between 49 and 53% it came in at 53 percent so a slight tick up from last quarter we saw a lot of growth is they do record Revenue Now call from third-party Marketplace seller services
that includes the take rate and FBA and some things like that that grew 53 percent year-over-year which I think is the fastest ever I went back
a couple of years I didn’t go back infinitely but they haven’t been read.
The deployment disclosing this for like two or three years so I feel pretty good saying that’s the fastest that I’ve ever seen of that and do
compare it you know there’s always people that say who Amazon’s using their data from third-party to grow their first party business well if that’s the goal they’re doing a terrible job at it because third parties growing significantly faster than first party so first party grew 49% third-party 53%.
Jason:
[32:54] Yeah and it’s confusing because in this context first party means like Goods that they buy and wholesale too
to Consumers I think the a gue actual acquisition accusation is that they’re using third-party data for
Amazon owned products which also aren’t selling particularly well so your your point is still totally totally valid other you know the Amazon.
Manufactured products that are selling really well are these like completely unique products that have no third-party equivalent like like the Alexa
so so yeah I don’t
totally buy it either I feel like it gets gets overblown did at the risk of asking you something that you didn’t do the math on what does that put the 3p mix at now like what percentage of sales is that.
Scot:
[33:54] I’m going to wait for a Wall Street person to chime in and we’re recording the show so fast after the results the Wall Street people haven’t so I will tweet that when I get it so.
Jason:
[34:04] Totally fair but it’s north of 50 is pretty clear.
Scot:
[34:06] Yeah absolutely yeah yeah I think the last time I looked at it it was like 70% of all gmv was third party.
So that that 53 percent is deceptive because
yeah and over on the Amazon Side Of The Ledger a lot of the units are super cheap so they’re like all digital downloads fall in there and kind of Kindle books so they have an aov of kind of or an asp of under kind of.
Twelve twenty dollars then over on the 3p side the ASP is more like 70 or $80 so.
So it’s again when Amazon can pick a number to your earlier point about the Bezos letter when they have a set of numbers to pick from they’re going to pick the one that under States.
Things as much as possible so the 53% makes you think that’s the amount of gmv coming from third parties but it’s kind of understated because the other side of the equation has a 1/7 or one,
third ASP compared to the number of units on the other side if that makes sense.
Jason:
[35:10] Totally yeah.
So then you can’t talk about Amazon earnings without talking about the cloud Wars and so in Amazon’s case that’s AWS
Wall Street was looking for 11 Point 1 billion in AWS revenue and it came in slightly below that so
you know one of the few misses in this whole earnings reported came in at ten point eight billion and I.
Randomly like I chuckle at that because you know we keep hearing oh AWS is the only real business in Amazon and all the rest of this stuff is just just sort of lost lots of meters and so you know.
Interesting that that’s that’s the only thing that.
Was a slight miss that still is like a 29 percent year-over-year increase and and you know they do have a lot of large numbers here that you know they’re getting bigger and bigger.
But I think margins look like they improved for the quarter so I think they were 54%.
Which I think is uptick you know again there’s a.
[36:26] A theory that because of covid a lot more people relied on cloud computing and you know a lot of the,
the remote worker services that were all living on now you know are all big AWS customers and all the.
Video streaming services which is you know most of our only entertainment right now our big AWS customers so there.
My thoughts going in I would have expected this to be a particularly good quarter for for AWS and it was perfectly fine quarter but it.
Amazing especially compared to the the the retail side of the business.
For comparison I think Google’s Cloud platform.
You know is on a smaller base but but they were Slightly North of 3 billion so that was like 43 percent growth versus Amazon’s 29 percent growth but on.
A business that’s you know three times as large.
Scot:
[37:24] Yeah yet the if there was any kind of crack in the sky perfect quarter that was the the cloud but you know I think.
We’re seeing this with like salesforce.com the macro there’s these large businesses are feeling the macroeconomic right
so I think that’s probably what’s going on here is for there’s a lot of winners and losers in this this world and I think the Amazon had a portfolio and AWS was a slight loser because these B2B customers are under a lot of pressure.
Jason:
[37:54] And for sure everyone was looking to you know a tester D measure so there was a chance to defer some of the the cloud costs or you know I’ll bet you they even.
You know how to lower payment rate than they usually have and things like that.
Um a side note we’ll do a deeper dive later but it’s been interesting to me all of these Cloud providers are,
launching more and more specialized services that are available in their clouds and a lot of these are our new like e-commerce microservices and so.
You know when you start thinking about what your eCommerce platform is it’s interesting you can.
