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3 posts from January 2012

January 27, 2012

Amazon Q4 2011 Results Preview and Cheat Sheet.

Amazon is set to report their much waited for Q4 earnings next week (Tuesday - January 31) and here's a preview of what we'll be watching.

Reminder on the ChannelAdvisor SSS Data

Our customers (largely US EGM), enjoyed these growth rates on Amazon in Q4:

  • Oct: 80.1%
  • Nov: 60.6%
  • Dec: 51.3%
  • Q: 53%

What Amazon usually says that we'll be watching...

Amazon reports on ~12 metrics that we follow very closely as they are the best indicators for how Amazon did as a first-party, third-party (seller business) and are the strongest signal for all of e-commerce health.

  • Revenue and Revenue Growth - Amazon's revenue growth is really the bar against all other companies in the space are measured.  Amazon's guidance was wide implying growth in the 27-44% range - will they exceed that?
  • EPS - Wall St. is watching this very closely as there is a ton of concern over Amazon's relentless investments in FCs, DCS, Kindles, Prime, etc.  Wall St. worries will the co ever generate profits from these investments? How long will the cycle last?
  • US/Intl growth - Amazon reports sales across two geographies - US and non-domestic (intl) - we look at these rates to get a feel for where Amazon's investing and seeing growth globally.
  • Media/EGM growth - Unlike eBay that reports copious category detail (see here for their Q4 results and category details).  That being said they do give us two which is better than 'nothin - Media (books, music, video, video games and I think kindle ebooks) and EGM - stands for Electronics and General Merchandise.  This is essentially everything but media - CE, sporting goods, H+G, etc.
  • Marketplace health - Finally we look at items that really relate to the marketplace. Specifically what is the % of 3P sales? (was 38% last Q - a high water mark) What is the active user base doing (has been growing robustly - was 152m in Q3) and finally paid unit growth.

I realize that's a lot to process so we've put it all in a handy-dandy table with three columns:

  • Wall St - this is where the Wall st analysts believe the co will be
  • Amazon guidance - this is what Amazon has told Wall st - usually a range and Wall St. usually focuses on the midpoint of that range.
  • Notes - Here we put some data in there to help give you a feel for how the results stack up to previous performance (e.g. Q3 or year ago0.

On the evening of the release, we'll drop the actuals into a new column so you can more easily see how Amazon did against their own guidance and Wall St. expectations.

Amzn_q4_preview

What Amazon won't say (but we wish they would)

Amazon is very tight-lipped on a bunch of topics that we wish they would talk more about.  On top of our list is:

  • More category data!  We are seeing their auto parts biz, SG, CSA, really do well, but it's hard to compare when we can't see the details like we can see for eBay.
  • Kindle Fire details -We'd love to know how many Fires were sold in Q4, but don't expect anything.  Most estimates are in the 5-6m unit range
  • Prime - We estimate 10-12m Prime members, almost doubling in 2012.  Prime members spend 4X non-prime, so we estimate they represent 40% of the buyer wallet.
  • More marketplace metrics - It was exciting to see some of the tidbits they released in Q4 (Dec 29 press release titled 2011 is Best Holiday Ever for Kindle) - maybe (but probably not) they will shed some more light on the 3P.

2012 Guidance

Since Wall St. is very much a 'what have you done for me lately' kind of a game, 2011 results will actually not be the focus as all eyes will be on Amazon's top and bottom line guidance for Q1 2012 (they only do a Q at a time, not annual like eBay and others).  Right now Wall St. is projecting $12.6-$13.6bn - anything below the mid-point there would be a disappointment and anything above would be a 'raise'.  Knowing Amazon, they are pretty conservative on these things, so I wouldn't expect a raise here unless they are feeling inordinately bullish.  

 

Finally, as mentioned in the Q4 EPS discussion, there is a ton of concern around Amazon's investment level.  If the Q1 EPS is low, or (horror of horrors) goes negative for a bit as Amazon continues to invest, you'll see a big separation of bulls and bears and the stock will probably take a beating for a while, until Amazon pr0ves that the investments made total sense and they continue to grow at 3-4X of e-commerce and take share much to everyone's surprise (we've seen this movie before ;-).

 

How do you think Amazon will do?

