August 21st, 2023: Amazon crushes its Q2 2023 earnings, Target Q2 earnings disappoint, Amazon announces the return of Seller-Fulfilled Prime, and how I reached 50,000 LinkedIn followers
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s August 21, 2023 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Amazon Crushes Its Q2 2023 Earnings
Target Q2 Earnings Disappoint
Amazon Announces the Return of Seller-Fulfilled Prime
How I Reached 50,000 LinkedIn Followers
- and finally, The Investor Minute which contains 6 items this week from the world of venture capital, acquisitions, and IPOs.
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To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
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BUT FIRST in our shopping cart full of news….
Amazon Crushes Its Q2 2023 Earnings
It looks to me like Amazon has figured out its path to profitability, and at the same time AWS has recovered its growth footing.
Let’s start with AWS.
AWS grew 12% y/y even in a customer cost optimization mode… on top of a $80B business. Just think about this for a moment and what will happen when the economy accelerates. Just to give you some idea how big an $80B revenue business is, it’s about 14 times Shopify’s 6B 2022 revenue total.
Is it safe to say at this point that Amazon is a Cloud infrastructure company that happens to have a retail business?
In the AI universe, I do believe that Amazon is well-positioned to be one of the winners in the broader AI landscape, particularly in levels where other companies cannot compete:
A: Compute infrastructure (where they are already on second-generation custom silicon): to train models, generate inferences, etc.
B: Large Language Models As a Service
It takes hundreds of millions of dollars and years to build great general purpose models. Most customers just want to access a large standard model, with their customization, without leaking proprietary data. This is what Amazon Bedrock is setup to do today.
They will have their own models of course, but also provide access to all the top models.
C: Applications. Most of the hype including ChatGPT is focused here, but it may not necessarily be where most of the money is made.
Amazon does have a product called Code Whisperer in here and that is interesting.
Look in terms of AWS, here’s what you need to understand that Amazon understands. The core of AI is data and Amazon has more data/storage than anyone on the planet in S3, Dynamo, and other data platforms. I think a lot of people forget this.
Andy Jassy correctly points out that people want to bring the models to the data, not the other way around. It’s just technologically inefficient.
As far as the RETAIL BUSINESS:
* Doubling their same-day logistics facilities is a big initiative for Amazon. These are relatively cheap to add, they improve buyer’s purchase frequency, and lower cost. Each same-day facility can hold 100k skus, and be injected same-day from nearby facilities up to a few million SKUs.
Amazon has four times higher same-day volume compared to 2019. It seems to me like the company has answered its critics by saying they are far from reaching diminishing returns.
* I do believe that network regionalization will be the best decision they make in the next decade in this business.
* Buy With Prime got a mention in the release as the company mentioned there was a 10x increase in daily orders on Prime Day.
* As far as their fastest growing business at this point, that’s advertising Revenue which was up 22% year over year, and now this is their most profitable business.
* Amazon continues to show investors it is paying attention by clocking in 5 consecutive quarters of operating margin improvements. Their second quarter operating margin was 3.9%.
* On the physical stores business, the company is still not sure if it will find a scalable grocery model. They are experimenting in two markets right now: Illinois and Southern California. They announced they won’t scale it until they see results, and it sounds like they are still chopping wood here.
* We did get a checkpoint on the Amazon Business B2B opportunity - this is now a $35B annualized gross sales business.
To wrap up here, it’s safe to say that Amazon has lot going on. It has a few high margin revenue streams that are fast growing in Amazon Business, Advertising, and AWS. It has some very large businesses that are regaining profitability and growing slower, which is their main eCommerce and marketplace business. Then it has its experiments, of which grocery is one of them.
Add it all up, and it’s not hard to see why Andy Jassy is excited about all of Amazon’s opportunities as long as its profitability progress continues.
[References:]
https://www.linkedin.com/feed/update/urn:li:activity:7092995796257685504/
https://s2.q4cdn.com/299287126/files/doc_financials/2023/q2/Q2-2023-Amazon-Earnings-Release.pdf
Our Second Story
Target Q2 Earnings Disappoint
The headline here is that Target got hit in the chin this quarter as they lowered their 2023 guidance due to consumer pressures. This is made worse by the fact that just last quarter Target reaffirmed its guidance, which means that it may not have a clue what the consumer is doing right now.
Last quarter the company had flat comparable sales growth overall, and in Q2 it declined 5.4%. Why did this happen? Well we find the answer in the next comment.
Target’s operating margin rose to 4.8 percent, compared with 1.2 percent in 2022. But slightly off the Q1 operating margin of 5.2%.
What’s going on?
Well same-store retail comparable sales declined 4.3%, and surprisingly same-store digital comparable sales 10.5%.
Make no mistake, Target is decelerating in this economy. It reminds me of the performance of the major shipping carriers right now, declining volumes.
