EP243 - Amazon Q3 2020 Earnings Recap
In this episode, we break down Amazon’s Q3 2020 earnings (PDF) results.
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Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
Episode 243 of the Jason & Scot show was recorded live on Thursday, October 29th 2020. Transcript
[0:24] Welcome to the Jason and Scott show this is episode 243 being recorded on Thursday October 29th 2020 I’m your host
Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:40] Hey Jason and welcome back Jason Scott sure listeners.
In today’s episode we are going to go into what is one of our more popular series where we do a hot take on Amazon’s Q3 results,
I’ll give you one word to summarize them they were bonkers.
[1:05] Sun News new your margin is their opportunity.
[1:12] Before we dive in and take you through the highlights of the results let’s just set the stage a little bit so,
if I was there in front of you on the Whiteboard I would draw Q 1 Q 2 Q 3 q 4 in a row,
and because the pandemic and Q2 we saw a cross e-commerce super elevated growth rate of 45 percent.
Prior to that e-commerce was growing at about 15% so we have this step function from q1 2020 up to Q 2 of a 3 x acceleration of growth from 15 percent 45 percent.
[1:45] Kind of looking back to Q2 Amazon grew about 43 percent then so that was kind of the the day that we had in Q2 this kind of.
Yeah 45 percent growth rate Amazon was in line with that.
[1:59] Then we had a bunch of companies that grew faster or some degree a little bit slower but generally you know we had just this really tremendous quarter,
a lot of folks thought you know that’s unsustainable and Q3 it’s going to come down pretty dramatically.
And then just in the last week you heard it here first on the show as an exclusive we had emarketer released their fourth quarter holiday forecast for 2020.
And they’re forecasting 38% for the holiday period,
and then Salesforce just came out with theirs and they are looking at 34% and then Adobe just came out with theirs and they’re looking at 33%.
So we have this kind of interesting bracket if you will over on one side we have q to that was at 45% and then over on the other side we have Q4,
which you know if we look at kind of this range of 33 to 38 percent will call it 35 percent on average if we kind of triangulate on the three forecast there.
So what you’re seeing is the pontificate errs are kind of seeing that we’re going to drift from this high Watermark of 45% you to to 35% you for.
So that’s the stage that had me very interested to see where does Q3 come in because if we.
Maybe if we are below that 35 percent growth rate that’s that’s interesting and if we’re way above it maybe those holiday forecast are a little on the conservative side.
[3:24] So that that’s kind of the the macro stage coming into this quarterly release we did have a couple you just kind of the way the earnings results fall we had three folks.
In the in this kind of e-commerce cohort before Amazon did today so let’s see I think first we had eBay and they were at 26%.
So that would that would indicate you would just had that one data point you’d say oh wow we must have seen a really big acceleration eBay has been lagging the market already so that one’s not a huge surprise,
and in fact they their growth rate came down to points so they were at like 28 percent from revenue,
in the second quarter there your growth rate and then they ticked down slightly to 26 percent.
[4:07] Then we had let’s see I think next was at Sea and they came in at a hundred and twenty eight percent year-over-year and what’s really interesting about Etsy is they saw a huge lift and Q2 from mask.
But they had some pretty compelling evidence on their earnings call they can actually peel out the masks and their growth rate was still I think in the high 90s even excluding mask so they’ve seen this kind of cocooning and people getting really into crafting really,
and so that was interesting and they saw about an 8% decrease quarter-on-quarter so so there was a little bit of a step down.
Then we had I think yesterday morning or was this morning we had Shopify and they came in at 96 percent year-over-year growth.
And that was straight across from Q2 so that was the set up coming into Amazon’s Q3.
Jason anything you want to throw in there before we get into the results.
[5:04] No I think you covered it pretty well like just a couple things it said see it’s pretty interesting The Masks clearly were like a honey pot that was.
Driving incremental traffic and then it seems like there’s some evidence that there,
able to sell other stuff to those people which is awesome the traditional craft stores also are way up like Michaels and Hobby Lobby so it
it does make sense that people are using their quarantine time to get in the Hobbies more and I want to say I saw data point that Ed see has also added a ton of new Sellers as a result of covid so they
they really feel like one of the across-the-board beneficiaries and then I’m just going to admit the Shopify number impresses and surprises me I would not have expected,
them to stay up that high this quarter.