We'd love to hear your thoughts on Amazon and what you'll be watching.  Do you think they are immune from the softness we saw in eBay and Google or will they face EU and macro headwinds? Sound off in comments.

SeekingAlpha Disclosure - I am long Google and Amazon. eBay is an investor in ChannelAdvisor where I am CEO.

January 23, 2012

Amazon news roundup while we sit on pins and needles for Q4 Results

Amazon doesn't announce results for Q4 2011 until next Tuesday (January 31).  So far we've had a good showing from eBay (see our coverage at sister site eBay Strategies) and Google missed on revenue and CPCs declined substantially.

eBay and Google's results have created a veritable cacophony of speculative noise around Amazon's results:

  • eBay was light on GMV growth both domestically and international - also the BMV+CES categories were in serious decline - was Amazon a beneficiary of this (or a cause), or will they show the same trends?
  • Google - you can surmise from their Google Prime initiative that they are reacting to what must be a big chunk of consumers (Amazon Prime subscribers) searching for products using google 'less'.   In his Q4 Google analysis, Henry Blodget pins the blame on Google's revenue miss squarely on Amazon's shoulders.  Here's the core of his argument: "as Amazon grows and offers a more comprehensive and informative product selection, more people may be starting their product searches at Amazon. This would cut Google out of the process entirely."   Further supporting this thesis, Google announced management changes in their e-commerce group that is adding fuel to the 'Amazon caused the miss' fire.

A Veritable Flood of Amazon News!!

While all of this speculation happens while we wait, there's also been a raft of interesting Amazon news this week that I believe has ramifications for all retailers, that also isn't widely disseminated and I wanted to capture here for you.  I've tried to put the news into these buckets:

  • Fulfillment centers
  • Showrooming
  • World dominance 
  • Fire Update

Amazon FC (Fulfillment Center) News

We track ~40 Amazon FCs in the US alone and today Amazon announced another SC FC in beautiful Spartanburg County (full disclosure -I'm from SC and excited to see the state get some much needed jobs).  I've talked to a lot of retailers that are confused about why Amazon is embracing the fair tax act.  The simple answers is that Amazon clearly wants FCs (many many FCS) in every state - fair tax is a good way to compromise on tax complexity and yet get FCs everywhere.  Imagine offline retailer's surprise when Amazon builds 40 FCs in their backyard and implements one-day Prime (gulp).

What is even more interesting in FC gossip is this AM, Ben Schachter over at Macquarie reports that he has information that Amazon is building their first FC in India.   At ChannelAdvisor we have offices globally and I can tell you first hand that retailers in Australia, Brazil and India are all nervously awaiting the day that Amazon enters their space.  It's interesting that Amazon appears to have chosen India as the next geography to expand into.  Given their explosive growth in China, it makes sense. Here's a blurb from the report and you can read the entire report here:

A  number of current job listings on AMZN's India webpage (highlighted in a recent Reuters report) suggest that the company is staffing its first fulfillment center in India, to be located in Mumbai.  While the company is not commenting, we take this as signaling a likely expansion into India as AMZN's next dedicated geography (first since Spain in September 2011). 

Amazon vs. Target - A new phrase, Showrooming,  is born

Amazon Strategies friend Deb Weinswig (rockstar retail analyst) over at Citi broke the news this week that Target contacted suppliers and started talking about a strategy to stop Showrooming - consumers coming to Target to find items, to then buy them at Amazon.  I recommend everyone read the entire report here, but here's a summary of the three actions that Target is taking to stop Showrooming:

  • Strategy #1: Differentiated, Guest-Focused Assortment – TGT's first proposed strategy would provide a differentiated assortment from online-only retailers that would also include best sellers (see pg. 2 for details). We believe this strategy would put greater emphasis on exclusives at TGT that would not be available at competitors.
  • Strategy #2: Offer the Same Pricing as Online-Only Retailers – The second strategy would provide pricing that is the same as online-only retailers without lowering TGT's margins (see pg. 2). Given its size, we believe TGT is exercising leverage over its vendors to achieve the same pricing that smaller, online-only retailers receive. This strategy would help TGT compete with retailers like AMZN on like-for-like products.
  • Strategy #3: Subscription-Based Pricing – The final strategy outlined in the letter includes developing membership- or subscription-based pricing online to compete with online pricing models in the market (see page 2). We believe that the online pricing models referred to are programs like AMZN's Subscribe and Save, which launched in 2007 and offers regular shipments of frequently-purchased items at a discount.

