A weekly podcast with the latest e-commerce news and events. Episode 294 is a recap of Amazon’s earnings for Q2 2022.
Episode 294 is a breakdown of Amazon’s Q2 2022 earnings.
Episode 294 of the Jason & Scot show was recorded on Sunday July 31, 2022.
[0:23] Welcome to the Jason and Scot show this is episode 294 being recorded on Sunday July 31st 2022 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:38] Hey Jason and welcome back Jason and Scott strip show listeners well we have had a
plethora of vacations Jason did a business trip he’s going to report on over it in our F and then I had a little covid situation so it’s been The Universe has been trying to keep us from podcast so it’s great to be back in the saddle tonight Jason.
[0:59] I am thrilled to be chatting with you on a rare Sunday night this is unusual for us.
[1:04] It is it is usually we watch our Disney movies have a little popcorn in called an evening but tonight we’re going to throw down a podcast.
[1:11] We I feel like we need to get ahead a little bit because you know there’s a new Game of Thrones series coming soon.
[1:16] I know and Lord of the Rings we got a lot a lot of geekdom kind of happening all at once here.
[1:23] Exciting stuff and even more exciting than all of that Scott I’m super grateful that you’re feeling well and recovered
but mental picture for our listeners I have a mild version of what Jason considers a tan for the show which is super rare.
[1:40] Wow and that is because you went to a that summer in RF show that’s out in a ranch somewhere tell us about that.
[1:48] Yeah I doubled down so I had a week of vacation in Upper Lake Michigan and then I went straight from there as one does when you work hard to a quote-unquote work trip
which is in Ranchos Palos Verdes at The Tiara new resort on the beach in southern California.
[2:07] Cool and then so I’ve been turning our F of n this time of year that was called the merchandise or the merch conference is that what you want to.
[2:16] You are old school so originally when shoppbs.org and NRF were two separate entities shoppbs.org had a,
fall summer event at this Resort that was exclusively focused on like digital merchandising and you’re exactly right it was a great event called the merch Summit.
And so this is kind of the spiritual successor to that than in a ref also had a event at the same time of year that was called the CIO Summit where all the cios got together and so they’ve kind of mashed those two events together change them a little bit
try to make it even more inclusive and they now call it an RF Nexus and so it’s focused on,
really forward-looking Trends and technologies that are relevant to
e-commerce professionals to digital leaders to cios and to see a Moe’s so there was a you know kind of like senior execs across it marketing and.
Digital all in attendance.
[3:17] Nice nicer than what was the was there a topic to the event or what.
[3:24] So there are a range of forward-looking topics.
Like probably the trend that topic that got brought up most were various aspects of the metaverse and some of those conversations came very close to getting me kicked out of the.
[3:43] Because you are.
[3:45] Because I’ve become.
[3:46] VR headsets.
[3:47] I become a huge cremation.
I know that’s shocking to listeners who find me like wildly optimistic but you know we had a lot of outside speakers talking about the metaverse and.
Spoiler alert I think the metaverse is super interesting it absolutely could be an important part of the future and when people say metaverse they’re mostly talking about three things that don’t necessarily go together but can which is.
In ftes and blockchain stuff they’re talking about the actual metaverse which is kind of like you know virtual reality and they’re also talking about web 3.0.
[4:24] And so they brought in a bunch of authors and subject matter experts,
that are super bullish and are like it’s a foregone conclusion that the future is with three and everyone’s going to abandon web 2 and if you haven’t already gone your,
wheezes and secured your property in the metaverse then you’re stupid and you’re going to lose huge sums of money.
And I disagree with most of that like I feel like it’s.
Wildly more up in the air than that and like at the moment first-movers that have tried to do Commerce things in the meadow verse have made more mistakes than not and so I spent a fair amount of time.
Like debunking some of those claims and highlighting some of the catastrophic mistakes that people have been making when they when they try to make a splash in the metaverse Without Really knowing what they’re doing and,
I choose to believe that the attendees appreciated that counter perspective but I don’t think some of the speakers appreciated being challenged.
[5:20] What to do a deep dive where you essentially just dumped on the metaverse Jason dumps on the metaverse.
[5:27] Well or.
[5:28] Be part of our curmudgeon series.
[5:29] Yeah a dose of reality about them again it could be a big thing I’m not saying it’s not I’m just saying it’s not a guaranteed big.
And then a close cousin of that that I spoke was,
the future of artificial intelligence for Commerce and I’m kind of and we’ve talked about this before but I’m kind of a curmudgeon on that as well only because.
I think focusing on artificial intelligence is kind of silly like to me artificial intelligence is a tactic not an outcome and there are a bunch of super exciting outcomes that are,
made much better by using artificial intelligence and so I talked about some use cases that I’m super excited about.
But but I you know caveat that with they’re not super exciting just because of the math that causes them to be artificial intelligence their super exciting because
they help people find more stuff to buy and have more successful shopping trips.