[5:51] Yeah and they don’t report same-store sales so there’s obviously there’s some churn and some ads and there and things of that nature but but even then you know it’s not like they’re adding someone that’s this this huge multibillion-dollar retailer there.
[6:06] And so so I think it’s pretty it’s probably actually pretty close to the same store sales I would imagine if I kind of think through the Dynamics there I would love for them to release some kind of a same store sales number but they don’t.
Okay so so then Amazon resulted after the Bell closed as we’re recording this here on Thursday the 29th.
And you know a lot of lot of earnings on Wall Street is around expectations so let me start with the expectations Wall Street was expecting and I’m going to use round numbers because it gets kind of I know it’s hard to listen to this when we go into multiple decimal points,
so Wall Street had pretty high expectations they were expecting a 93 billion dollar result which I believe equates to kind of a 35% growth rate,
so 93 billion dollars was what they expected Amazon came in at north of Slightly North of 96 billion dollars so they beat the top line by 3 billion,
not too shabby and so.
So that equates to a growth rate on the revenue side all in at Amazon of 37% and,
the Apples to Apples comparison is that that number was 40% in Q2 so a slight tick down so in Q2 they were at 40% and now they’ve down to 37%.
Because I haven’t done a total analysis this.
[7:27] Amazon at least was highly correlated in Q2 to the US Department of Commerce numbers that came out so so I think we can expect those to take down similarly into the high 30s.
About but I know where that’s gonna be really interesting to see that,
then as you dig into those revenues they give you a couple of different slices of that one of them is
bye what do they call it segment so the North America segment was up 39 percent at fifty nine point three billion,
and then International was up 33 percent on a constant currency basis to 25 billion so.
Part of this that’s really interesting to me was the international stuff had slowed down considerably more than the US which I thought was kind of interesting factoid there.
[8:16] And then let’s see that I cover everything then another thing is if you peel out physical stores which I want to go over to you in a second,
Amazon all in grew 40 percent year-over-year compared to Q2 s 44 percent so another indication that,
yeah that they take down a little bit they also had a very high percentage of orders that were third party that was 55% and then the first party Groove 38%.
So you always read these stories and there’s actually some antitrust stuff floating around if Amazon is harvesting 3 p 4 1 P they’re doing a terrible job at it because 3p is growing considerably faster than one piece,
Jason you had some interesting insights on the physical store numbers would you see there.
[9:04] Yeah so for the second quarter in a row their physical stores are down which for them physical stores is most from a financial standpoint is mostly Whole Foods.
They do have a small compliment of bookstores and go stores.
But so for the quarter physical stores was down 10% and superficially you go oh yeah that makes perfect sense people are going to the store to last and covid and buying more online so not surprising that Amazon’s,
e-commerce is growing and physical stores are shrinking but if you if you think about the fact that Amazon’s physical stores are mostly grocery stores,
no other grocery stores in America are shrinking like grocery stores were one of the biggest retail beneficiaries of covid and so you look at like a Walmart,
and they’re they’re up 15% so.
When you compare that and say oh my God Amazon’s grocery stores are down 10% while Walmart’s are up 15% that’s huge.
[10:03] But then you have as you unpack that you have to realize that the way that Amazon attributes its sales is different than almost any other retailer right so if
give a customer used to go into the Walmart store and buy groceries and now they’re buying grocery stores online which is like 25 percent above all grocery customers.
Pivoted online that still a grocery sale the Walmart however at Amazon.
The the all sales that happen online get attributed to Amazon versus whole food so when that customer moved from shopping themselves to to ordering online they suddenly became an Amazon Customer which is why the,
the physical number goes down so abruptly for them.
[10:49] Yeah pretty cool so it’s frustrating because this,
apples and oranges on how we measure e-commerce at these edges of bulbus and curbside is kind of I wish we had an industry standard or people would give us the segment so we could know a little bit better what’s going on.
[11:07] Yeah absolutely there’s a lot of interesting trends that are office gated and how they all collect and report this data differently unfortunately.
[11:17] What closer as we both know Jason Amazon doesn’t ever make profits so what kind of money losing proposition was this quarter form.
