A weekly podcast with the latest e-commerce news and events. Episode 279 is breakdown of Amazon, eBay, Shopify, and Snap Q3 2021 earnings, and a discussion of Rent the Runway’s IPO.
In Episode 257 we talked about IDFA and the impact of privacy and digital ads, and then on Episode 277 we talked about Supply chain pain (SupplyPain™). Now that we’re in Q3 earnings season we’re seeing those themes play out. This week we dive into the earnings calls from Snap, eBay, Shopify, and Amazon. We also discuss the Rent the Runway IPO.
Episode 279 of the Jason & Scot show was recorded on Thursday. October 28th, 2021.
[0:00] Welcome to the Jason and Scot show this is episode 279 the Halloween edition being recorded on Thursday October 28 2021
I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:18] Hey Jason happy Halloween.
[0:21] Happy Halloween to you too Scott are you a big Halloween guy I kind of imagine you are.
[0:26] Am I like to dress up but once my kids became teenagers that was suddenly not cool so I haven’t been dressing up since probably for probably like the last few years so.
If you dress up for your son enjoy it while you can.
[0:42] Come over and spend it with us Steven is happy to be your dress up beard.
[0:47] Yeah he would have a Darth Sidious outfit and work to the channel visor Christmas party and scared all the look it’s so so I don’t do that with five and under.
[0:59] Yeah you probably weren’t invited back to your own company’s Halloween party.
[1:03] Yeah well a lot of times the wives didn’t know that I was so sorry.
[1:06] Yeah but the other way to think about it is that it’s Christmas in October both because retailers are desperately trying to pull holiday sales and but also because Apple finally release the new Macbook Pros that you and I have been waiting for.
[1:20] Yeah yeah we had some Getty conversations about that you’ve got the new chips and yeah and you know the Apple,
the Apple launch events have gotten kind of weirder and weirder with covid like now it’s like you know Tim standing in a Tim Cook standing in a giant corn field
then the the camera flies around like a crow and so so those have been kind of fun to watch just for the theatrics of they’re going through.
[1:47] Yeah yeah no the production like despite the fact that it’s all pre-recorded and stuff and you know the the production value is pretty high I I’d like to see him go the other way it should be like Tim Cook in his pj’s in his kitchen being like Oh and we invented a new chip.
[2:02] I miss Johnny I’ve saying aluminium this my favor.
[2:05] Yes and as you may know aluminium is dramatically more expensive than aluminum.
[2:11] Yeah and chamfered edges.
[2:13] Yeah all that’s gone now it’s just a chunk of aluminium but I’m excited to get mine I have a little jealousy because I feel like we both ordered early on launch day and I think yours already shipped is that true.
[2:29] Yeah it’s somewhere on a plane from Shanghai right now I hope according to the the tracking number we’ll see.
[2:36] Nice nice I will be excited for your unboxing and I half expected that when you jumped on the,
the conference call to record this one that you’d be wearing like a Versace like jogging suit or something because my my Google Alerts have blown up this week because get spiffy is on fire.
[2:56] Yeah yeah we had a big week it’s few we announced our Series be fundraising so that was a lot of fun,
I think I had a record LinkedIn post I think I had something like 300 comments and so those those good it’s always.
Yeah it’s been a kind of a crazy 18 months for us and I can definitely commiserate with our retail folks that are going through harder times now we had those common being the pandemic but got through and.
It’s been crazy we’ve since March our business has grown like eighty percent so it’s been like this crazy post covid-19,
perfect storm for for Mobile Car Care Bears,
you have no one can hire anybody but we’ve been able to kind of squeak that out and then no one can get new vehicles so they’re running their vehicle Vehicles longer,
they don’t have anyone to take them to brick-and-mortar service centers they don’t have mechanics to hire so they call us if so that’s been it’s been a lot more fun than this time last year.
[3:54] That that is awesome I’m going to assume the one slight negative is you get some good news like that you get all those those post cooking on LinkedIn and I’m assuming,
every vendor under the planet has I read your news and is now pitching you for something.
[4:10] Yes yeah I try to forward them all to you because,
there’s a lot of Executive coaching out there available that you know maybe you could use a lot of video stories a lot of AI chatbots you know I don’t know how on Earth we have,
the world can sustain at least a thousand AI chatbots but there are a lot of those out there yeah when trick is someone told me,
if you put an emoji in your name on LinkedIn the Bots pick it up or get confused by it
so that that helps give me an automatic filter so if someone kind of uses that emoji when they’re kind of like hey Scott and that you know they put the Emoji then you know that it’s a bot so that I just delete.
[4:54] Oh my God this episode of the podcast is now like officially worth it just for that that’s a pro tip.
[5:00] Life hacks yeah I’m here for LinkedIn life hacks that’s my that’s my speciality that and saying aluminum.
[5:08] Those are all good skills but congratulations I know it’s non-trivial ever to get people to have their trust in you and invest and then in this climate in particular I’m sure.
It was a rigorous process.
[5:25] Thanks thanks and we actually added the folks at Goodyear Ventures so shout out to them I think some of their e-commerce folks listen to the show so appreciate their support.
[5:34] Nice A wise choice in podcast as well so any e-commerce stuff you follow this week.
[5:42] Well it has been probably one of the more interesting weeks in the land of e-commerce for a while so listeners will remember that you know.
We were recording this in October so this is always an interesting time to read what’s going on in the Q3 results which kind of sets us up for Q4.
So we always pay particular attention during this time of year.
But if blisters remember back in March of this year you and I I would like to say and I think if we voted on this would be unanimous we’re basically Clairvoyant Nostradamus level of predicting things.