[6:26] Cool well that’s that’s definitely out there and we have history on the show of given our listeners more of the hot truth of what’s going on right now so it was a it was a really interesting second quarter reporting period so we wanted to spend the bulk of our time today
reporting on that
I want you to lay the scene for us mr. US Department of Commerce what what’s what are the things feeling like there and then you know I think we’re all pretty red in on the macro that consumer confidence is like
10 20 year lows inflation’s at 40 year highs we had two quarters of negative growth that used to be called recession but no longer is called a recession.
So yeah so.
So that’s kind of the macro backdrop and then then I saw you had done your normal really great analysis of the US Department of Commerce what’s that looking like.
[7:18] Yeah and there’s not a lot like super game-changing in the in the monthly data from the US Department of Commerce I like is you just kind of called out I feel like we’ve just made this transition from.
Overheated economy due to stimulus and extra covid demand and certainly a greater level of uncertainty and fluctuation but like in general,
really robust retail sales to now we’re having really robust retail sales because of inflation and so you know,
looking at the numbers they’re pretty consistent with the last couple months of numbers we’ve seen and so in general like July retail sales were up 8.3% from July of last year,
and year-to-date all retail sales from from January through July of this year are up 8.8%,
from July of last year so ordinarily we would expect retail to be up.
[8:11] I’ll call it you know three to four and a half points so being up 8.8 is a.
Significantly higher growth obviously a chunk of that growth is.
Fairly attributed to inflation and people having to spend more.
But you know inflation is kind of I feel like is misunderstood and people talk about about it being one number consumers spend a bunch of money on a big basket of goods and the amount of inflation on each item in that basket of goods.
Varies wildly right so the amount of inflation we’re seeing in gasoline.
And certain food items is really high consumer electronics are actually deflating it’s a you’ll get a cheaper TV this year than you did last year right so.
So you know if you break down in a segments.
Segments that have high inflation and you know we’re negatively affected by the pandemic the last couple of years are killing it right now so it’s a great time to own a gas station like that.
Gas stations are up 50% year-over-year.
[9:10] Yes cool and then it’s too early to get the online number from the US Department of Commerce right that that’s got it.
[9:17] Yeah we don’t have the quarterly number but the proxy that we do get is this like non-store sales and that’s a nine point six percent from last year so we’re
where the brick-and-mortar number is up more than you would usually expect the.
The non-star sales are e-commerce is up even higher but,
probably a little lower than you would ordinarily expect we’re kind of used to that kind of twelve to fifteen percent growth in the so you know 10% growth is a is a little bit lower.
[9:50] That’s because we’re that they’ve got a comp problem because last year was such a surgery or with covid.
[9:54] Exactly exactly.
[9:56] Okay so that’s one set up and then the other one was for some reason we’ve entered this interesting period where Snapchat is one of the first companies to report and.
[10:06] They need to change that by the way.
[10:07] Yeah I don’t think that’s her they like it.
Because in our Recaps they’ve been kind of the first one to take it on the nose and it wasn’t any different this quarter so July 21st they came out.
And it was just a total mess and lower and a poop show because last quarter they basically said we got a handle on this we know what’s going on with ID fa.
You know I’m going to another Victory lap on this because I feel like you and I were like super early on I DFA and it’s really coming home to roost and interesting ways and Snapchat continues to be a,
non beneficiary of those changes but then addition to that,
you’re more in that business that I am but I’ve got to imagine that when you see recessionary head winds and and everyone’s tucking in their expenses one of the first things that you look at is your ad spend right and you know maybe
it’s not a great place to be if you’re Snapchat basically saying hey
you know we’re not really good anymore and measuring what’s going on with your ads because it feels like I guess people would cut that they’ve also become you know one of the smaller platforms so I imagined.
They’re probably out on experimental ring of AD spend and maybe they get cut from that too so they had a double whammy of both kind of micro meaning I DFA and then macro softness so that was just a total total nightmare
quarter for them.
[11:33] No do it wasn’t pretty 100% agree like I do think we call the that I DFA was going to be pretty substantial to some of these businesses but I do think.
Some of there’s like there they were mostly trying to blame it all on IDF a and I do think there’s some softness in.
Digital marketing spend right now right I guess you go into recession it’s not the right thing to do but you know a lot of people that are nervous about their economic future are you know slow down their marketing spend right and it’s kind of like
when when you start to Skid on the ice.
You know it’s not very smart to hit the brakes but it’s human nature to hit the brakes and and you know some people people are doing that right now and I think some of their their softness and then you know some of the softness in the other AD platforms we’re going to talk about,
is is related to that recessionary fear and the ongoing impact of the various privacy initiatives.