[11:27] Yeah well they continue their losing streak Wall Street had expected them to only earn four point eight billion dollars.
Which you know you could call that a loss I guess and instead they actually earned six point 1 billion dollars so I would like to be that big old loser,
but that represented like so on the net income that’s almost a 200% increase that’s 6.3 billion dollars of net income.
Um which if you’re an investor that earning per share comes in at like.
Twelve twelve dollars and 37 cents which is near double the consensus which was 741 so I think they call that a Beat.
[12:13] Yep yeah that that is a beat on the top and the bottom it’s a smash let’s see I mentioned another.
[12:21] Side note before you move on I heard a new phrase you may already know this one but I’m now hearing analysts call stocks checkmarks.
And you know what that is that’s the stock has recovered from the covid dip and now it’s back up above its previous level.
[12:40] Oh nice to kind of a Visa another way to say.
[12:43] Let’s say yeah that’s why I thought you would enjoy it so much because you’re such a big fan of this deep V.
[12:47] Yeah yeah I’m going to work that into my vocabulary here,
the another tidbit on third-party Marketplace which is my wheelhouse from a unit perspective ticked up nicely 53% of unit volume from third party and in Q2 that was 52% so
good little oh no we’re we’re 50 for this quarter and that’s a tick up from last quarter at 53 how about a,
there are other money-losing areas like AWS and dads.
[13:17] Yeah what so one other thing by the way you already talked about their International sales one interesting tidbit to me about International sales traditionally the story is.
They’re investing internationally and North America’s more mature and,
North America I want to say is like 61 percent of the revenue so they make money in North America they traditionally lose a lot more money internationally where there earlier and making bigger Investments,
but they actually we’re pretty profitable in international dish this quarter which was interesting.
[13:48] But so AWS which is you know rumored to be the only profitable part of Amazon for people that are wrong.
Was up 29 percent which is a which is very meaningful growth in almost any context it is a deceleration of growth for them and it’s the second straight quarter of that but when you think about it.
Kind of makes sense you know a ton of companies got,
conservative and implemented a bunch of austerity measures and so you know a lot of potential AWS clients probably slowed down some of their plans to move.
To the cloud or invest bigger in the cloud but I would still argue that that the long-term Prospect for the cloud was actually improved by covet like in the big picture it’s going to accelerate everyone’s.
Migration to digital and migration to the cloud so I suspect.
That will ultimately see AWS get a nice benefit from covid although it you know the big numbers it seems like it’s growth is slowing down a little bit.
[14:57] And then the the really interesting one to me is other which as we’ve talked about before on the show is almost exclusively ad Revenue,
um was up significantly it was up 49% so it was.
Other has been on a tear for a while last quarter was 41 percent,
before that I was 4441 4537 like it’s had these these very big bump UPS I was too foolish to put it in the notes but I from memory,
they’re just shy of 6 billion dollars in in ad revenue for the quarter,
um and so you know if you if you did some like simple math and annualize that they’re they’re probably over 220 billion dollar,
advertising run rate it makes them the clear third biggest ad Network in the US and thing to remember.
[15:55] Ad revenue is wildly more profitable than gmv right like you know you’re hoping the net I don’t know 10% 15%,
on your on your GM V sales but your.
Your netting like 95% on the ad Revenue because there’s you know just a small amount of fixed cost against this.
Big amount of Revenue so so that’s amazing that’s hugely profitable it’s contributing a ton to the bottom line.
[16:26] What it’s somewhat surprising because in general advertisers cut back on advertising and covid right like the first thing they did is they turned off a lot of their advertising,
but what this is clearly showing me is that advertisers cut,
back on their top of funnel ads like ads that ran in on television and ads that ran on Facebook and Google it was even complicated because there was kind of a advertising boycott on Facebook you know at the beginning of all this,
but they clearly advertisers kept spending on Amazon Amazon is becoming more of a real destination for ad dollars so,
um that that’s impressive and then of course,
because covid Force more people to shop online traffic goes way up on the Amazon properties and and AD Revenue digital ad revenue is kind of tied directly to the number of eyeballs you get on your site so.
So that helped them a lot but this is now a very material part of their business and,
you know you see every retailer in America is trying.