You and I both kind of felt like the industry wasn’t taking this idea if a the Apple privacy changes coming to both iOS what is it 14.5 and then later 15 added some more.
It didn’t seem like anyone was taking that as seriously as you and I kind of felt like it was going to hit him so he did a really big deep dive on that that’s one of our more popular episodes that’s 257.
And then into 77 you and I again being The Clairvoyant Wonders that we are we started talking about the supply chain being way worse than folks thought it were in coined Supply pain.
So we are now starting to see those two things Collide in really interesting ways that I don’t.
[7:02] You know I think our guesses that those would be bigger than people thought on it came true so let’s walk through what that.
The first one was Snapchat so they we don’t usually cover them on the show but I think it kind of sets the tone here they started off their earning Seasons last week Thursday on the 21st,
and they just totally whiffed on their expectations and I thought it would read this little segment from from one of the Wall Street.
While snap was clear that changes have not impacted the efficacy of their advertising iOS 14.5 is limiting direct response advertisers ability to measure and optimize campaigns on Snapchat.
Leading to reduce spending on the platform specifically the update was pushed to users in July blah blah blah blah and it restricts the advertisers ability to use their measurement tools.
So basically used to be able to measure what was going on in Snapchat and you know and because it’s in an app and that’s largely the use cases inside of the app for advertisers they have no idea.
Traffic is converting or not so that’s not good especially,
you know and then advertisers are into buckets you know this but just for listeners there’s brand advertisers were just kind of top of the funnel building awareness in just really trying to be seen and what not,
and then there’s more direct response where you’re really trying to measure you know I’m selling in Snapchat Maps I’m a convenience store and I want people to come in and get a slice of,
and I’m measuring that conversion that just went away so that big segment of advertisers is very upset.
And what Apple did is they offered this alternative I don’t know the right way to say this but it’s their own ad that work how do you how do you say.
[8:47] Gad Network Scott ad Network I don’t know I’m going to call it apples ad network but that’s not the official name.
So Apple said okay don’t worry everyone we’re going to do this privacy thing over here but we’re going to give you these little tool sets so that your advertisers can see what’s going on.
Well those things really stink worse than anyone I ever imagined because you know they.
Because they’re super anonymised you have to have you have to be at this really big scale so if you’re kind of a micro let’s say you’re not 7-Eleven your Joe’s convenience store,
well in Des Moines Iowa well you’re never going to have enough data in there to give you anything so so it doesn’t work for this vast segments of advertisers I think everyone was surprised by that,
then if it does work the reporting is delayed as much as 72 hours so it’s like what happened last Thursday kind of thing,
so it’s just a total train wreck and then on top of that to kind of pile on,
snap said in addition a bunch of their brand advertisers turned off because,
they just don’t have any products they can sell because of the supply chain problems so so it was a double whammy for snap and the stock Plum old plummeted like,
10% the first day and has continued to slide and so it’s down 20 percent as of now so that was that got everyone really squirrelly and spooked out.
[10:16] What is your take on the Snapchat side.
[10:18] Yeah no I mean you I think you covered it really well like in general there has been a trend where more ad dollars are shifting to more of those direct response ads so the fact that like that’s the.
[10:31] The side of advertising that got diminished was like extra severe because you know people were generally trying to spend more money at the bottom of the funnel than,
then they had in the past these digital,
platforms and especially after Google and Facebook they the bulk of their advertisers are the long tail Advertiser so they tend to be smaller people that are more impacted by these sort of like cohort models that,
the Apple and Google are trying to use,
um and I would just say like there is a funny thing here like the attribution always sucked and it best it’s this last click attribution someone saw your ad clicked on it and then bought the thing.
And so therefore your ad was worthwhile you never will know if you would have sold the thing,
without that add right and they may very well have like type your name into a platform that then showed your ad right above your organic listing and.
You know the the ad kind of stole the click right so.
So you know there always is this dirty little secret that like attribution is not the same as incrementality.
And you know now like these advertisers that used to be able to justify their spend are having a harder time because of these numbers but the other thing is mucking up is about 73% of all these digital ads are programmatically bought so.
[11:56] Computer program buys it and guess what the most important impart inputs are for that programmatic algorithm its,
those those ads success metrics so the fact that is delayed 72 hours it’s not just an inconvenience that you know someone buying an ad isn’t going to see a report for a couple days,
it means you can’t do this real-time bidding based on like you know hitting particular row as goals and things like that with your at so,
it is a mess I would just say you know snap and Facebook you know used to be a huge competitive advantage that the bulk of their user base was in this mobile app and you know the fact that everything happened in the app was a huge benefit and now it’s.
It’s unfortunately for them sort of biting them in the in the butt.
[12:40] So so that got Wall Street very much awake about this issue and many of the reports were like we just don’t know how bad Q4 is going to be because,
you know iOS 15 is now out and it increasingly has turned the crank on privacy this one is really more around the efficacy of email marketing,
but if you’re if you’re a brand you have you know and used to do a ton of direct response advertising and snap and,
you know you’re doing a bunch of email marketing you’ve just had two legs of the stool kind of taken out from underneath him so.
This got Wall Street very worried a lot of the stocks kind of reacted and then that was kind of the set up this week so then we hit Monday of this week,
and Facebook was next up and everyone was like losing their mind because if you think about Snapchat is largely used through the app on phones same is similarly true Facebook at least has some desktop traffic.
But I believe snap doesn’t have any it’s just an app yeah it’s got to be snap.
[13:41] Sermons like okay this is going to be bad but how bad so Facebook came out and they miss their consensus numbers but they were in range with what they had kind of guided to so I wear a snap kind of thing just totally blew up everything.