[12:30] Yes so then we were all like okay that’s that’s Snapchat maybe it’s isolated and then we had five days till Google was going to announce,
or / alphabet there called a whole I will always call them Google and then there was a surprise announcement on July 24th Walmart basically came out and said hey we need to update our guidance that they had already lowered,
for the quarter and they basically said sales are decent but profits are going to be way below kind of what we were talking about and they specifically called out some inventory problems so the CEO
they now have everyone has a there’s like 16 CEOs at Walmart or something but the CEO of us said,
there’s probably 20 percent of inventory if you could just wish it away and make it disappear you would,
and then around that same time Target also came out and I think there’s was even more severe,
and then Walmart called out apparel as a problem area where basically I guess when you look at kind of your your wallet where you’re spending money there’s always,
can’t live without groceries but you can live without like that 10th pair of socks or,
or a new outfit or something like that so it seems like consumers are definitely slowing down dramatically on the apparel side did you parse anything else out of the Walmart announced.
[13:51] Yeah I mean I feel like those are the main two takeaways I Walmart in particular
like they’re got they reduce their guidance from like eleven percent profit 21 percent profit right so pretty meaningful and essentially what they said is a we’re starting to see significant changes in consumer Behavior as a result of the recession and or as a result of the inflation I should say
and the the specific behavior we’re seeing is people are spending more on Essentials and less on
non-essentials and the non-essentials are more profitable for us so our mix is getting less profitable which is why we’re adjusting our guidance and it also means
that we have too much of these non essentials we were already you know heavy on them because we over ordered,
during all the supply chain crisis and now we’re having trouble moving them so Walmart didn’t say this but a lot of other pundits have said this like you can
expect to see all these Goods at Walmart and Target start to really get discounted and in one weird way,
that’s potentially good news for the economy because that that could actually help counter some of the inflation that everyone’s talking about.
[14:56] Yeah yeah 10% profit change at Walmart’s like a 40 billion dollar number.
[15:02] Yeah I will say and you you’re the stock market guy I’m not right so not shocking
you come out and you revise your guidance in significantly down like that and not tracking your stock takes a pretty big haircut right so everyone wrote articles talking about the dipping the stock I happen to pick the stock right before we went on the show and its back it’s completely rebuilt.
[15:23] Yeah it’s always better to take your medicine and then if you’re going to do it kitchen sink it and throw in some stuff because it’s an expectation machine not necessarily an absolute.
okay so then everyone was like well that’s not good but maybe it’s isolated to stores let’s see what Shopify does well then well then Google came out and Google was mixed probably less bad than people thought so their Core Business which is people going to google.com and typing in stuff it exceeded expectations
but their ad business and then their YouTube business were under pressure and they basically kind of counteract that each other where they did talk about
you’re more macro head runs around the ad world and that advertisers were pulling back so they kind of,
added on to that Snapchat message of some softness with ad spend.
[16:11] Yeah and just for Google followers I would
add you know they’re interested in comments Commerce particularly interesting just remember like the president of Google Commerce recently left,
Bill ready to go to Pinterest right so they haven’t announced a new head yet like I’m expecting them to call me any day
so we’ll see where that goes but previously one of the things they’d really been leaning into was YouTube for Commerce and they’ve added a ton of Commerce capability to YouTube and it
it varies it doesn’t seem like that paying off quite yet in the Google world.
[16:47] Yeah and then everyone’s like well let’s see what Shopify does in so let’s see after market close 26 was Google and then everyone was expecting Shopify to do something the next morning well then that evening Toby put out a Blog
post saying hey we’re laying off 10% of folks and then I was like oh boy that’s not good the quarter must be really really bad.
And it was really interesting to his credit I think Toby did a really good job in his blog post it’s never easy to do these types of layoffs and I thought he did an exceptional job of laying out,
why and essentially taking the blame for it basically saying he made a bet that this would be a pull forward it was you know.
[17:32] And then when you’re in the thick of it you do that was our logical,
thing to think could happen and instead now we’re reverting to the mean and they’ve gotten way out of their skis what did you think about and then the next morning because he had taken their medicine,
it wasn’t quite as bad and then Wall Street actually likes it when Shopify gets rid of expenses because they’ve added there,
that’s like a thousand people to them that they laid off our 10% so they’ve grown their head count up to this kind of astronomical 10,000 folks and then they,
is one of those little quizzical because then they said you know it’s not going to change our ability to innovate or do anything basically so then you’re kind of like wow I wonder wonder
hey how’s it feel to be one of those thousand people here in that part of the message and then be you know what did they do that you didn’t really need them and they were in the sales they have all these content management people so kind of not developers not product and so part of their message was they were going to double triple down on on
product development and adding features.
[18:33] Yeah I’ll be interested to see how it plays out I got a ton of pings after that announcement because everybody did a Victory lap on my corpse right like everybody’s calling and going ha ha mr. e-commerce guy
e-commerce was an anomaly like it was it was big during the the pandemic but but now it’s all gone see even Toby
like over-invested in e-commerce and then he had to come out and say that he Comer sucks now.
And so a I got a bunch of those kind of troll tweets that I had to respond to.