[17:31] On a much smaller scale get in on this act like it’s a huge initiative every big retailer their site monetization and trying to sell ads to compete with this.
This new profitability enhancer that Amazon has created.
[17:45] Bernsen and we I should
just point out we’ve been facetious about the money losing stuff and for a while so if you think about the four segments and there’s more we’ll talk about the four so you’ve got North America retail International retailgeek
AWS cloud computing and then other which is largely ads,
it’ll be less than ads up in cash flow positive for a long time the US business has been cash flow positive.
And then International has actually flipped back cash flow positive for the last Q2 quarter so,
every segment at Amazon is cash flow positive and generating towards income now it is true AWS I think contributes around half of the overall profit of Amazon,
but again you know a lot of people say none of Amazon’s Prophet except AWS all those things are false and wrong statements that,
that’s just simply not true it does kind of out punch its eyes but it’s just because it’s got such a high margin profile versus the retail segment.
[18:45] The other fun thing is ship again which we initiated here on the show and it’s got a little bit of a life of its own it’s been highlighted on in the New York Times Bloomberg and on The Today Show,
um what’s been really interesting is,
Jim Cramer on Mad Money he was kind of holding the UPS CEOs to the fire on this he didn’t call it ship again but everyone’s kind of woken up to this thing that you and I think I think will Pat ourselves on the back.
And I think we unanimously would vote that we were the first to identify this problem that you have,
already elevated e-commerce levels shipping isn’t growing nearly as fast and we’re have holiday kind of barreling at us,
so they address this one of the first questions Wall Street asked was are you guys ready for this this bump in shipping volume and the CFO said,
he didn’t use super Garden sadly but he said we know that third party shipping is going to be very tight this quarter we feel good that we have made our own Investments so there’s a little bit of a.
Subtweet I guess I would call it a little shade that he threw to the to the third parties and and you know Amazon looks like a genius here.
While she was not a huge fan of them going into this DSP program when they announced it and that they were going to build out their whole own direct consumer fulfillment it seemed.
Kind of a little crazy at the time but this was this was a genius the pandemic is made that just an obvious smart choice to have done.
[20:13] Oh yeah for sure.
And he did still put in a plug which every retailer is that like a even though we feel good about all the our own capacity to deliver still probably a good idea to order early if you’re a consumer,
so for sure for your Christmas presents I would recommend you you not wait till the last minute.
It is always an interesting line item the the biggest expense that always shows up on Amazon or fastest growing expense on Amazon’s income statement every quarter is there shipping costs,
and and they did go up by 57% again for the quarter so that’s a expensive part of doing business,
and this isn’t totally tied directly to their earnings but just to highlight you know they invested 30 billion dollars in capex last quarter that was mostly fulfillment centers.
And they basically for the year from the end of 2019 they were 283 million square feet of fulfillment center space and they’re expecting to have 294 million square feet of fulfillment Space by the end of this year so that’s.
They already had a insurmountable lead in fulfillment space and they’ve increased it by 60 percent.
Which is crazy so the.
[21:31] Yeah if getting product near consumers is is going to be a big win than its it already was game over and now it’s just like there’s no hope of anyone catching up to this.
Hopefully maybe Shopify will say there have to start building a lot of fulfillment centers.
[21:48] Yeah and yeah and there’s a lot of complications there but so then there’s my favorite part of the the whole learning segment which is their cue forward guidance and the reason is my favorite part is I feel like it’s the.
The widest guidance I’ve ever seen.
[22:04] Yeah yeah it’s uncertain times in the cone of uncertainty.
[22:07] Yeah well so most retailers have solved by just not offering guidance.
[22:11] Yeah I think Depo one of them.
It was several I think Microsoft several stocks were down not only due to Rising covid cases but for lack of giving guidance they’re starting to get punished so so the you know the
the corollary to that is all right we’ll give you guidance but we’re going to give you this this very wide bookends.
[22:33] Yeah so they they’re projecting between 28 and 38 percent growth for Q4 which is,
kind of in line with all those e-commerce estimates that we’ve seen and for them that would equate to 1 billion to 4.5 billion and income which.
Last quarter was 3.9 billion so they’re saying we could be you know Down 2 billion from last year or we could be up a half billion from last year.
