ChannelAdvisor Scot Wingo By Scot Wingo

Bazinga! Amazon’s Q2 2015 Results – What a Seller needs to know.

On July 23rd, Amazon announced their Q2 results.   Amazon shocked Wall St. with a huge beat on the top and bottom line driven by three areas: AWS (cloud computing platform), Prime and the Marketplace.  AWS isn’t in the scope of our blog, but the highlight there was that AWS grew at 82% in Q2, up from Q1’s 49%. That’s ‘ludicrous mode‘ acceleration and it caught even the most optimistic analyst flat footed.  Even with the spotlight on AWS, there was a lot in this quarter for sellers to be excited about on the retail parts (1P, 3P, Prime, etc.) of the business so let’s jump in.

Amazon Q2 2015 Dashboard

Here is the dashboard of key seller-oriented metrics we track for Amazon and how Q2 performed:

amzn_q2_15_dashboard_final2

As you can see, there’s a lot of green on this dashboard.

Amazon’s results – the good and good-er for 3P sellers

Benchmarks:

A quick reminder that e-commerce (ComScore) is growing at 15% and eBay reported (our coverage here) 6% global GMV growth with the US at 2% and intl at 8%.

 

The good-er:

  • Amazon had some impressive acceleration. Most notably, international EGM came in at 31%, up 10% from Q1’s 21%.  We looked and have never seen anything like that since we’ve been following Amazon.  On the call, Amazon’s CFO mentioned that in Q2 2014, there was softness in Japan due to a consumption tax which has annualized now.
  • We talk a lot about the importance of active buyers and the growth there (see our eBay analysis for example).  One thing that’s very interesting about Q2 for Amazon is two other buyer-oriented metrics showed big movements.  First, units/customer increased 7% y/y compared to 5% in Q1.  Second, Revenue/customer increased 5.2% y/y compared to Q1.  This really shows the power of Prime.  Amazon not only is adding customers at 14% y/y, but is increasing the units/revenue (and profits) for the ~300m existing users.  This is quite rare in e-commerce where you usually see declining metrics for cohorts of customers over time.  Prime is giving Amazon a multiplier effect (14% * 5-7%) which is where the acceleration comes from and why Amazon is so excited and investing in Prime.
  • Items from 3P hit a new high-water mark of 45%.  Further in the report we show the relative growth rates of 1P and 3P and it looks like we should see this number continue to move up through 2015 if the growth rates hold.
  • Interesting fact – EGM is 77% of US and only 69% of International, so even though EGM kicked it into fifth gear in Q2, if the US is an indication, there are more gears to go.
  • Overall in Q2, Amazon grew 27% y/y (up from Q1’s 22%)- impressive against the 15% e-commerce benchmark especially given the flat media category.
  • Amazon’s forecast for Q3 shows 19% y/y growth at the midpoint.

The good:

  • Total GMV of $48.3b in the Q – $20.4 (42%) from the 1P business and $27.9b (58%) on the 3P business.  This is a new high-water mark for 3P GMV and is closing in on 60%.  Even though 3P is only 45% of units, the GMV is much higher than 45% because most 3P is EGM and 1P is Media and EGM has much higher AOV compared to media.
  • Q2 2015 active user growth was flat with Q1 at 14%, bringing the number of active buyers up to 285m.  One interesting thing from the call the CFO said:  if you take out buyers that bought only three (I took that to mean 0-3 or < 4, not specifically just 3) items in the last year then in Q2 there were 265m active buyers compared to 237 a year ago- that is a 12% growth rate.  It wasn’t clear why they introduced this new secondary definition of active buyers other than perhaps someone was concerned there were a lot of small transaction buyers inflating the number and they wanted to dispel that notion.
  • Prime – While Amazon didn’t reveal any numbers around Prime, they did say they are very pleased with signups and also said that international signups are outpacing the US (I took that to mean from a y/y growth rate perspective) which is interesting.  They also mentioned that on Prime Day FBA orders were up 300% y/y, so it was a huge win for 3P sellers.

Those are the highlights, further in the report we dig into some details of interest to sellers.

Amazon’s Growth cube

One way I like to look at Amazon is breaking down the 4 segments that Amazon gives into a growth cube (geos: NA/Intl, cat: media/EGM):

amzn_q2_15_growth_cube

With the notable acceleration that Amazon saw in a couple areas, the growth cube doesn’t do them justice.  Here’s a chart of several key Amazon segments plotted over the last 4 quarters against the e-commerce growth and eBay results for comparison:

amzn_q2_15_segments

The red arrow points out that huge move in International EGM from 21% to 31%.  The pink arrow highlights the e-commerce growth rate.  The fastest growing segment, and this is great news for sellers, is the 3P GMV y/y growth rate which is growing at 39%.  The next section shows 1P vs. 3P and you can see that the 3P marketplace is now growing 2X the rate of 1P and we believe a key component of Amazon’s blow-out Q2.

1P vs. 3P growth rates

As mentioned, Amazon’s 3P business hit a new high water mark of 45% of the items from 3P in Q2.  Since Q1 2014, Amazon has been really hitting the gas pedal on 3P vs. 1P as you can see from this chart where we break out the growth rate of the two (based on our proprietary analysis):

amzn_q2_15_1p_v_3p

The pre-2014 time frame where the growth rates were similar was due to a FC buildout where Amazon had to slow down the adoption of FBA because they were literally out of FC capacity.  After Amazon caught up with FC demand and was able to dramatically expand FBA usage, you can see the explosion of 3P.

Amazon’s total GMV (1P and 3P combined)

When you look at Amazon’s total GMV trends, you see both steady growth and the Q4 seasonality.  What’s interesting is every Q4 sets a new watermark, and then in Q1 Amazon keeps a lot of the gains and builds on them through the year for another record Q4.  Projecting out to Q4 2015 if we assume current growth rates, Amazon has a shot at a $70b Q4 (1P+3P).  Here’s what this looks like graphically (red is 3P, blue is 1P) through Q2 2015:

amzn_q2_15_1P_3Pgmv

Amazon vs. eBay through Q2 2015

When you compare eBay and Amazon’s apples-to-apples performance from 2011-2015, you can see that Amazon is really pulling away from eBay and gobbling up share.  Note that this chart compares eBay’s global GMV to Amazon’s 3P-only GMV. Amazon’s global marketplace-only GMV in Q2 was $6.4b larger than eBay’s, or 30% larger.

 

amzn_q2_15_amzn_vs_ebay

Conclusion

Amazon’s very strong Q2 doesn’t even include the benefit of their early Q3 Prime Day.  Also in Q3, a new competitor, Jet launched and eBay completed its separation from Paypal so it will be interesting to see if Amazon can continue this huge momentum into Q3 into Q4.  We’ll be watching very closely.

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

 

 

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