And then they also kind of lowered going into the fourth quarter and so there was kind of a little bit of collective sigh of relief that was like who that wasn’t as bad as we thought it would be.
[14:08] And they kind of said oh yeah and also we’re going to change our name so everyone’s like what,
okay but then they did they didn’t change their name at that particular time so that was kind of weird,
so everyone is kind of like what is this and you know they are obsessed with this idea of the metaverse we should probably do a deep dive on this at some point but this this idea that,
you know you’ll kind of be able to go in and out of the seamless 3D World either with augmented reality or virtual reality and,
Jason I love to talk about this future things but don’t have time to get into it here,
so everyone was like okay that wasn’t so bad and then on Wednesday both eBay and Google announced Google surprise to the upside and,
you know I believe this is because they are they own a phone platform they own a browser,
so in this new world of third-party data kind of going away they’re in a pretty good position because they have a lot of first-party data.
Now they do have some exposure you know especially through like their ad networks and stuff but they were able to mitigate that through the bulk of their other activities.
[15:18] So so that was interesting and then reading that report one thing they actually called out was that they one of the segments that was stronger than anticipated was the kind of called it e-commerce and that encapsulates.
The traditional Google shopping that most merchants and brand folks will know,
but then they talked about how they’re having their starting to see a fair amount of success on YouTube and it wasn’t clear to me I was going to ask you it wasn’t clear to me what exactly they were talking about their they didn’t they didn’t elaborate,
no is it live streaming is it some product,
I think you can send a feed into YouTube now and how things bought through there so I wanted to pick your brain on that Google aspect of.
[16:01] Yeah no it is getting a lot of traction and it’s a there’s a family of AD products on YouTube called YouTube shoppable ads and it.
It’s less about live streaming there’s a tiny little bit of it on YouTube that’s why I’ve streaming but it’s it’s being able to embed clickable links in video streams and then add pre-rolls for other people’s video streams,
the let you endemically buy a product and so the and the.
You know the the amount of volume on those kind of add products versus like a product listing add on Google searches lower,
um but the efficacy is much higher and the growth rate is is much higher so people are consuming a ton of minutes of
a video on the YouTube platforms and you know now we’re starting to see.
Tangible examples of being able to convert those audiences into buyers so that’s that’s kind of interesting but it’s less live streaming and more.
Sort of you know embedded links in the video that that either do an endemic check out on YouTube or send you to a Retailer’s e-commerce site.
[17:15] Yeah yeah I definitely want to dig into that maybe we could do a deep dive on another show and kind of look at some of these cases I think it’s interesting
so then everyone was like holy cow this is this is awesome Google did great and then eBay announced and their their results are kind of what I would call,
Punk they’re just kind of like yeah you know they they weren’t terrible like Snapchat and one of the nursing things is Snapchat set the bar so low that people missing consensus kind of was like,
almost like a hooray it was a really weird setup I’ve never seen anything quite like it so it’s kind of an interesting result there,
so you know being being not terrible as kind of the new win oddly enough,
so there gmv was down 12 percent year over year because of these tough comps,
and you have a picture maybe we can talk about where you know you see this mountain last year of,
do the pandemic and now women’s comping against that mountain and a lot of folks especially,
Pure Play anyone Pure Play retail they’re not able to compliments that they’re coming down their growth has slowed below to kind of where that mountain of growth was last year and eBay has fallen into that trap.
[18:26] They did spend a lot of time on the call and I thought this was,
Clairvoyant of you that kept talking about comping against 2019 so kind of a two year ago comp because that takes the pandemic out and makes you look better when you take that big mountain of a year Outlast in kind of in the sandwich of,
the 2019 in the 2021 and when you do that they were up 9 percent so they felt like that was kind of when I don’t know about that.
[18:51] Yeah if you do a word cloud of all the the earnings calls this quarter two years ago will be the biggest phrase on the word cloud.
[19:02] So then today was interesting because the setup was and I don’t think this is ever lined up like this so in the morning we had Shopify and then in the evening we had Amazon,
and when you when you when you’re a public company you have to you can’t you can’t announce earnings while the markets open most people historically have done,
you know after market close Shopify for some reason they like the morning,
part of it is I think you don’t compete with analyst for their time because sometimes these internet analyst.
You know like on that night we had Google and eBay they’ll go to the what’ll happen is they’ll see the press release and I’ll have to decide which one of the calls they’re going to go to.
And they’ll say they all go to Google well now you’re the eBay folks in your like does anyone have a question and it’s crickets and there’s no Wall Street analyst.
It’s kind of there because they’re they’re all over on the you’re competing for their attention,
so yeah so so it creates this interesting setup in that like around eight o’clock before the market opened 8 a.m. eastern Shopify announced and this one was really super squirrelly so.
Shopify has been priced for Perfection for a very long time if you look at the various ways of measuring you know they’re there.
[20:18] Valuation against Revenue multiples of Revenue or ibadah or any of that and you look at a chart there always way up in the upper right hand corner just way off the charts and how Wall Street has valued the.
So you know so they actually came in below expectations pretty considerably on the top and bottom line.
But again because of that weird Snapchat has Snap Chat setup.
It was viewed as a victory which is kind of really strange because I would have guessed.
Because Shopify has been so price for Perfection they were kind of set for like a ten to twenty percent correction and then you know they would get back on track,
but no they were like up 8% by by missing their numbers says like super strange reaction I don’t hundred percent understand.
