ChannelAdvisor Scot Wingo By Scot Wingo

Amazon’s Q1 2016 Results for Sellers – Amazon Accelerates into ’16

On Thursday April 18, 2016 Amazon reported their Q1 2016 earnings.  In this blog post, we analyze the earnings with an eye towards implications for online and offline retailers and Amazon sellers.  In a nutshell, Amazon blew away Wall St. expectations on both revenue and profitability.  Also for the first time, Amazon’s cloud (AWS) business, North America and International businesses all showed a profit (and it wasn’t even Q4!). In fact, international would have been more profitable if it weren’t for the investments going into China and India.

There was a lot in this quarter for sellers to consider, so let’s dive in:

Amazon Q1 Results dashboard

First, here is the Q1 16 Results Tracker where we look at the most important metrics.  Remember that comScore reports desktop growth at 10% and mobile at ~5% for a total of 15% which is what we think of as the ‘e-commerce baseline.’  In other words, if you grow faster than 15%, you are gaining share and if you grow less than 15%, you are losing share.

amzn_q1_16_results_tracker

Amazon Q1 16 Growth Cube

Another way to ‘visualize’ Amazon’s growth is to peel the onion on the category and geographical sides of the business.  We do that in what I call the Amazon growth cube:

amzn_q1_growth_cube

Highlights for sellers from Q1 

  • Amazon overall grew 29%, almost 2X the growth rate of e-commerce, quite impressive at their scale.
  • The real standout was EGM which grew 33% all-in, 35% in the US and 32% non-domestically.  Amazon specifically called out three factors: The Prime Flywheel, increased selection from 3P, and FBA.  The international growth was the highest in 3yrs.
  • Active buyers reached 310m  and grew 12% – a slight slow-down from from Q4’s 13% showing.  Note Amazon did change this metric to have two ‘flavors”.  What we report here is if someone ‘bought something’ – which could actually be free.  Amazon clarified that they will be calling active buyers folks that actually bought a paid item (not free).  That number was 285m.  For example, if someone got a Kindle device over a year ago and recently downloaded 10 free apps, they will now fall into that 25m ‘gap’.  They would be in the larger active buyer metric, but not the ‘paid’ version.
  • Units/customer accelerated again to 14% y/y growth up from Q4’s 12% y/y growth rate, which is an indication that Prime is working and buyer frequency (items purchased/buyer) is increasing.
  • EGM was 80% of Amazon’s business in Q1, a new high water mark.
  • Another impressive fact from the Q was that paid units accelerated to 27% y/y growth.  Recall from eBay’s results that they saw paid units (items sold) grow only 3% (and I believe that includes StubHub).  This was the highest growth rate for this Amazon metric in 2.5+ yrs.
  • 48% of units were from 3P – another highwater mark.
  • Amazon attributed 150bps (1.5%) of the Quarter’s y/y growth due to Leap Day/Leap Year (Remember this for next year!)
  • Not seller-oriented, but important to note with AWS, Amazon has a $10b business growing north of 60% y/y – I’ve never seen anything like that before.

Further in the report, we show graphically how some of these accelerations and ‘recent records’ look historically.

Negatives from Q1: (note these were hard to come up with!)

  • Amazon is spending a TON on fulfillment – well over $10b in capacity.
  • Shipping costs grew 5% q/q to 43% y/y driven by Prime usage
  • Wall St. Analysts tried to dive into Amazon’s plane leases and other infrastructure/supply chain investments looking to see if Amazon plans to compete with FedEx and UPS.  Amazon’s CFO reiterated their position: (Note this is from the transcript)

“…the reason we add logistics capability and transportation capability is so we can serve our customers faster and faster delivery speeds and we’ve needed to add more of our own capacity to supplement our carriers and our partners. They’re still, again, great partners, have been and will continue to be for the future, but we see opportunities where we need to add additional capacity and we’re filling those voids.”

Amazon 1P vs. 3P

This picture shows the trends of Amazon’s 1P and 3P GMV over the last 5 years.

amzn_q1_16_gmv_chart

By our calculations, 3P has now hit 61% of total GMV – a new high water mark. (Q4 15 was 60% and Q1 15 -year ago- was 57%).

 

This chart shows the relative growth rates of 1P and 3P.  Here you can see that 3P grew at 36% – well over 2X the growth rate of e-commerce.

 

amzn_q1_16_1p_v_3p

Why did 3P grow faster than 1P?  The simple reason is that 3P is much more profitable for Amazon and with FBA, they get the best of both worlds: Prime-eligible great customer experience plus strong profitability.

Amazon vs. eBay

Since both eBay and Amazon have reported we can update our regular tracker with the GMV from each company.

amzn_q1_16_amzn_vs_ebay_3pm_gmv

2016 Acceleration Examples – Unit Growth, 3P Mix and International

Some of the Wall St. analysts had charts that are good examples of the acceleration Amazon was able to generate in Q1.  First, this chart from Jefferies shows the % of sales from 3P since 2014 and the y/y paid unit growth.  Here you can see the new high-water mark on 3P for Q1 16 and the record paid unit growth since 2014.

amzn_q1_16-unit_growth-and_3p

This next chart is from Credit Suisse and shows the strong international performance from Q1 2016 compared all the way back to 2013:

amzn_q1_16_intl_chart

 

Amazon’s strong start to 2016 and Seller Action Items

Amazon is off to a very strong start to 2016.  Everything seemed to be hitting on all cylinders.  Amazon’s forecast for Q2 2016 has a range of 21%-32%, or 26% at the mid-point, so they seem to be feeling pretty good about Q2 as well.

The only immediate action (other than selling more on Amazon) I took away from the call was some body language around FBA.  Prime and FBA are targeted to grow so fast, I’m not sure that Amazon’s FC build out will be able to keep up.  We are hearing from customers that Amazon is already starting to deny some FBA shipments based on SKU supply/demand and other data they are starting to utilize to optimize FBA (in addition to the fee structure).  One action item for sellers is to get smarter about FBA such as:

  • Explore ‘Merchant Fulfilled Prime Eligible” program.  This program allows you to have Prime-eligible products that YOU fulfill, but you get to use Amazon’s shipping rate card.
  • Run a detailed analysis that include all of your FBA fees to understand which of your products are the most profitable and be prepared to prioritize if you are only able to send X% of items to FBA.
  • If you have underperforming products ‘stuck’ at Amazon, they are offering amnesty on getting those products out, I would recommend using Q2/Q3 to ‘reset’ your FBA strategy and selection.

Finally, we covered Amazon recently in our weekly podcast, the Jason & Scot Show focused on e-commerce, you can check out the Amazon episode (ep24) here.

This blog was written by Scot Wingo, Executive Chairman, ChannelAdvisor.

 

 

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