This has also increased the noise that Amazon will begin experimenting with Apple-store-esque stores where you can try items and get them delivered via Amazon.  Amazon has a patent on a store concept that looks like this:

Amazon-patent-insidesmall
Amazon World Dominance

I recently pointed readers to Jason Calacanis' piece about 'the Cult of Amazon Prime' and the power of the program. 

Jason has an interview out with O'Reilly (tech publisher) on Youtube that's worth a watch if you enjoyed the first piece.

The funniest part is when Jason speculates that Amazon will acquire UPS.  While you may not agree with everything he says and he's purposely over the top, it does get you thinking.  Here's an embed for your viewing enjoyment:

 

Amazon Fire

Digitimes reports that Amazon sold 6m units of Kindle Fire in Q4 (crushing our 5m prediction which was 'crazy high' at the time).   They are also anticipating that Q1 will be more like 3m.  There's speculation that Amazon worried that iPad3 will slow Fire sales.  That's somewhat silly to me as they are entirely different markets - the iPad3 buyer at $500 isn't the Fire $199 buyer.  It's probably just a mix of seasonality and supply chain management.

I'm on record for predicting 20m Fires sold in 2012, so at 3m/Q we are at 12m and need to drum up another 8m units.  Rumors are floating around that Amazon will either 2.0 the current Fire or come out with a larger 9/10 inch unit (or both) which should get us there.  Also Q4 2012 will be another at least 6m unit Q so 20m shouldn't be too hard to hit.

One area of controversy around Fire is the profitability.  Bears will point out that Amazon loses ~$20 per Fire sold and you can paint a doomsday scenario where for those 6m units, amazon is going to lose $120m in Q4.

Bulls (yes i'm in this camp on this issue) have long thought that Amazon will be profitable very quickly from the up-sells of ebooks, video, prime and physical goods.  RBC's analyst Ross Sandler has a great survey out from Kindle Fire buyers that has some interesting data from a survey of 200 buyers.  This is a great report and I've tried to boil it down to these three charts: (click to enlarge).

In this first one, they ask Fire owners if they are likely to stay with Prime.  The great news is that only 13.5% say they are not likely and 32% are moderately.  That suggests that half of Fire users are likely to sign up for prime.  If half of the 6m for Q4 are not Prime and half of them sign up, that's 3m new prime users - BOOYAH!

Aa_kindle_fire3

Next, here's how many books people have ALREADY purchased - remember this survey was done in early Jan and most of these Fires by definition had to be purchased in Q4.  The bulk of people have already purchased 3-5 books (already at break-even).

Aa_kindle_fire2

Finally Ross puts all of this data into a lifetime of the user model and comes up with this interesting analysis that in yr1, the user generates 10% margin and that surges to 21% by year3.

Aa_kindle_fire1


Up next...Earnings preview

Later this week, we'll have a preview of Amazon's Q4 report and what we're looking for in the announcement.  Sound off in comments until then - do you think they will crush or miss?

SeekingAlpha disclosure - I am long Amazon and Google. eBay is an investor in ChannelAdvisor where I am CEO.

 

 

 

January 10, 2012

The Cult of Prime - a must read!

Long-time readers will know that I've been a huge fan of Prime since the day it was available on the consumer-side and also the merchant-side benefits.

Jason Calacanis (long time tech blogger, controversial figure, etc.) has a great blog post out that really captures the Prime mind-set in a fun, tongue in cheek kind of way.  His post is called: "The Cult of Amazon Prime" and it's definitely recommended reading.

We've been doing some long-range planning at ChannelAdvisor and when you think about e-commerce in 2-3-4-5 years, we also start to say things like this:

In the future you'll be eating Amazon-branded cereal after taking your Amazon-branded vitamins while getting a text message on your Amazon phone that you're receiving delivery of your Amazon-branded flat-panel TV from an Amazon delivery truck (not UPS) before watching HBO and AMC-quality shows that Amazon made and are only available to Prime members. 

Stay tuned for a lot more Amazon posts this year, until then, make sure you are a Prime member!