So so I think what it indicates is that folks you know Wall Street was like really worried about it because,
again they don’t have a ton of they’re there their merchants,
largely our advertising that could be like a set of these these Snapchat advertisers or they’re on Facebook and those guys had headwinds and it just felt like it would be natural for them to face.
[21:28] So just put some numbers on it their revenue grew 46 percent year over year and Wall Street expectation was 54% I think this may be part of it too right because,
this dismiss is still,
pretty pretty good compared to some of the other numbers we just went through right so a 46% grower missing 54% expectations during these tough comps has as it’s not hard to shed a tear on that.
[21:53] Now they did they did kind of danced around i d f a and supply chain and and for the first time that I’m aware of the client to put out a consensus like an estimate for next year and they kind of talked about a framework.
Um so I think and the other trick is if you think about it they’re doing that call today which is the 28th right.
So in their their digital business so they should have they have a kind of a read on the quarter so so I kind of felt like the body language was maybe that.
They’re not the setup in the queue for is maybe getting a little bit worse than Q3 but I may be reading too much into that so I thought that was interesting and then,
they did talk about the supply pain,
and then finally one of the big investment areas they called out for holiday is this Shopify fulfillment Network which I thought was interesting because I keep getting conflicting information on this where
I’ve had people tell me they’ve got one thing in Canada and one of the US and they’re tiny and they’re not investing in it then on the call they’re talking about how they’re really investing in it so I don’t I don’t know what to make of that.
Any takeaways from Shopify on your side.
[23:02] Yeah well if you so first of all I have a personal theory that shopify’s going to be more impacted by Supply pain than some of the other big players were talking about right and that’s because,
they’re not a retailer they don’t have any fulfillment they don’t sell anything to Consumers they’re just an aggregation of a ton of small businesses and there’s none of those small businesses individually have any leverage our resources to hedge their supply chain problems whereas,
Amazon and Walmart have a lot of levers and can buy ships and moved to different ports and do all kinds of different things to mitigate,
the supply chain risks and so I I do think because they’re predominantly small businesses that they’re going to take a bigger hit from the supply chain disruptions then.
Is Amazon so Point number one the,
I looked at their gmv numbers and and I have to say like in general I’m a fan of Shopify I think they solve a real problem they do it really well I think they have a ton of growth opportunity,
I think they’ve got a bunch of smart profitable.
[24:14] Accelerator businesses that they’ve you know kind of added to the the core platform and the one I like the most is shop pay,
and you know their own payment technology is now driving 50 percent of their whole gym V so they’ve done a terrific job of watching this this payment technology and getting incremental revenue from that and that’s you know that’s much more valuable than the,
thirty bucks a month or two hundred bucks a month they get for hosting because as those the small businesses grow they get to grow with them and all sorts of good things so that’s my precursor,
um I hate it when people compare their gmv to Amazon and other retailers because it just it’s not Apples to Apples.
[24:56] Shopify is gmv mostly grows because they add a hundred thousand more small businesses that are each selling a hundred thousand dollars worth of stuff right and so it’s,
it’s not like Shopify hasn’t attracted any customer Shopify hasn’t sold anything it’s kind of like if you said well FedEx is gmv is bigger than Amazon’s or ncr’s GM V which is the cash register in
Walmart and Best Buy and Starbucks is much bigger than Amazon like it is but who cares right like they like NCR didn’t create any of that traffic so.
Let me just say like there are all these numbers where their cumulative GMB is getting very significant it’s over 400 billion their gym V4 last quarter was 41 billion so that puts them at like.
Was that a hundred sixty billion run rate which you know is starting to get there as I like the fourth or fifth largest e-commerce site,
um and I like I think that’s a false narrative that always annoys me a little bit.
[26:01] They had their on CNBC and they have this stat they like to do where it took them eight years to get to a hundred billion and then a year to get to the next hundred billion or something I forget the number but.
[26:12] So one one side note that the thing that always drives me nuts about their gmv as they don’t give you any breakdown about churn right so you don’t know.
Like is that because all the their original customers are thriving and growing and making their GM V much bigger or.
Did they lose all of those customers because they went out of business but they got twice as many new customers we really haven’t known in their investor presentation this time they did have a cohort graphic.
The kind of and it didn’t have any numbers on it and you know so it’s kind of hard to interpret but like.
It implied that they’re all cohorts are a disproportionate amount of their revenue and that their turn is less than I personally suspected,
so I actually will reach out offline to Professor Dan McCarthy and see if he wants to accept the challenge of trying,
to reverse into some some churn numbers from those Graphics that they provided.
[27:11] Yeah that the trick they do in the software as a service world is they’ll take a section of customers cohort like you know,
Q 1 2019 customers and then the look at the revenue from that cohort well you could lose like eighty percent of them but the 20% survivors if they go up you know if they have
sizable gmv growth their revenue swamps the unit lost of 80% that my guess is that’s what they’re doing.
[27:36] Yeah and it’s still for everyone listening it still is wildly long tail like they in this investor presentation they have a list of like the there there big Enterprise logos and it’s Jim shark.
Which is a.
You know probably one of the bigger digital native vertical Brands but you know not not a billion dollar retailer and it’s Staples of Canada right and like Staples is a good brand Canada is smaller than California so like.
You know it’s not like they’re they’re you know taking these huge Enterprise sites yet.
[28:12] On CNBC they talked about how they just once Banks and that didn’t really resonate with me I just can’t imagine I don’t know maybe it’s like a side maybe it’s like an international side or something.