Um a couple things to note like ordinarily Q4 is more promotional so income actually goes down and then this year.
[23:11] Remember Prime day is in Q4 right like that these Q3 numbers we’ve been talking about ended September 30th and Prime day was in early October,
so it’ll be interesting to see how that impacts their Q4 and then you know one thing that got a lot of analysts attention is they estimated that they have they’ll have four billion dollars in incremental covid costs.
Just for Q4,
and at first people thought that was hard costs and they’re like well wait what are you spending for billion dollars on and then what it turned out is if the bulk of that is an estimate of lost productivity as a result of covid so,
they have to social distance people in the Fulfillment centers which means they pick a little bit slower and so there’s,
there’s more in efficiencies they’ve had to hire a bunch more people and those people are slower to ramp up so there’s a bunch of beneficence he’s there so.
So that’s part of why the the despite the significant growth in income is still down as because they’re expecting their you have to spend a lot more on covid-19.
[24:11] Yeah the last thing I would highlight in this this hot take is I was like to pick through the press release and see what they’re talking about,
you know it’s been funny watching Amazon for 20 years because the press releases are is getting really long because the bullets of everything they’ve done in the quarter there just like so many more bullets Who stuff they’re doing,
so it’s always like you know we introduced 800 Echo devices and we did this and that and it’s just it’s amazing how much this one point seven trillion dollar company is banging out on a quarterly basis,
but a couple tidbits I thought listeners may be interested in and you you were very early on kind of catching on that Amazon may have some aspirations around Healthcare,
they did call out that they are I think they said by mid-november they will be testing doing 50,000 covid test a day across 650 sites,
so that’s kind of interesting you know there’s there’s almost like a little clinic inside of the Amazon Fulfillment centers I imagine it’s what they’re talking about to make sure that they’re catching all the stuff early.
[25:11] And then another area I always keep a close eye on is this this fulfillment program that they call the delivery service providers or dsps,
in there they talked about they now have 1700 dsps and the dsps are the small businesses that they 1099 with that have multiple many many trucks per partner,
so they have 1700 partners and then within that that ecosystem they created over a hundred thousand jobs delivered 2.2 billion packages and paid,
five billion dollars to small businesses which they by that they mean those 1700 dsps have earned that much.
The way it works is they get paid a little bit per package just like a FedEx or UPS what so I thought that was interesting call out I hadn’t seen that that specific before.
[25:59] And then you know to your point while she was just blown away by how much fulfillment capacity has been added and and,
you know I think over a million jobs have been added into the the Fulfillment Network which is which is pretty crazy.
So that’s the details Jason must pop back up to 30,000 square feet now that we kind of know,
the how the 800-pound gorilla did in Q3 does that change your overall view of what the holiday is going to be like do you think you do buy into that 30 that 35% kind of Zone.
[26:31] I still do and here’s why if you think of like so if you think of all of retail.
E-commerce has is a smaller so ever it’s like 15% of the the five trillion dollars in consumer spending.
Traditionally Q4 disproportionately skews e-commerce right so you would you would normally expect a much richer mix for e-commerce and Q4 because there’s a lot of people that don’t use.
E-commerce for their day-to-day purchases but they do use them for their their incremental holiday spending and so the.
Q3 was super interesting to me because obviously Q2 everyone panicked and had to do e-commerce a we saw that huge Spike from the traditional 15% growth to 45 percent growth.
Q3 was going to be really interesting because you might have expected that to settle down more right and now like it’s still early in the Q3 earnings season but our first indications are that they maintain that that level of growth,
I see that doesn’t make me scared that the ha like for sure for Holiday we’re going to have a peak on a peak or what we call a super Pikachu.
[27:43] I still would expect it to settle down a little bit because.
There already is more e-commerce you know cooked into the last year’s number 4 for Holiday quarter versus Q3 so,
to me that that 33 to 38 percent still seems viable,
you know every CEO talks about how much uncertainty there is every forecaster talks about how there’s a much bigger deviation and of course.
A bunch of people are interested in know if there’s going to be any stimulus like there is a theory that after the election next week whoever wins like you you know you could imagine Congress having more impetus to,
get some stimulus out there which.