It seems to me like Target has stopped chasing the discounters altogether and volume is suffering as a result. They have taken the UPS approach to this recession is that they plan to be here for the long-term and are willing to trade revenue and traffic but not margin. The big worry with this kind of approach is does Target end up trading marketshare long-term?
Another datapoint that tells this story is gross margin rose year over year from 21 percent to 27 percent. At this point you could call Target the anti-discounter.
In the long-term, I do not worry about Target. It’s still a fantastic retailer and its merchandising team did not get dumber in the last 6 months. That said, they are steadily losing share and who knows how long consumers will keep trading down to off-price and how long this interest-rate and inflation driven economic environment will persist?
Who knows indeed.
As far as the test of 2023, Target expects a mid-single digit decline in comparable sales for the rest of the year, which means that Target thinks share declines will not accelerate. This logic is a little puzzling, but mid-single digits does have a potentially wide range.
Target’s results right now are highly sensitive to food and beverage and essentials inflation. If this accelerates even more, Target and many other retailers could miss by an even wider margin than they predict currently.
A few other tidbits:
* Target’s few positives included its drive-up and same-day business which grew 4% and 7% respectively.
* During the first five months of this year, our stores saw a 120% increase in theft incidents involving violence or threats of violence.
[References:]
Our Third Story
Amazon Announces the Return of Seller-Fulfilled Prime
Amazon has announced new pricing for their Amazon Seller Fulfilled Prime (SFP) offering. There are a lot of mixed feelings going on here. But first, what's Seller-Fulfilled Prime?
Well, in the time machine of Amazon third-party marketplace, first there was no such thing as Prime, or FBA. Everything was "seller-fulfilled".
FBA was introduced in 2006 to improve the customer experience for buyers (and allow Amazon to pocket some coin) by allowing sellers to use Amazon logistics. Sellers using FBA were able to take advantage of the Prime badge (which itself launched early 2005).
For years, the only way for sellers to get the Prime badge was FBA. Until 2015, when Amazon introduced Seller-Fulflled Prime. Essentially allowing sellers who met certain criteria and approvals to earn the Prime badge, but still ship on their own without Amazon facilities. That program was paused a few years back.
Now, Amazon has released information about the upcoming re-launch of Seller-Fulfilled Prime on October 1, 2023.
While I am happy to see the program return, I am unhappy to see the 2% fee. My general take is this.
Prime is increasingly expensive real estate, rents are high and getting higher. Amazon Buy With Prime charges sellers 3% for access to Prime customers as part of their pricing, and I think Amazon learned the value of the Prime badge from this exercise.
Look, a lot of sellers do still sell and succeed on Amazon without Prime. However, for a competitive listing, a Prime listing will be prioritized in the Buy Box.
Another thing I hear consistently from conversations is how unprofitable Amazon’s FBA business is, and so although that’s not part of the news, I don’t expect FBA price increases to slow down.
For sellers, diversification is in order. The lowest-hanging fruit for the average Amazon seller is Walmart Marketplace, followed by their direct-to-consumer website.
Here are some questions I have about the announcement and its implications:
* Will Amazon allow Seller Fulfilled Prime with Buy With Prime?
* Shipments that are too expensive/large/bulky or whatever to ship on Amazon FBA are now more likely to drop out of Prime, period. Perhaps incrementally you will pay that fee for some items which gives Amazon upside.
* Under what situations will sellers decide the ROI is there? If it will put them over the edge in winning the Buy Box?
* Is this new pricing just a form of "Decoy Effect" pricing to push more sellers into FBA which doesn't have this percentage fee? I fear the trend of rising rents of Amazon - if you thought it was high before - is not abating anytime soon.
[References:]
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And Our Last Story
How I Reached 50,000 LinkedIn Followers
I reached a milestone recently on Linkedin - 50,000 followers and I thought I would spend a little bit of time illuminating how I got here to begin with. Basically, it’s just been a matter of learning, following the numbers, finding your voice, and then brute persistence.
After I got laid off from my last job, I started my consulting business. In order to learn how to do marketing, I started blogging. Well, in case you didn’t know, no one visits any new blog. So I started posting the blogs to LinkedIn and Twitter.
It was pretty simple for me to realize that 90% of the traffic was coming from LinkedIn and 10% from Twitter. I decided to more or less ignore Twitter… which who knows if that is a bad plan, but I have a generally dim view of Twitter or X as it’s termed now.
* Curious how you should think about LinkedIn? Think of LinkedIn as the very top of your "funnel."
A follower or connection doesn't count for anything on its own. Those followers allow you to say something interesting and attract new business.
I think of it in much the same way I think about my email list, with one big difference. I don’t own those LinkedIn followers, but I can message to them even though I am renting them from LinkedIn.
* Overall, I find that Trust Beats Consistency, and Consistency Beats Message
Ultimately, if people don't trust what you have to say, the rest doesn't matter. What you say needs to communicate trust. If you are consistent, you will learn what to do. You will learn what to write about. My advice is to stick to what you know, and focus on trying to add something interesting to the conversation rather than trying to know it all.