[28:22] Yeah now and I do think they have a ton of I mean they have a ton of growth in North America but the international growth I feel like is you know,
huge for them and then all these payment things and,
and you know they partnered with with a firm so they have buy now pay later in their payment echo system and remember,
like you can now use their payment system for transactions that are not on Shopify so it’s an endemic payment option on Facebook now and so it’s interesting like in the long run
they could get out of the web hosting business in just you know be a bigger more profitable PayPal.
sidebar there is a lot of rumors that house going to buy Pinterest and largely driven by this IDF a where everyone’s trying to if you’re at the bottom of the
direct marketing World funnel all those people because of idea of a an unintended consequence I didn’t catch up to Wood is they’re all trying to walk up the to the
the first party data which would be by acquiring Pinterest set very interesting you know I would say we were early.
[29:26] You put in this but they came out strongly and allege that that wasn’t true.
[29:32] Yeah well it’s interesting to Think Through like you know I do think that a lot of firms are thinking about this because the idea of a is actually causing maybe even bigger ripples than I thought.
[29:43] In my world the way that plays out is everybody is like so focused on the retail media networks right so selling ads on the retail properties where they do have first party data,
and it’s a it’s a very good practice everyone should be doing it but like.
The amount of attention it’s getting right now like how hot it is in the market like is way bigger than the possible upside and so you get like.
Every you know Clarin as a buy now pay later service like they have an ad Network right I just like just for the the you know like if you use the clarinet app too,
to maintain your installment love there there’s like ads in there that they’re selling to to advertisers and
a personal favorite is the gap and the reason that’s funny is like most of these ad networks are selling to their in what they call endemic advertisers right so if,
Procter & Gamble is selling Gillette razors at Walmart than Walmart will get Procter & Gamble to buy a jet razor ad on Walmart.com it makes perfect sense,
um guess what there is not at the Gap in the endemic for its first it’s all Gap product right so they’ve gotta like they’re going to get Kanye to buy an ad I guess but um,
you know they’ve got to sell to non-endemic advertisers which is a much higher bar so it just funny how.
Right there is a huge rush to first-party data right now.
[31:09] You get a network and or you get an ad Network it’s like Oprah giving out ad Networks.
[31:15] Okay so that brings us up to this evening when Amazon released so it feels like everyone had kind of.
We have breathed a sigh of relief and I was like oh Amazon’s going to crush it and then Amazon and if you remember last quarter Amazon kind of had a bit of a mellow kind of slight Miss quarter.
And you know the stock if you look at these these kind of there’s all these different names for it like Fang and all this stuff but these kind of Mega tech stocks,
a lot of them have been moving pretty aggressively so Microsoft Facebook Apple Etc especially Tesla and then Amazon has been lagging the pack and usually they’re the leader of the pack so,
yeah I think a lot of people were expecting kind of a beat and a Amazon to really kind of take off because it’s been under pressure.
That didn’t happen so they actually missed expectations the revenues came in at a hundred and ten point eight billion which was below the hundred fifteen point five billion so 15% year-over-year growth which is,
you know a very uh name has on Nyan kind of a result now it’s better than,
eBay is minus 12 percent but then again Shopify and I know it doesn’t count exactly because they’re adding scene for sales but you could argue I guess so is Amazon’s adding third parties in here too,
so it was it was a bit slower than people thought in Q2 they grew 24 percent so another big step down.
[32:44] A lot of this is.
[32:47] They’re Mountain last year really because they focus on so many essential items and Q2 they really didn’t get a bump until Q 3 q 4 so there
they’re comping their Compass actually harder than maybe like an omni-channel or even in eBay just because of the focus of.
You have sung mask and what they called kind of Emergency Essentials last year.
They peel the onion and they have this one segment called online source and that was only a 3% for the third quarter and that was a deceleration from 13% in Q2.
And then this rippled to the bottom line where operating income came in at four point nine billion which was well below the 5.5 billion consensus,
so that’s the bad news and there was some good news do you want to cover some of that.
[33:35] Yeah and side note is there a new thing called like.
Like you know there are always these I’d beat and raised like you know vernacular for like you know you beat the consensus and then you you raised your guidance I feel like there’s a new thing it’s missing grow where like you miss all your consensus numbers but your stock still goes up.
[33:56] Yeah that Shopify totally nailed that one has come very strange but they did it.
[34:00] Um so yeah some of the interesting things in the in the Amazon number.
I like to break down those segments you hit the you know the big segments online retail and it obviously.
Had a pretty slow rate of growth by Amazon standards but an interesting subset of that is physical stores right so Amazon’s got.
Eight different retail formats the bulk of them is 500 Whole Foods stores and historically Amazon’s physical stores is the one segment that shrinks every quarter right so going back to Q2 of 2020.
Physical stores went down Thirty thirteen percent and then 10% in Q3 and then 7% in Q4 and then 16 percent of in q1 of this year and we’re just we just got used to seeing that number go down and we all thought it was going down for two reasons,
number one Whole Foods was kind of a distressed asset when they bought it and they haven’t really improved it in any meaningful way some people would say they’ve.
Diminished it and so like it probably is shrinking and it’s the bulk of their the retail sales but then.
[35:09] What Amazon has done for Whole Foods is help them sell groceries online and then of course the pandemic help them sell a lot of groceries online,
but ironically Amazon doesn’t count those whole food online orders as whole food sales they’re not physical sales that that those dollars get attributed to Amazon online and not to Whole Foods brick and mortar,
so if there’s a big.