And you know I have my own kind of issues / concerns with Shopify so a I would say.
That shopify’s actually been slower than I would like to see in product development leading up to this and in particular they have a product that’s aimed at more Enterprises and less.
Tiny businesses that’s called the Shopify plus and most of the folks I talked to that have.
Invest in Shopify plus I’ve been pretty disappointed with the rate of innovation and product development on that platform and a bunch of the people that got laid off.
[19:38] Where the teams associated with Shopify plus so that seems.
Interesting to me and I will tell you that like in Toby’s announcement he published this this US Department of Commerce Economic Development.
Which of course you and I are super familiar with and we talked about all the time but eat accurately represented it right like that there’s,
e-commerce has been at the certain rate and during the you know from 2022 2022 we had this crazy Spike and you know if you look at where it is now and you draw a dotted line to the growth you would have expected before the the pandemic like the.
The line is barely above where you would have expected so they called that regressing to the mean and you know gosh we exuberantly over-invested in now that it’s come back to the mean we have to right-size.
And so the only thing that’s wrong with that graph is it’s kind of a it visually doesn’t represent,
the huge amount of growth that’s in the mean like the mean is very high so,
from 2022 2022 we added four hundred and twelve billion dollars a year of e-commerce sales so e-commerce in United States of America Grew 61% From 2022 2022,
so when when Shopify another say oh man we covid dim boost e-commerce as much as we thought we only grew 61 percent over the last two years.
[21:06] Um like how many people did you hire right like you did you you didn’t add 61 percent to their their staff commensurate with that growth.
So yeah I just I take exception with people that think.
That this data in some way shows some some significant softness and the other thing I would say is all of these graphs that these people are talking about they all like to show the percentage of e-commerce to Total retail and.
It’s easy to overlook and forget the fact that the denominator in that that ratio has been fluctuating wildly because of covid-19.
[21:42] Yeah yeah and then you know the other thing that mrs. is the it’s like almost like a pie chart where you don’t see the absolute dollars so so percentages are a tricky thing it’s gonna be a better way to visualize it.
One scary thing is maybe we don’t revert to the mean like a week the you know the lines we haven’t had enough time to know until that start sticking up you know we won’t know if we’re back on the mean or not who knows.
[22:11] I know for sure but I get you know like I will do it maybe a Shopify deep dive at some point but like to me Shopify does is.
Great product for small businesses it caters to this long tail in my biggest gripe with Shopify as an investor is always that they never tell you what they’re stainless or sales are like they never tell you how well
last year’s customers did this year they just tell you the gmv of all the customers they currently have and so as far as We Know,
more than 50% of their customers go out of business every year and then you know 50% of new mom and pop start a smart start a business and sign up with Shopify so
the unlike a lot of other retail platforms that report their their data and when they grow we can kind of assume e-commerce grew shopify’s growth can be 100% attributed to turn we just don’t know.
so then it was Thursday morning the 27th and meta formerly known as Facebook announced and that was a poop show so they had a myths of top and bottom and their second quarter of declining growth they threw the kitchen sink in there IDF a they’re seeing macro issues
Sheryl Sandberg is leaving and this has been announced for a while and then all the Talking Heads were like oh my God you know she
when out of the top this is kind of the end of Facebook so that was that was pretty
pretty negative sentiment there and then that brings us to the main topic we want to talk about which is after hours on Thursday Amazon announced.
[23:41] And Scott one thing before you jump in the Amazon like you forgot the most important thing about meta.
[23:48] The Kardashians are mad at them.
[23:50] Oh yes they changed Instagram in Kim’s I don’t I haven’t tracked this you know it better than I do.
[23:56] Yeah I’m just well it is an interesting thing will do another show about this at some point but like Instagram is has probably been the crown jewel of men of for a while and you know
Instagram is getting a lot of competition from Tick Tock that the news feed and Tick-Tock is a lot more our rhythmic so the content you see
is less related to who you particularly follow and more what the robots think they want to show you and the you know can monetize
and so Facebook to try to follow suit is changing Instagram to be more algorithmic and less
based on your followers and so if you’re a mega influencer with 30 million followers
you don’t like that right like if you’re Kim Kardashian you want everyone to see all of your content because they followed you you don’t want them to see some unknown person that did something viral.
And so the change that Instagram made is to be more like Tick-Tock and you know some of these big
big influencers that benefited from the old model understandably don’t like it in are criticizing it.
[25:01] Got it yeah we should definitely do a Kardashian deep dive how fun will that be.
[25:06] Yeah yeah finally be able to let Kylie on the show and so she’ll stop bugging us.
Okay so if you’ve been listening this recap there’s two words I haven’t said and those are beat and raised so then Thursday night Amazon came out and everyone was like oh boy this is gonna be bad
and there was a CNBC person who actually like a lot of names Josh and.
He was basically he they do this little lunch time.