More and more of your Commerce capabilities from these native Cloud providers so this week Amazon launched a new like anti-fraud system that’s a.
A default service in AWS and in you know that’s interesting because before this.
Before that there were you know five dedicated Point solutions that sold.
Anti anti fraud Solutions and now you know Amazon drops one of those and I think this we can Google went into public beta on a new
AI product recommendations engine Amazon already had offered one and so again like there are lots of things that you formally would buy from these like Commerce platform.
Specialty firms and it feels like Amazon and Google and Microsoft are really really leaning into that that space which probably isn’t good news for a lot of those traditional vendors.
Scot:
[39:21] Yeah and you’ve talked a lot about this headless kind of trend at some point we need to do a deep dive on this and you know what if you could go.
You get all this stuff from free and build your own little front end or Mary Mary it with a Content thing that could be pretty disruptive
another little kind of chink in the Armour was shipping costs so they grew you know if we think of
overall Amazon grew north of 40 percent shipping costs through 68 percent so definitely you know scaling up this fast
that came out of extra cost on the shipping side you know I think.
Amazon will do though is they can be really smart about this continue to Amazon’s philosophy as we get Revenue first and then
chewy it expenses so I bet they’ll be able to look at that and say you know we had to use ups for these six routes and we’ve never had to do that before let’s let’s drop an Amazon Prime.
DSP in there and and you know go direct and take a bunch of cost out of that equation so so
you know in one way there’s a two sides of this going yeah they spent a lot on shipping but they now know exactly you know what it looks like to service at an 88 billion dollar level and they can go kind of improve on that over time
I was interested in the ads business would you see there.
Jason:
[40:39] Yeah so that was interesting so the Wall Street expectation was 40% growth like obviously this has been a very fast-growing category is what Amazon calls other Revenue but it’s mostly them selling ads to other brands,
the they came in at 41 percent so a slight beat you know huge growth so you know they’re continuing on their ad trajectory it was 4.2 for the quarter I don’t even know how to convert
quarterly estimates in the annual estimates anymore because you like normally you’d have this Q4 spike is your kind of seasonality look,
and now that we have a giant cue to spike Like It’s Hot you know I don’t even know how to think about it but if you just you know assume that all the the quarters are equivalent that you’re on a 16 billion dollar run rate which is pretty significant it’s but you know it’s a.
A clear third largest digital ad Network in North America behind Facebook and Google and growing much faster than either of those the one thing I will say is
I would have expected almost even better growth this quarter because an interesting phenomenon all the brick and mortar stores.
[41:51] Closed in Q2 right and all the brands that primarily sell their goods through those stores had a bunch of,
Shopper marketing dollars that they normally invest in marketing in those stores they pay for ads on the Shelf they pay first store decals they pay for
ads in the store circulars that gets distributed and ads in the newspaper to get people to go to the stores and none of those Vehicles really worked for Brands and so my expectation was almost that those Brands would
would disproportionately shift those dollars to digital channels and that they would disproportionately shift them to Amazon and,
you know while it’s huge growth it’s kind of when your growth based on the last couple quarters for Amazon so I Wall Street was right I was wrong but I found that interesting.
Scot:
[42:42] Yes so that’s kind of the the Amazon results I would say the handle this pandemic way better than
I would have ever guessed by being able to really scale up infrastructure leaning on third parties the whole thing really just they hit on all cylinders there is a little bit of a
yo what’s going on in ws and I’ve seen some people say that adds they kind of felt like could have grown faster I’m okay with that because I always feel like,
ads are the straight off with the user experience a little bit and I’m okay with it growing a little bit slower than the overall pie how would you summarize the quarter.
Jason:
[43:20] Yeah so again I was
surprised and impressed I thought that maybe their drug would be a little more constrained because of capacity issues and I thought their profitability would be more challenged because of the
the mix and and you know a lot of these extraneous operating costs and in the covid climate and so it’s it’s
you know you always think of things like cloud computing is this like super elastic business model which is super impressive but what what just shocking to me is
Amazon has made like their whole business pretty elastic and they you know for an unplanned holiday Spike like this
I feel like they flexed and took advantage remarkably I expected them to
struggle a little bit more so so hats off to Jeff and the Gang good job.
Scot:
[44:13] I do feel like the Q3 is a little bit of sandbagging and I can understand that because we’re in such uncertain times it’s really hard to know
how long is this going to go on when is this you know does the GDP being down 30 percent start to impact people
you know there’s a lot of counterintuitive stuff going on here it’s like a very there is a very hard kind of macro environment to navigate right now so I can kind of.
I understand why you’d be conservative there.