Shift in mix from shopping and store to ordering for home delivery from Whole Foods that actually hurts physical retail sales so for all those reasons we’re used to seeing that number go down,
last quarter it bounced up ten percent and then this quarter it bounced up 12% so,
I have to be honest I’m not exactly sure what’s going on their part of it is e-commerce had such a big growth last year that comparatively,
read the the rate of retail growth has kind of accelerated brick-and-mortar growth has accelerated a little bit and the rate of e-commerce growth while still higher than brick and mortar has decelerated so that kind of mix,
you know maybe as favorable for the way Amazon does accounting for these stores maybe some of the other store concepts are,
starting to get more traction like the Amazon Fresh stores perhaps I don’t know but.
[36:24] It’s interesting to see that number going north for the first time in recent memory,
of course everyone always talks about AWS being the profitable segments so they sold 16 billion dollars of AWS which was 39 percent growth which was an acceleration and growth so again,
that’s been kind of growing at 30% of quarter and now you know last quarter at Route 37 and 39 this quarter,
um that makes a lot of sense the pandemic drove a lot more people to the cloud and online so you know it’s AWS is firing up.
[37:00] And then going back to the ads I talked about how big a deal retail ad networks are Will by far the biggest retail ad network is Amazon and they
somewhat derogatory to me like Calder the retail ad Network other sales in the in their,
and so this was their biggest quarter ever they sold a billion dollars worth of ads for the quarter which is 49 percent growth which is.
Actually a significant deceleration Q2 grew at 83 percent right so this number is growing really fast.
But the way to think of this is if you add up the last four quarters of their ad sales they sold 30 billion dollars worth of ads if you add up the last four quarters of AWS they sold fifty seven billion dollars worth of server services.
[37:51] Think about the cost for that 57 billion dollars worth of server Services they have a bunch of silicone they make their own chips they pay a ton of electricity and they pay rent and people in all this stuff.
In order to deliver that aw s right so there’s a lot of cost for it to get that fifty seven billion dollars worth of sales.
The the the cost of those ads is near zero right like.
It’s very well and so 30 billion dollars in ad sales I guarantee you is more profitable than fifty seven billion dollars in in server capacity sales and so,
like its I said this last quarter but it’s even more clear now that the most profitable business that Amazon is now.
Um this this ad Network and in their their their investor call and he’s sort of address that and he talked about the fact that like hey,
we don’t really.
[38:49] I think internally of breaking out retail sales versus ads versus Marketplace because they are inextricably linked they all need each other,
um and you know together they’re a super powerful flywheel but like you know they basically recognize that like.
Yeah you know we could break even or lose money selling Goods.
When we’re making a fortune on the 30 billion dollars of ads that we get to sell because of those goods right and and all the seller services for the marketplace half of their sales so.
Like you know the the myth that that the retail pirate of Amazon’s business is not profitable or less profitable than things like AWS like I think is.
Is getting even more exposed and again all those those those businesses AWS and ads are are growing quite healthily at the moment.
[39:42] Yeah it’s interesting Colin Sebastian who’s a good friend of the show and it’s been on many times he pointed out for the one of the interesting.
Parts of this quarter is for the first time
if you think about Amazon having two pieces of product business and a service business so a Services would be a WS ads,
this thing they call merchant services which is kind of FBA and some of the marketplace Revenue goes in there and subscriptions
that is now for the first time the revenue from those pieces that quote-unquote Services pieces is bigger than product revenues for the first time ever,
and you see it in these numbers right so online stores celebrated a couple other things accelerated but AWS and ads accelerated so it’s a really interesting time where that that
that kind of Tipping Point happened inside of there.
[40:35] Yeah yeah for sure and then two other takeaways from the earnings call that I thought were Jewels they got asked because you talked about.
Advertisers on some of these other platforms like Snap slowing down because of Supply pain right if I don’t have products in stock I probably shouldn’t be advertising those products,
so they got a spike is other going to take it in the shorts and Q4 because advertisers are going to cut back because of Supply pain.
Um and Amazon’s answer was no that they’re not seeing,
people getting back on on ads from supplied pain they said like what is likely Gonna Hurt our comps and add sales for Q4 of this year is that Prime day was in Q4 of last year and that there’s a lot of,
add activity that’s driven by Prime day so they said like you know what car comps.
Four ads in Q4 maybe not as strong as they ordinarily would be but it’s going to be because of the shifting dates of prime day not because.
Advertisers are slowing down which is interesting and again Amazon’s attracting.
The long tail and the the head advertisers whereas like Snap is mostly getting long tail advertisers so.
I found that really interesting and then Amazon also said like what.
[41:53] Supply chains going to be really challenging and as a result we are incurring a lot of incremental costs but they were very strong that it wasn’t going to hurt their revenue number that it was going to hurt profitability,
but they felt like they had enough levers to pull and pull those levers,
to ensure that they both were going to have enough inventory and that they were going to have enough fulfillment capacity,
to deliver on that so they were super confident there and what they call that they said the the.
Impairment that’s going to be the most hard for them to overcome this quarter is not inventory it’s not Logistics it’s labor,
right and that’s the one that they felt like was the hardest for them to overcome is they’ve got huge turnover they’re trying to hire a bunch of people and the cost to hire them are just you know skyrocketing because there’s you know constrained pool of people willing to work and,
and they’re able to command a lot more for their their labor right now.
[42:50] Yeah Jesse basically said that they’re getting back in he she basically said I want to remind everybody this is a second quarter a CEO
that one we have to choose short-term profit over long term customer experience we will lose money for for we will invest in long-term customer experience,
Wall Street that is like we’re entering into one of these investment phases usually they get kind of excited by it because usually ratchets,
the orbit Amazons in up in the profit kind of spills over after about 18 months or so but there really wasn’t a lot of enthusiasm this time so that was interesting,
and then you know I mentioned the operating profit was about 4 billion their forecast for 4th quarter of the actually
they do you know unlike most companies right now that are just like we have no idea what the heck’s going to happen when I put out a fourth quarter forecast Amazon did,
and they basically said the bottom line it could be between zero and two billion well that was like you know again that that’s a very strong signal they’re going to be spending a lot of money in the billions.