They have this investment committee they call it and he’s had a short on Amazon because he kept thinking they were going to miss Q2 he basically said look with Walmart and Target basically reporting the way they have.
To think Amazon would do differently means they have some totally different customer base I just don’t think that’s the case so Amazon surprised everyone with a beat and raised quarter.
So how did they do that with all this you know we’ve got Walmart Surprise Miss Shopify surprise Miss Google.
Less worse meta terrible Snapchat total disaster in an Amazon just kind of came out and surprised everyone.
[26:16] So so one way to think about Amazon is this very unique business and there’s not a lot of.
That you know another company like this that they have this portfolio of businesses they have built and they’re all intertwined but.
They have I imagine they have this is my mental model is they have dials where they can turn up and down this portfolio of businesses because they’re all intertwined and that’s one of the benefits of keeping this stuff together like when PayPal and eBay were together
there are some operational Dynamics there that you could use to you know if you hit a certain speed bump or something you could navigate that better,
so Amazon has these things so they’ve got the core retail business which is lower margin it’s a retail business still profitable on its own but.
[27:02] Not a great business but a good business and but like a massive scale you know hundreds you know what three hundred million dollars plus annualized then you’ve got a third party Marketplace business that we talk a lot about.
doing really well you’ve got a smaller ad business super profitable doing really well growing rapidly AWS the cloud component now merchant services which is essentially the monetization of the,
Center asset you had to build for the first piece.
And my mental model is what they basically said was well we’re heading into this period where we’ve got all these recessionary things consumers Under Pressure let’s dial back on first party and dial-up third party.
And that really won the day so so what they did is the third party as a percent they don’t really give us.
The gmv of each of these things that the total sales in each bucket they give you a unit mix so the unit mix was at an all-time high I need a fact check on this I’m 99% sure this is right.
Five 57% third party versus first party the highest previous that was last quarter at 55%.
They may say let’s 2% how could that really make that big a difference well.
[28:18] That’s actually big because when a hundred dollars moves from the first party bucket and you and I have talked about this a million times but just to recap for listeners in the first party bucket the accounting is a dollar is a dollar of Revenue.
The third party Amazon doesn’t get to recognize the hundred dollar widget that sold they only get to recognize their commission or take rate which is about 10%.
So they lose 90 dollars if a doubt if a widget moves between those things and Revenue.
But that ten dollars that’s left is pure profit it’s almost like 99% profit so so if you really want to you know juice profits you move things from the 1p bucket the 3p buck.
So and then also tell us about Prime.
[29:06] Yeah so Prime is a little confusing this year because it was in July and historically that’s
when Prime day has always been except this weird covid era that we’ve had so you know if you if you go back to 2020 they canceled Prime day in July and instead had it in October and then the following year in 2021 they went back to Summer but instead of having it in July I like they always have they had it earlier in June which is a big deal because it’s a quarter earlier it’s Q2 instead of Q3 so
we’re looking at Q2 this year we’re competing against a cue to that had prime day in it and this year Prime day is in Q3 so this year
Brenda is back to Mid July which July 12th and 13th so
a lot of extra work and verbal gymnastics for the poor cf0 on the earnings calls.
[30:03] Yes there was no benefit from Prime in the quarter so that didn’t really it neither hurt or helped.
So even though third-party carried the day and I kind of theoretically so let’s say.
Yeah let’s say you’re running one of these really large retail businesses and you’re either a store based or a e-commerce base
I feel like Amazon because they have their products in a central location
they can be much more dynamic because you know think of the store networks that Target and Walmart have almost like an edge Network.
[30:37] And that product gets pushed out to the edge and then if you need to Pivot for some reason well you’ve got a tough decision you can
you can pull the product back it’s not really desistance not really designed for that it’s mostly returns comes back not like let me yank all the sweatshirts out of a you know store number 292 or something.
Or you have to liquidate them and then you end up with this problem that you call so if your Edge is full of stuff that’s not really moving right now,
you can’t really.
Change that rapidly you know you’ve got like a 60 90 day cycle to flush that out clear room for the stuff that’s going to work so I think that even even though they did turn up these higher-margin pieces to win the day
I think being an e-commerce oriented retailer gives them a lot more flexibility in a world where inventory and consumer behaviors are changing rapidly
do you agree or disagree with that.
[31:34] Yeah no I I mean I feel like they’re their breath of offerings and monetization make them much safer than most other retailers they have more levers to pull in more knobs to dial.
[31:49] And then the other thing and you know here one of the reasons I started spiffy is because we had talked so much on this show about the bifurcation where K seal Obama has come on and.
Talked about the value and the consumer and the convenience or any consumer and a lot of that data came from 08-09 the quote-unquote Great Recession
and you know what we learned during that recession is there is a consumer that is largely immune from recessionary and in that point time we didn’t have inflation but I think I think that’s kind of the same.
Same kind of Stew if you will of macroeconomic stuff that the consumer has to face whereas the value are going to Consumer was really impacted by it.