Jason:
[44:42] Yeah now in cute I mean yeah I think there’s more uncertainty than usual and all these retailer forecast but you’re right like you three on the one hand,
Amazon had a lot of new users for the quarter right like there were people that were not traditional digital Shoppers that because of covid-19,
shop digitally for the first time for sure there was a lot of grocery Shoppers that placed orders with Whole Foods for the first time and Amazon something like tripled there.
Their grocery delivery capacity during during covid and so you could imagine that a bunch of those new users,
that that habit sticks and they you know become a recurring users in Q3 so you know that could be favorable the Amazon it wouldn’t shock me I didn’t see anything in the earnings about Prime Membership but.
It’s totally possible that there are a bunch of people that were on the fence about whether Prime was a good value and because of covid it suddenly became a good value so they might have more Prime users and we know,
that has a long-term impact and you know because the macroeconomic situation is probably not going to be good and there’s going to be a decline in consumer confidence.
People tend to shift to value-oriented shopping and Amazon largely winds at value-oriented shopping so there’s a lot of reasons to be.
[45:58] Bullish on their their Q3 you know but at the same time there’s.
Like will a bunch of those one-time digital Shoppers go back to stores when their favorite store reopened as it is it likely now has and did they have a bad experience with that grocery order because it was delayed and had a bunch of substitutions in it,
so will those people go back to the grocery store like it’s it’s anybody’s guess it’s you know the the old Playbook isn’t going to help you very much at the moment.
Scot:
[46:26] Yeah cool any other tidbits from some of the other results you want to go over.
Jason:
[46:32] I guess just super quickly you mentioned in the open but Shopify had a really good quarter you know 97 percent year-over-year growth so that was.
14 million versus expected 362 million their earnings were equally like about 10x of what expectations were so that that was impressive and I think.
[46:59] If you add up all the Shopify sellers their cumulative Revenue.
He surpassed eBay like not sure it’s exactly Apples to Apples because it’s a bunch of independent sellers versus.
A unified platform but but that’s a you know a potential milestone.
That I think now Walmart and Shopify have both basically past past eBay.
And then I do think eBay is quarter was interesting you know I.
I had sort of felt like because Amazon lean so heavily into Essentials and had to constrain some of their service levels that that would open the door for other retailers and I certainly talked to a lot of consumers that are like oh yeah like I,
you know hard-to-find items I was suddenly you know going to non-traditional sources and so you know I think a lot of people that traditionally would have thought of eBay were giving eBay a try to see if they could get masks or hand sanitizers or,
are all of those sorts of things so it’ll be interesting.
Was that a one-time thing for eBay or will they bill the lock in some of those new customers and and potentially retain them I think is going to be interesting to watch.
Scot:
[48:10] Yeah that they have a new CEO over there so I’m I’m excited that he’ll come in and shake some stuff up they did sell their classifieds business so they’ve been divested of some things that are kind of a distraction like StubHub as well.
Jason:
[48:23] And that the classified business was largely International at this point right.
Scot:
[48:27] Yeah it was this thing called Kijiji is kind of like yeah these classified these classifieds are weird because.
People at eBay generally have loved him and I’ve never used them so I just I don’t know I’ve never understood the whole thing they sold her for like eight billion dollars so there’s definitely other are there.
Jason:
[48:44] Yeah Josh.
Scot:
[48:46] Yeah the other thing I saw was they announced they added 8 million new customers so that’s exciting to see to your point a lot of new people trying out Ebay I think they have this just branding problem where people still think of them as auctions and they need to kind of.
It is figure out yeah and then they went through a period in the Donahoe are aware they were going to kind of like take on Amazon that didn’t really work out very well for them so they need to find their place in the world and hopefully the new CEO he’s kind of an old-school eBay guy,
yeah I’m optimistic that
yep I think we need a variety of options out there for everybody sellers and buyers and eBay could be a big player and it’s a great quarter I hope they use this as a stepping stone into fixing a bunch of these kind of work or things that they face.
Jason:
[49:30] Yeah
yeah that would be great and that’s probably going to be a good place to leave it because once again we’ve used up our allotted time as always if there was anything
that we didn’t cover got wrong we’d love to hear from you on Twitter or Facebook this would be a great time to jump onto iTunes and finally give us that five star review always good talking with you Scott.
Scot:
[49:51] YouTube yeah and shout out to some of our listeners who did do five star reviews and talk about it out on Twitter we really appreciate you guys listening and coming along for the journey we will
continue to be here and give you all the latest hot takes on things like this but then also we’ve in some other items as we go.
Jason:
[50:09] That is terrific I’m looking forward to it and until next time happy commercing.
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