Client Letters: Amazon Earnings and Linkfest
Amazon released Q3 earnings this evening. A couple of takeaways:
North America sales rebounded with mixed guidance - Year over year sales growth was +15%. This was better than the prior quarter of +7%. With that said, the retailer revealed Q4 sales growth returning to low to single digits.
Services now 54% of sales - This retailer clearly shows they are no longer a retailer. When revenue is needed, they can easily add a surcharge or increase the pricing on the Seller Services business which now accounts for nearly 23% of overall sales.
International struggles continue - Overall international revenue was down 5% year-over-year marking the 4th consecutive quarter of negative growth.
Inventory saw another steep increase - Similar to other majors, Amazon remains heavily inventoried. We still believe the 1P Vendor Central business is overstocked but has shown some improvement in the last quarter.
Bottom line: The return to double-digit growth is encouraging. However, the continued weakness in international, overstocked position and weak forecast leads us to remain cautious in Q4. We do believe Amazon will position for a “clean” Q1 in inventory through aggressive markdowns as they prepare for further slowing in AWS.
Other items we found interesting:
Majority of Americans are paycheck to paycheck - Survey by LendingClub indicates 63% of Americans are living paycheck to paycheck. This is up from 57% last year. Link Our take: We continue to believe tangible product categories are seeing the impact of a consumer spending a larger share of disposable income on services and leisure, travel.
Google posts lowest growth since 2013 - Tepid growth and YouTube advertising was down year over year. Link Our take: Despite the lower earnings, cost per click remains high as Google is clearly extracting as much as they can per click with advertisers pulling back and Google struggles with Apple’s privacy measures.
Meta revenue down on lower ARPU - Active users was strong advertisers pulled back aggressively as Zuckerberg continues to aggressively spend Capex on Metaverse buildout. Link Our take: Facebook has further minimized the impact of Apple’s privacy measures, continues to fight TikTok but remains the largest possible audience in customers. Regardless of the metaverse skepticism, Facebook remains a must for advertisers.
UPS and FedEx drive businesses to try more creative solutions - Increased rates and holiday surcharges are leading businesses to seek alternatives. Link Our take: USPS and Amazon are viable solutions. UPS and FedEx are pricing themselves out of the market as they battle each other and lose share to Amazon.
Please reach out with any questions,
Ryan Craver
Disclosure: Client Letters are intended for Commerce Canal clients, investors and employees. Commerce Canal and its officers, directors and employees provide this content for informational purposes only.
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