So I will also another argument I have is that that guy Josh on CNBC was wrong there is a separate customer now surely there’s overlap and what not.
But Amazon has captured all if not you know.
98% of that convenience or any consumer and you know that is a great place to be when you have a lot of these recessionary wins because they’re not as impacted as the value or any consumer.
[32:57] Yeah no I do I think you’re 100% right like this gets complicated because these are such large numbers but the way I think of it there’s 240 million households in the United States of America there is more than 100 million.
Prime households right so the you know a significant chunk of America shop Amazon and have Prime,
190 million households shop Walmart so basically all you know the vast majority of America except for rich people in New York and California shop Walmart so you can’t talk about oh,
there’s a Walmart customer and there’s an Amazon Customer because the vast majority of customers go to both places but.
[33:38] There’s a core customer that spends most of their money at these two places that is likely very different right so there’s these these higher net worth individuals that spend the bulk of their discretionary money Amazon
that are way more insulated from inflation than the average Walmart consumer that spends the bulk of their money there and then.
A big difference in this inflationary period is if you’re a cord customer that shops at Walmart or Target.
You have more economic instability so you’re spending more of your dollars on Essentials versus nice to haves right and guess where you get your Essentials Walmart and Target like that’s still where you get your food.
And so at Walmart the mix shifts right instead of buying a cool outfit you’re buying more proteins for your family.
But that that Amazon customer is both more affluent and therefore less impacted by by inflation and they probably don’t get their protein from Amazon.
Right so like we Amazon doesn’t see their quote-unquote essential spending they only see their discretionary spending so they don’t have the same.
Dynamics like causing their mix to shift to less profitable mixes in a recession so I do think in that way.
The economic headwinds facing Walmart and Target are very different than the ones facing Amazon.
[35:05] You know if you are getting your protein from Amazon it’s probably at a Whole Foods where I have a feeling that consumers pretty resilient based on.
[35:13] Yeah which and again people do but like a see a statistically insignificant period of like whole food is less than 4% of the grocery market so yeah.
[35:23] Well our are like Kroger and those folks feeling I don’t track them as.
the so again they have less discretionary right so yeah they’re they’re doing pretty well like they’re benefiting like a lot of the items in Kroger are impacted by inflation so there’s their sales are up
um the you know.
They’re like the discretionary retailers are losing more dollars to the grocer so it’s I’m not saying that that the grocer particularly love the current circumstances they’re in but but they are like if you navigate them right there economically favorable.
[36:03] But then because it’s not Walmart where interest or you’re making the toys there’s there’s a loser somewhere and it’s pie like a Macy’s and JC Penney you’re probably going to get hammered I would imagine because there’s you know if Walmarts telling us people aren’t buying much apparel than this kind of start Rippling through
all these other places.
[36:18] Yeah or I’ll give you an even more painful example Bed Bath & Beyond.
[36:22] Yeah yes Father they’re not doing well.
Okay let’s peel the onion on this a little bit so Revenue grew 7.2 percent year-over-year to 120 1.2 billion and that exceeded the expectations of 119 billion by about 2 billion.
So not a huge huge beat but again it was such a bad setup that that it seemed like.
You know what a miracle in somewhere North America this is really interesting when you kind of look inside of Revenue North America came in at 74 billion and then expectation was sixty seven billion so that was a really that was almost like a 10% Len.
But then International was a miss it was 27 verses 32 billion.
Everything I forgot to say that the top and everything we do is outside of the impact of financial currency moves so it’s called X FX and Wall Street parlance which which is important because the,
currency moves are gyrating around like crazy right now so you swirl that together and that’s where you get your North America was up seven,
International is all five so that’s how you get your two billion dollar win but it’s really interesting because if you look at Amazon’s North America they were up 14 percent year-over-year which Compares very favorably to your US Department of Commerce data.
[37:44] Yeah yeah no that’s a and again like,
I look at this all in Aggregate and say this is a solid quarter in a challenging climate for Amazon and yeah they have performed the the industry average despite
being one of the largest players.
[38:04] Yeah and then you know a mere like less than a week after Walmart said they were going from kind of ten percent to one percent profit margin Amazon’s gross margins improved 45 percent year over year versus the consensus 43 percent so that,
that was the one that really yeah I think people are like well if they make revenues surely they’re going to go out and readjust their profits and it’s going to be really hard so
they came in with an operating income of 3.3 billion and this was in our Sunday called out an incremental for billion of increased cost but that was offset from improved fulfillment center Ops
so I think what’s going on is they built out the Fulfillment center capacity so crazily and they’ll since the pandemic they were basically just standing them up and just you know
getting stuff out as quickly as possible.
[38:51] And then this quarter they kind of came back and where they use this phraseology invest in Harvest so they go in these different modes so they’re able to come out of invest mode and look around and say well.