And in fact they add a little color and said we see several billion dollars of additional costs related to and they put them in this order labor shortages higher wages,
Global Supply Chain issues ETC but then they said they still need to hire 250,000 people for holiday and they’re going to do whatever it takes because they won’t be able to deliver and execute unless they have them.
[44:14] He used an interesting metaphor he said like.
That you know they just decided it wouldn’t be customer Centric or in their long-term interest to raise prices or fees,
and so he’s like we really think of ourselves as a shock absorber and we are going to take the hit on all of these incremental costs for both our customers and our Marketplace sellers,
um because we think in the long term that’s going to strengthen the flywheel so I mean he was pretty like the you know there was not a lot of subtlety about the fact that like.
You know it’s going to there’s going to be a lot of incremental costs to win this holiday but they’re going to win the top line and not worry so much about the bottom line.
[44:56] What else did you get from the Amazon call.
[44:59] Those those were the big things one other thing that’s interesting to me is.
You know everybody’s struggling to figure out digital grocery right now and saw the unit economics but there’s this other tidal wave behind that that will call ultra-fast delivery and we’ve talked about a little bit on the show but they’re all these firms.
Go puff most notably but Joker and gorilla and all these firms like coming out with these.
30 minute or 15 minute delivery promises for a constrained set of products and one of the analysts ask Amazon like.
You’ve always done really well against the your traditional retail competitors in terms of,
of logistics but are you worried at all about these guys that are being like purpose-built for like a speed that’s faster than your usual service level and it got a pretty arrogant answered I would say he’s like.
We really like our model we have a hundred and seventy eight thousand skews right now that are available for two hour or faster delivery and that’s a lot more excuse to a lot more consumers than any of those companies.
It was it was you know like I think obviously that is a space Amazons going to watch closely in play in but the.
What’s almost happening is they’re just ratcheting up the service level for so many products I’m like when I you know Chicago is a advanced market for Amazon but when I put stuff in my cart now I get two options for same-day delivery.
[46:29] Are you getting that like morning and then like there’s like an insane one just like 4 a.m.
[46:33] 4 a.m. to 8 a.m. yeah and it works like I wake up and there’s stuff like at my front door.
[46:40] Pretty you know I wouldn’t say perfectly but pretty reliably and so again like you know if I would have before noon there I have two windows often to pick.
Products and I’m not having to go to some separate experience and Shop from some constraint set of products or things like that like I think the the universal experience in Universal cart and the move away from Amazon Prime now and all these separate experiences like,
I do think in a way like Amazon is solving for ultra-fast delivery but they’re just one generation more mature than any of these you know new companies.
[47:14] Okay anything else there.
[47:18] That is it on Amazon what did you have any other takeaways there’s one other IPO that I thought was interesting this week.
[47:24] Well then it was really weird because after the market closed we’re all adjusting that and then
Facebook’s like hey everybody we’re changing our name to Metta and then they put out this logo that looks like a warped eight on its side or like the infinity symbol that’s been bent and you just look at it you’re like
I bet they spent eight hundred thousand dollars on that logo and you know there’s.
[47:47] Any amount of money spent on branding and Logo generation is well invested hashtag publicist.
[47:52] Okay yes true true yes absolutely call Jason if you need new logo did you guys do that logo for.
[47:59] I can neither confirm nor deny we did.
[48:03] I love it sorry I love it.
[48:03] Not because I’m being not because I’m being stealthy I just honestly don’t know it’s totally possible that we did.
But I don’t know but we certainly do a lot of great branding work including the Amazon logo so fun.
[48:16] The chief the chief branding digital logo officer doesn’t know what logos you’re doing.
[48:22] No but the way more talented people at Turner Duckworth would probably be able to tell us.
[48:27] Okay cool what IPO did you say.
[48:30] Yeah so have you been following their Rent the Runway IPO at all.
[48:33] I have yeah.
[48:35] Yeah so this is pretty interesting so.
Digitally native company unlike a lot of the other digital native Brands that’s kind of in the the re Commerce space right because they’re they’re buying a parallel and and renting it to Consumers,
and they have been one of the the.
Most hyped digitally native Brands because in general rental models can be like extra profitable you buy something once and you rent it a bunch of times,
old Mentor mine Wayne huizenga used to do that with videos and he made a lot of money in that space and trash cans and other things.
So it was interesting to both see their financials and then they actually have their IPO this week.
So and it’s a very.
[49:23] I’ll call it a bifurcated story so it’s an 11 year old company they’ve raised over seven hundred million dollars in venture capital and their,
wildly unprofitable coming into this IPO,
so they lost a hundred and fifty four million dollars in 2020 they’re forecasting to lose a hundred seventy 1 million dollars in 2021,
um and of course they’re in like the worst possible business case for covid right like they’re they’re renting apparel to women to wear to parties and to work,
and two things no one did in 2020 is go to a party or go to work right so.
[50:02] You know they historically they would have like hung their hat on having all this subscriber revenue and their subscribers basically got cut in half by covid their last 42 percent of their active subscribers the revenue drop from,
hi in 2019 of 257 million 258 million in 2020 so covid really hit them.
And you know you go man that it feels like they’re kind of limping into the IPO and I want to talk about how that IPO went for them but two other interesting facts before we talk about that,
one thing I thought was really interesting and and.
