Amazon’s Q4 results – Marketplace surges proves it is the Amazon profit cow

02/02/2015

ChannelAdvisor Scot Wingo By Scot Wingo

Thursday, January 30, 2015 Amazon announced their Q4 2014 results.  Amazon surprised Wall St. by producing better margins (gross and net) than expected – while missing the top line slightly.

Q4 2014 – Amazon Flexes their marketplace muscles

After analyzing all the data, this quarter was a real stand out for the Amazon third-party marketplace.   In fact, Amazon has started to open the kimono a bit on how much they reveal about the 3P business (particularly FBA) and it was all very strong in Q4.  In fact, I’d go so far as to say the marketplace simultaneously drove the improved margin picture at Amazon and the revenue decline (will describe that in a future post).

The one metric that was a real stand out for me was the relative growth of the 1P (retail business) vs. 3P (the marketplace business) as illustrated in this chart:

amzn_q4_1p_vs_3p

If you look back in past years, 3P has generally been outpacing 1P, but in early 2013-early 2014, they were more in parity with each other and then in the last three quarters you can see the 3P marketplace was off to the races and grew 33% in Q3 compared to 12% in 1P.  That’s both a high water market for 3P since 2013 and a low water mark for 1P since we’ve been tracking it.  Some of the 1P softness was driven by the move in media to subscriptions from buying plus there was a tough y/y comp due to the Xbox/PS consoles that launches last year.  We have a couple of theories of why that is and around the timing that will have to wait for another post because we want to fill you in on all the other interesting aspects of Amazon’s awesome Q4.

There was a lot to process in the Q4 results, here are the key points that we think sellers should focus on:

  • Acceleration – As mentioned above, the 3PM really accelerated to levels we haven’t seen in a long, long time.  33% y/y growth in a 15% e-commerce backdrop is quite impressive.
  • 3P unit share – Another stand out metric from Q4 was Amazon announced that 43% of paid units came from third party sellers.
  • Paid item growth -Paid item growth came in at 20%, flat with Q3.
  • Media share – Media hit a low-water mark of 24% with EGM at a high-water mark of 70% (the missing 6% is other -ads and AWS).
  • Geographical mix – Amazon’s revenues were 64% North American and 36% rest of world (Amazon’s largest regions outside the US are Germany, Japan and UK).  See below for the details on geo mix.
  • Active users – If there was a blemish on Q4, it was units/user and active users.  Active users grew only 16% y/y to 270 (a slow-down from Q3’s 16% growth rate).
  • Units per user – One interesting metric is the units/user – this metric shows us buyer frequency.  In other words, are buyers increasingly active or decreasing activity. Of course, increasing is good and programs like Prime, and recommendations and upsells are working.  Units per user was up .6% which is a bit of a slowdown.  This metric is sensitive to holiday sales, so we will keep an eye on it and see how it acts in Q1.

Amazon Q4 2014 Key Performance Indicators (for sellers) Dashboard

amzn_q4_dashboard

Q4 2014 Amazon growth rate cube

Here is our regular matrix of the different Amazon growth rates.  The category most 3P sellers focus on is EGM (Electronics and General Merchandise) and you can see that it grew at a rate of ~2X e-commerce  domestically.

ebay_growth_cube

 

This chart illustrates the relative growth rates of Amazon’s NA EGM vs. US e-commerce growth (via comScore) and eBay’s US GMV y/y growth ex-vehicles.

 

ebay_vs_ecomm_vs_amzn

Amazon Prime and FBA highlights

On the conference call, Amazon revealed a new tidbit about Prime: “Amazon Prime paid subscribers grew 53% y/y .  The US was 50% and outside was a bit higher.”

By our estimates, we believe Amazon is now at 40m paid prime subscribers (15% of the 270m active buyers) up from last year’s 27m.  Prime users spend 2-4X of non-prime users, so they represent 30-60% of the ‘Amazon buyer’s wallet.’

Amazon also highlighted the adoption of FBA (Fulfillment by Amazon) by 3P sellers with these three new datapoints:

  • FBA units were up 50% y/y
  • Sellers using FBA were up 65% y/y
  • In Q4, FBA was 40% of 3P units

How big was 3P in Q4 2014?

For Q4 2014  Amazon’s quarterly GMV (1P+3P) came in at $32.7b compared to $26b in 1P GMV.  Here is a stack chart with the 1P and 3P GMV trends since Q2 2011.

amzn_q4_gmv_stacked

eBay vs. Amazon GMV Q4 2014

Now that we have both Amazon and eBay reporting, we’re able to compare apples to apples (eBay’s global GMV vs. Amazon’s 3P GMV):

ebay_vs_amazon_mp

 

With Amazon’s 3P growing 33% and eBay’s declining to 5% that creates a 18% difference in the growth rates.  If we project forward a 7% growth rate for eBay and a 30% for Amazon through 2015, you can see that Amazon could be set up to gobble up market share in 2015:

ebay_vs_amzn_15

with the 3P MP growing from $32b to $42b y/y.  To put that in perspective, that is the size of Walmart’s (IR #4) or Staples’s (IR #3) (according to Internet Retailer 500) entire e-commerce business.

Conclusion

From a seller’s perspective, this was an incredibly strong quarter with 3PM growing 33% – the fastest rate since 2012.  Two flywheels that are driving Amazon’s growth, Prime and FBA, both grew over 50%.  The only hiccup on the Q was active user growth was a bit sluggish at 14%.

 

This blog post was written by Scot Wingo, CEO, ChannelAdvisor.