You know in 2020 we sure we’re setting up fulfillment centers kind of crazily lets you know we need to tweak,
this this and this and then I want to have billion dollars of operational efficiency came out of that they called out some areas that are increasing and expense are.
Ews expenses so those sit there and use a lot of electricity which a lot of electricity is off fossil fuels and then I think I think computers are getting more expensive I guess that must be a chip related thing you said Electronics but that’s
probably like big screen TVs anyway.
Then obviously they called out fuel as an area and then they have a particularly large amount of money going into digital.
With the funding with digital content with the funding of The Lord of the Rings series coming out and then they also bought Thursday Night Football so they called those out is as expense items.
And as I mentioned at the top third-party one today.
And then looking inside of there we talked about that seller Services grew nine point one percent year over year to twenty seven point four billion and I think whenever any of these things,
grow faster than the Baseline of 7% and they’re higher-margin they’re going to drop that much more dollars to the bottom line.
[40:20] So there was that and then I don’t know anything about ads so I’ll kick that one over to you.
[40:27] Yeah speaking of things that drop Towers to the bottom line so that the ad units is a reminder is a.
This business Amazon has had for a while but only broke out as a separate segment recently and so now it’s fun to see it every quarter so it Q2 of 2022 was up 21% versus,
the second quarter last year,
um if you add up the last four quarters of Ed Revenue its thirty four billion dollars in ads than Amazon selling and Amazon doesn’t tell us the profitability of these individual segments but most people estimate that like.
[41:06] Worst the advertising business is probably a 75% gross margin business so,
75% gross margins on thirty four billion dollars makes the ad business more profitable than AWS for Amazon so,
um Healthy Growth again you think about all the other people selling ads Google Facebook snap,
um you know really struggling but Amazon you know continues to grow and they’re already the third largest advertising Network in the US so,
that’s pretty impressive,
side note you know every other retailer in the world is trying to replicate this this new ad business than Amazon has invented and they’re all doing it you know with great success at a much smaller scale.
Um so that you know the ad dollars are shifting from these,
kind of top of funnel content providers to these bottom of the funnel retail networks that have first-party data and don’t have all these idea of a.
Problems that the others are facing so that’s.
[42:10] The ad business you know separately Amazon Amazon has this subscription business which is mostly Prime but a few other things mixed in there and,
you would expect that to be slowing down because they’ve you know hit they’ve saturated they probably have half of us households have Prime accounts but that’s still growing at 14% which again.
[42:31] Is pretty impressive and I think that’s a picking up the rate of growth from last quarter so it’s super interesting impressive to me that these,
these plati sticky Echo systems are particularly strong and Amazon and then of course everyone always talks about AWS,
you know I get and we’ll talk about this later but we get all these annoying tweets that like oh the only profitable part of Amazon is a WS and it’s great it is great right and revenue there was almost 20 billion dollars in nineteen point seven billion,
which is well ahead of the confessed consensus estimates it’s a decent margin business so I think there is a lot of hardware and electronic electricity,
behind that business but it’s still pretty high margins and you know a lot of the world hasn’t moved to the crowd yet so it WS has a lot of,
Headroom in its Tam
but a lot of folks were worried that in these economic uncertainty times that I see shops would be slowing down their migration in the cloud and therefore AWS would,
would take a hit and I want to say Microsoft announced a slower rate of growth before Amazon so there was an expectation there that might not be an awesome number and and again it was pretty solid
solid beat for for AWS.
[43:52] Yeah so that’s kind of the different operating units and then,
you know again wall Street’s kind of a what have you done for me lately so then everyone’s like well this is an anomaly surely surely you’re not going to be able to repeat this
and everyone said number one stop calling me Shirley and then number two Amazon put out Q3 guidance and basically both the revenue of that guidance and the prophet were well ahead of what Wall Street had been thinking.
The the revenue guidance was 125 to 130 billion which at the midpoint is 15 percent growth so are one was was quite
pleased by that it basically made it feel like they were feeling very strong because remember
this is all 727 so Amazon’s got 27 date they got about a third of the quarter already in the books and it basically was a signal Amazon saying yeah we feel pretty good about the quarter right now
and Amazon had prime day in the books as well so that was good and then.
[44:54] Do anything Wall Street loves more than a beat and then raised so the beat is current quarter and then the Rays was the going forward quarter
is Abby trays in a buyback so then they also said oh and by the way we bought 3.3 billion dollars worth of stock in the quarter because we felt like
the price the stock was was kind of left so so that was all very very well received and and really made Amazon stand out from from
me up substantially from the other both retailers and add companies that had previously reported.
[45:27] Yeah so.
[45:28] And then you got Mean Tweets go.
[45:30] Yeah so here’s what’s annoying so I would say that that’s a terrific quarter for Amazon given the economic climate and you know frankly exceeded my expectations and in a number of areas.