* I found that Finding Your Voice on Social media Took me about About 6 Months
Most people don't find their voice on social media because of consistency. It takes practice and time to find your voice. It is scary to post something where your friends at the companies you are posting about might find offensive. I try a few tests:
"Can the audience learn something from this?"
"Would I have liked to learn this earlier in my career?"
"What are people in the industry thinking about but are afraid to say?"
"Is the intention of your feedback to tear down or to guide improvement?"
"Do I have something unique or different to say about this issue?"
"Do I have a bias here, and is it apparent to both me and the audience? Better to address it openly."
I really do fail at this often, but these are the questions I think about when I post something. A corollary of this: stick to your expertise. When you find yourself overreaching your expertise, you risk your credibility.
* When I started posting in 2019, I had about 2,500 connections and thought LinkedIn was an online resume site. After a few months, I saw it as the future of B2B marketing and doubled down on it.
For over a year, I posted twice every business day. Eventually, I settled into every business day posting something that I saw interesting in the industry.
I gain about 1,000 followers a month. 4 years later, that's how you end up over 50,000 followers.
I have a strategy that a patient turtle would be proud of, and it works just fine for me.
* I do have some unique assets that help me. But of course you still need practice.
I enjoy speaking and writing, and I have for most of my life. I was on the debate team in high school and continued that through college. I thought about going to law school but decided computer science was a more fun path for me. But I never lost my love for writing.
* Consistency Comes From Urgency
What’s the most popular question I get about my LinkedIn? How do you post every day. Do you have a team?
The short story is I post like my business depends on it. Because it actually does. If you don’t have urgency and purpose around what you’re doing, you aren’t going to do it consistently.
[References:]
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Hey, Watsonians, this is Rick. If you haven’t joined other listeners in our online community, you’re only getting half the value from this podcast. Our community contains members from all around the world discussing the most interesting topics we cover on the show. Last week George Wescott posted about an experiment where Amazon is removing review counts on its search results page.
You can join the conversation now at community.rmwcommerce.com.
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It’s That Time Friends, for our Investor Minute. We have 6 items on the menu today.
First
Business Intelligence Platform CorralData Raises Seed Round
The seed was raised by NY Angels and is using the expansion to announce a number of new expenses. Corral Data claims they have an AI-powered business intelligence platform.
Link: https://corraldata.com/updates-from-corraldata-new-funding-round-product-launch-and-team-expansion/
Second
Mirakl Raises a €100 Million Revolving Credit Line to Finance New Acquisitions
Mirakl has been a standout performer in the marketplace arena for some time now, and if I had to guess would be interested in making acquisitions in order to continue to expand its product set. Even though 100 million euros is a lot money, it likely means they won’t be making any huge acquisitions like an eCommerce platform. Instead, the acquisitions are likely to be more targeted.
Third
Logistics Provider Ryder Creates New Technology Lab
Ryder’s new technology lab will be based in Silicon Valley. The company’s goal is invest in companies that are able to help Ryder reduce the waste in trucking, or as my friend David Glick likes to say — fill trucks fuller!
Fourth
Incrementality and Marketing Measurement Platform Haus raises $17M
The company’s CEO was leading marketing measurement initiatives at Google and says that Enterprises have a lot of trouble separating the signal from the noise in their marketing efforts. Most of the fundraising will be used for data and technology hiring.
Link: https://techcrunch.com/2023/08/03/haus-which-helps-companies-measure-marketing-roi-raises-17m/
Fifth
Chargeflow, an eCommerce Chargeback Fighting Solution, Raises $11M
Chargeflow is based in Israel and has raised a new $11M seed round, bringing its total fundraising to $14M. The idea is to use AI to generate custom evidence to dispute chargebacks in real-time for eCommerce merchants. Even though this is kind of a low-rent job for AI, it is an area that I think generative AI could be quite good at.
Link: https://techcrunch.com/2023/08/08/chargeflow-which-taps-ai-to-fight-chargebacks-raises-14m/
AND FINALLY …
Customer Data Platform Provider Simon Data Raises $54M Series D
I’ve seen a couple of Series D rounds raised recently, which actually tells me the IPO and large acquisitions markets may finally be opening up as well. Simon Data does not just focus on the CDP itself, but also focuses on a set of business tools which allows customers to make sense of their data.
Link: https://techcrunch.com/2023/08/08/simon-data-is-putting-customer-data-to-work-with-54m-series-d/
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That’s all for this week! Till next time Watsonians.....
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Hi, I’m Rick Watson, CEO and Founder of RMW Commerce Consulting and host of the Watson Weekly podcast - your essential eCommerce Digest.
Our production partner for the series is CitizenRacecar. The show is produced by Jose Baez; Production Manager, Gabriela Montequin.
To hear new episodes of the show every Monday morning, subscribe now at rmwcommerce.com/watsonweekly and wherever you get your podcasts.
