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February 01, 2013

Part II/III: Amazon's Q4 Results: Deep dive into 3P marketplace business

This is Part II of our three part series digging into Amazon's Q4 results.  A summary and guide to the series is here:

  • Part I: High level overview of Amazon's Q4 (Available here)
  • Part II: Deep dive into Amazon's Q4 3P performance  (you are here)
  • Part III: Under the hood of Amazon's FC network (FC = Fulfillment Center) (Available here)

In Part I we discovered that Amazon's Q4 showed very strong profitability growth attributable in large part to the growth of the third party selling platform (what we call 3P for short). 

How big was 3P in Q4?

Amazon provides a couple of datapoints that we use to triangulate the 3P GMV.  For our analysis, we choose to use the % of items that are 3P as the 'anchor' and use some educated (and conservative) guesses around take rate, and 1P/3P average prices.  Some Wall St. Analysts use a reporting line item that Amazon provides to do their own analysis and for Q4 ended up at around $40b in GMV as well (1P+3P).

Here's our analysis for Q4:

Amazon_q4_gmv_analysis

Highlights:

  • As mentioned in Part I - total paid units exceeded 1b for the first time
  • GMV from 1P was $19b and GMV from 3P was $20.5b - most people don't realize that 3P is actually larger than 1P.  Amazon's metric that 40% of paid units are from 3P understates this fact.  The reason why is the bulk of media sales are 1P and thus the bulk of 3P are in EGM, so you have different mix and ASP profiles there.
  • Amazon's 3P of $20b was another first - the first time they've crossed the $20b mark.
  • 3P revenues were $2b - that's also a first - the first Q that 3P revenues crossed over $2b.  If you assume this revenue is almost all margin, that's a $8b run-rate high margin business.  Amazon puts the high-margin AWS business in 'other revenues' which where ~800m for the Q, so if you assume that the bulk of that is AWS, you can see that 3P is a $2b/Q high margin biz and AWS is $800m/Q high margin biz - which is why we tend to believe that for now at least 3P is driving a large chunk of Amazon's margin out-performance.
  • All in, Amazon's total  GMV for the Q was $40b.

Amazon's GMV over the last two years

Here's a table that shows our analysis of Amazon's 1P+3P GMV over the last two years.  It's quite impressive that a business so large ($15b in 2011 Q4) can still grow > 40% - essentially 3X the rate of e-commerce.

Amazon_4q_gmv_trends

You can also see from the table that the first time the '1P/3P lines crossed' was Q3 of 2011, and for every Q in 2012, and thus for the whole year, Amazon's 3P GMV was greater than their 1P.

This chart shows the total Amazon GMV with 1P in blue and 3P in red:

Amazon_q4_gmv_chart

 

Amazon's 3P GMV hits a bunch of  'firsts'

In addition to this being the first Q we've seen 1b paid items sold, the first $20b GMV Q and the first $2B in revenue from 3P Q, Amazon's 3P business appears to have hit  another big first.

I stumbled upon this one when I saw the $20b in 3P and started to wonder how that segment of Amazon's business compared to eBay's GMV (apples to apples - marketplace to marketplace).  I built the following table to compare the two:

Amazon_q4_gmv_vs_ebay

As you can tell from the table, for the first time ever based on our estsimates it appears that Amazon's Global 3P GMV has exceeded eBay's global GMV (ex-vehicles).  Amazon is very seasonal and I fully expect the trend to reverse in Q1 2013 and with eBay's accelerating growth rate, they may only cross again next Q4, but it's interesting to see how they have closed the gap there over the last two years.

Here's the same data in chart format:

Amazon_q4_ebay_gmv_chart

Since both eBay and Amazon are growing faster than e-commerce, they are both in 'gaining share' mode.  

Up next...

In the next and final section of this post, Part III/III we'll look at Amazon's Fulfillment network and examine the role it plays in increasing Amazon's profitability, and spinning the 3P flywheel.

 

Scot Wingo, CEO of ChannelAdvisor wrote this blog post. eBay is an investor in ChannelAdvisor.

 

 

 

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