But you do know there’s room for lots of different interpretation and a bunch of folks on Twitter like zoomed in on the profitability of the US retail sector was down and you know they jump on this whole like
see this is what we’ve always been saying retails unprofitable it’s a loss leader for Amazon,
you know really Amazon is just about a WS and this like you know Silly retail thing is just a sideshow and there’s no way to make money on it.
How do they get away with a lot sweeter thing Jason don’t I have that right like I got a bunch of tweets like that and I didn’t respond because.
I’m not articulate enough to answer in a short tweet so hopefully it will make everyone listen to this this whole podcast,
but I would say you guys are all wow like it was a terrific quarter for Amazon retail like and there’s two things you’re missing Gap profit is not the same thing as how many dollars flow to your bank account right like,
um you know how much money Amazon decides to invest in new warehouses that are going to pay off in the future dramatically affects their.
[46:51] And so it’s almost silly to look at Gap profit to say whether Amazon retailers a good business or not but more importantly.
Um all these profitable businesses that everyone’s talking about exist only because of retail right so that ad business I just talked about.
[47:10] People aren’t coming to Amazon to consume ads they’re coming to Amazon to buy stuff in the ad show up right,
um and the other business that’s impossible for Amazon to lose money on that’s growing wildly is merchant services that you hit on,
um the merchant services are because Merchants want to sell stuff on Amazon on the retail platform and so it’s a little when people are talking about oh gosh the retail business and Amazon’s a loser but the ad business is profitable,
that’s a little bit like saying.
The content creation business in b.c. is a total loser but the ad business at MBC is a winner right like know that they’re only able to sell ads because they create that content and in the same way.
Amazon is only able to make money on Merchant Services and ads and to some extent on subscriptions because of this,
vibrant strong retail business
um that you know has more favorable characteristics than a lot of other big retailers in this current inflationary potentially recessionary environment so I’m sorry guys I just I think
you’re wrong and wildly oversimplifying Amazon’s business model and economic circumstances.
[48:22] Yet another framing that’s kind of fun is after retails been around for what like I guess even longer but I get
I was here Sears like 150 years or something.
And you have all that history and it took Jeff Bezos to figure out hey you can actually glom on these really profitable high margin businesses and make the whole thing better
and there’s a synergy synergy inside of there that enables you to like they did this quarter where they can dial things up and down don’t you think Walmart had more of that right now or Target or you know
Macy’s or any of these other retailers so so in a way I think they’re missing the point there to just pick out this one piece that can’t be
unintegrated and say that it’s doing bad because you have to take the whole enchilada because they designed you know retail 2.0,
by mixing all these things together in a unique way no one figured out till they did.
[49:21] Yeah no hundred percent so so Props to Amazon and keep on keeping on.
I did want to I think we’re over on time but I just wanted to just like briefly hit on a couple non earnings related topics just to wet people’s whistle so.
Hey we talked about prime day there’s a pretty significant week that there’s going to be a second prime Day this year so a lot so a number of journalists have seen internal documents.
That talked about a thing called Prime Early Access sale which is scheduled to happen this fall.
And so most of us interpret that as likely going to be October which again is when they accidentally had Prime in 2020 because of covid-19.
So look for more there but like potentially Amazon will have a second prime day to me that’s really interesting because.
I feel like the first Prime day at this point is mostly about comps and people turn to match last year’s Prime day and it’s I’m not sure it’s necessarily totally additive but adding a new sail if it.
[50:26] Works and capture sales in October that could be interesting so.
I found that super interesting Amazon launched a new product that maybe is only cool to me but it’s called retail store analytics and this is they’re taking all the data from all the cameras and all the just walk out stores and they’re selling it back to the brands.
So you know just like a you know a cpg can go to Amazon and find out how many glances they got on their their product detail page and how many add to carts they got,
they can now find out in a Whole Foods how many people looked at their package on the Shelf versus how many people bought it so there,
they’re monetizing all the customer insights they’re getting from these brick-and-mortar stores using all those cameras which I thought was pretty cool.
And then the last thing I’ll leave people with is there were some significant articles talking about internal week memos about Amazon trimming its private label and its private label largely being.
Unsuccessful and Amazon potentially moving away from private label and.
Like I don’t think those articles are wrong but I would just throw 11 piece of caution when you interpret those articles.
[51:35] I’ve seen no evidence that Amazon’s moving away from any of its successful private-label initiatives,
so so what’s happening Amazon has a huge amount of private labels they have a ton of Brands they invented a bunch of them never got traction never caught on never had significant sales and I do think they’re doing a rationalization of all of those,
but there still are Amazon private label brands,
they’re doing quite well and it appears the Amazon is doubling down on those so I guess what I would say is that they’re really focused on the head tail private labeled it’s doing well in there,
they’re kind of rationalizing the long tail that was not doing well so that is all of the Amazon news,
and it’s a good thing because we’ve blown through our lot of time once again as always if you found this episode valuable we sure would appreciate that five star review on iTunes.
[52:33] Thanks everyone and until next time.
[52:37] Happy commercing!
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