Could be a game-changer and then you know at the moment there’s a lot of people that feel like covid is going in the wrong direction and that could have a derogatory effect so,
so a lot of uncertainty but
but to me I guess if I had to wager my own money I still feel like that high 30s is a is a reasonable place for e-commerce and next next quarter what do you think.
[28:55] I do I kind of feels like we’re settling in there I do you know.
I think I think we still have a pretty big ship again problem at 35% and I think there’s because of this cone of uncertainty you know let’s say we come up,
would bump up to 40% or kind of the high end of that range and we’re kind of up in the 38 to 40 percent I think it’s going to make it worse and.
You know one of the things I’ll tease is I’ve been working on a model one of my concerns is
we get into the Cyber five and that creates enough of a glutton the system that it doesn’t ever really recover so so because I think it’s going to be hyper compressed this year around there because
everyone’s motivated to get you to shop early so we could have this kind of
you know what we would say here in the Southeast is the the snake be eating a pretty big pig that it’s not able to digest and you know that that could cause that could.
But really accelerate this ship again problem so that’s what I’m going to be keeping it pretty close Island.
[29:57] Yeah no I think that’s a legitimate concern I had foolishly been expecting the Cyber five to be somewhat diminished this year because,
because it is exactly because of the problem you mentioned a lot of retailers would have a vested interest to to flatten it out but like frankly all the forecasters.
[30:16] Disagree with me and they think it’s going to be a monster cyber 5 and that you’re exactly right that’s gonna really gum up the works
we of course you know talked a lot about the big shippers I’ll have a quota so they simply aren’t going to be able to put more packages in a FedEx then they’ve already agreed to
what’s now happened as FedEx and UPS have stopped opening new account so if you’re a small shipper you know that are a small small retailer that was.
Going to send me try to adopt them e-commerce that’s not an option to you so that’s going to be a hiccup if there’s a Saving Grace for retail it’s going to be,
that a lot of retailers are going to lean heavily on curbside pickup and store fulfillment of their e-commerce orders so you know people like Target and Best Buy already very good at that Walmart’s moving in that direction in a big way,
so I you know I think if that cyber five is Big that people are going to compensate by really.
Focusing on promoting items that they can fulfill from stores and then you know as you get closer to the holiday like it is possible that this could be like a disproportionately large ear for gift cards because,
you know you could you can find that people just aren’t able to get the gifts they want and unable to get them where they want them in time and so we shift to these.
[31:37] Kind of digital currencies and then I guess the one other thing I’ll throw out there that’s another problem besides ship again and is.
Inventory is thin you know a lot of Supply chains were disrupted a lot of retailers were super conservative.
And so like I think it’s also true that we’re just going to run out of popular stuff for weight in the.
[31:59] Yeah it’s going to be interesting to watch a couple other little tidbits here at the end for those of you that made it this far,
the someone was telling you and I on Twitter that they’re not taking new accounts at I think they mentioned both FedEx and UPS so that’s I think that’s unprecedented I don’t I don’t remember ever.
Seeing either of those those companies kind of say hey we’re going to pause new accounts starting late October that’s kind of crazy crazy town.
And then it looks like it’s really getting backed up I’m not an expert on this but someone was emailing me these rates for cargo containers that come on this ships and,
they’ve seen these spot prices just like escalate and week on week like 40 50 60 percent and and the last couple of weeks so,
that’s an indication that gets an auction type system,
it’s an indication that that room on those the ships just coming here is very tight and the economics are very tight on that part of supply chain so so it feels like things are going to be backing up here,
the e-commerce and Retail Plumbing is going to be really interesting to watch in Q4 and.
As usual Jason I will be here reporting on it and let you know what we what we see think of us as your eCommerce plumber friends.
[33:15] Except that our pants go all the way up.
[33:17] Absolutely yeah none of that stuff here on the Jason’s gotcha.
if it’s got that’s going to be a good place to wrap it up because we’ve used up all the time we have allotted for this quick hit show it’s the second one this week so we don’t want to overload our listeners,
as always if you want to continue the dialogue please hit us up on Twitter or Facebook especially if you disagree we love to hear other perspectives,
if this show is it all helpful for you we sure would appreciate it if you jump on iTunes and give us that five star review.
[33:48] Thanks everyone for joining us and.
[33:50] Until next time happy Commercing.