Arguably like the one favorable thing and all of their financials is how they get the inventory that they’re renting so,
a catastrophic piece of news is that their inventory is way more fragile than I would have expected right so they they rent you know one of those garments six times and then they usually have to retire so they’re not getting like.
Tons of reuse about around each of these garments but thirty-six percent of their rental inventory.
Is Rev share with designers so what that means is instead of buying it at the wholesale price and then them renting it a bunch of times,
they’re getting it free or at a very low cost from the design house and then they’re sharing the profits with those those those brands.
[51:26] That’s frankly exactly how the video rental business grew like in the early days of Blockbuster we bought videos and rented them and later on you know we did rev share agreements with all them the movie studios and that.
[51:38] Let you get a lot more inventory a lot more affordable.
Um also surprising to me eighteen percent of their inventory is private label which I would have thought like a big part of the value prop of Rent the Runway was all these well-known designer Brands so I was surprised to hear they’re able to get away with you know almost one out of four five garments being.
[51:56] Being private label so that was interesting and then the last piece of catastrophic news is as bad as their finances look the accountants looked at it and threw up even more because,
I mentioned that this inventory gets really perishable and and they have to throw it away well the what they did all their finances without including any depreciation of their inventory so,
invented a new flavor of ebay.com bike ibadah before inventory depreciation and you know those if you were to actually put the depreciation on their books.
The those losses I just read to you would be even much higher so.
So mostly like a pretty negative look at the company going into this IPO
and then I want to say they did the IPO at 21 and immediately the stock went up and they hit a high of 23 and everyone’s like wow in spite of all this horrible finances.
They’re having a big IPO and then as the day went on the price started dropping down and now I want to say it’s about 18 18 bucks and 85 cents so,
you know pretty significantly down from that $23 offer.
[53:16] Like Scott in your mind is like let’s call it ten percent like is that a.
An acceptable IPO is that a disaster does it surprise you given their finances that they were able to do an IPO at all.
[53:30] Yeah and you know one of the ways I look at it is let’s look at the valuation so they’re doing a hundred and fifty eight million ish last year
and we don’t have enough data this year to kind of know there haven’t really materially improved since then so let’s say
let’s be generous and say they’ll do 200 million this year they’re at a billion market cap so 5x for a business that.
You know has all the kind of the negatives you’re outlined there.
You know the they’re not getting as much use of the Garment as you would think I think our friend Dan McCarthy is at MacArthur,
McCartney or McCarthy McCarthy yeah he he kind of picked apart their Co hard data and it looks like they have pretty high churn,
yeah I actually think it was kind of a win because that’s a pretty good valuation for this snapshot in time.
[54:24] Pricing IPOs is tricky because you want to kind of price it where you get a little bit of a pop but maybe ten to twenty percent up,
but if you get more than at the company you’re kind of sitting there saying we just sold a bunch of stock at a discount and that wasn’t great
now the good news is your hopefully you know you haven’t sold the majority of your stock so you sold maybe 10% and I have like 90% that’s worth more so it’s.
It’s you’re not going to totally cry over it cushions the blow yet going down isn’t isn’t a good look and it doesn’t Kate
that know a lot a fair amount of weakness as people you know maybe they got excited and they’re coming yeah I think I’m gonna
I’m going to kind of limit my maybe they sold half of it you also and I peel you’re trying to place the stock with people that will hold it long term so the fact is down means that didn’t really work that people were just trying to flip it for a quick buck.
[55:17] Yeah one other side note like a lot of people were optimistic for this IPO because this like re Commerce model like it’s you know potentially better for the environment,
and looking at the economics it actually ends up that this is probably worse than like buying disposable apparel from H&M because like the the
reverse Logistics of moving this stuff around so many times and then like having to throw it away pretty quickly and like you know weaning into the fashion trends and stuff becoming obsolete as new trends emerge like it all
it all netted out to like it wasn’t a very favorable ecologically story either.
[55:58] Yeah well we’ll see a for effort.
[56:02] Yeah I mean my big takeaway again like there’s there’s going to be some interesting digital native companies but like this this myth that that
is fundamentally an advantage model and that all these companies are doing great like this is one of the companies a lot of
before there was any public data available everyone’s like oh I think there’s a billion dollars and they’ve got all this sticky reoccurring rental subscription Revenue so they’re probably wildly popular and their costs are super low because they’re renting the same garment over and over again so I
this is an amazing business and then you know when you get to look under the covers why no it’s not so you know I just I would just say,
you can absolutely build a good digitally native business but like it’s not a good business just because you’re a digitally native vertical brand.
[56:47] Yeah one for listeners yet as you know one of my favorite hobbies is I really love to watch The Road Show presentations but they’re only out there for like a week or so
all birds is on the road right now so that one is available and you have to go to Retail Road show.com and get from this list and watch it,
it was one of the better ones I’ve seen in a long time the video they did the with the founders had like a cheekiness to it that was kind of unusual usually these.
[57:16] Talking about the Auburn’s one right because Rent the Runway is on there right now or was on their last week too.
[57:21] Yeah it’s on sadly it’s faced off yeah the all birds one is really really good so I recommend folks watch that one and then I just saw that NerdWallet hit and I’m kind of interested to see how they talk about that one.
[57:33] Yeah that has been entertaining TV I watch those videos on my my Peloton now.
[57:43] When I’m not listening to Amazon earning calls.
Well Scott is happen again we have perfectly used up all our lot of time but hopefully people found some value in this recap and if you did as always we sure would appreciate it if you jump on the iTunes and give us that five-star review.
[58:03] Yeah thanks everybody and until next time.
[58:06] Happy Commercing!
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