There are a couple of interesting news items out on Amazon (AMZN) that I haven't seen widely reported:
- Amazon Fire Update - Number 2 with a bullet.
- Ben Schachter's most excellent Amazon Prime analysis
- Scott Devitt's 28-days of Amazon nuggets highlights.
Amazon Fire Update
A firm called iSuppli, tracks unit shipments of different electronic devices. They are out today with a new Tablet update and it firmly establishes the Kindle Fire as the number 2 selling Tablet behind iPad and shows Amazon's amazing ability to come out of nowhere in this market. It also shows that while the Nook has gotten some press, the order volume is very low:
Amazon went from 0% share in Q3 to 13.8% share (unit share) in Q4 - pretty impressive. Personally I believe we'll still get to 5m and if that's the case, there is upside to that share number. Many press reports focus on the price point and hardware factors as the key success points. I think they are missing the power of the Amazon software and ecosystem (ebooks, music, movies, shopping). The ecosystem is the soul of the device and other vendors like HTC can match the form-factor and price most-likely, but they all lack an ecosystem. Even google with Android has the heart of the device, but not the ecosystem.
iSuppli also puts out a tablet forecast that they nudged up due to Fire:
In 2015, they forecast 287.2m units - say hello to the Post-PC World! Incidentally if Amazon keeps a 14% share of that you are looking at 40m Amazon tablets/yr. I think what you'll see is Amazon will grow that 14% as they come out with more units and since the soul of the device is software, it is going to iterate much much faster than most people imagine - and even orders of magnitude faster than Apple has historically.
Personal note: My 5-yr old has fallen in love with the Fire, she's watching every Prime streaming holiday video and loves many of the educational apps.
Ben Schachter's Amazon Prime analysis
Based on our proprietary data @ ChannelAdvisor we have long believed that the Average Prime subscriber increases their purchases 4X. Ben Schachter, an internet analyst with MacQuarie has a great report out today where he went through every Amazon purchase he's made over time and looked at the personal impact that Prime had on his behavior.
- Increasing order activity – Annual # of orders up 7x, $ spend up 500%.
- Declining order size – While I order more, the dollar value per order is trending down, from $70 dollars in my first Prime year (2009) to $54 in 2011.
- Gross Profit $’s up, % Down – This is a key/controversial issue for the stock.
- ~33% of our Orders Lose Money – This supports our view that AMZN is willing to absorb losses on some orders, essentially subsidizing other (larger) ones.
- We Still Pay for Shipping - We still pay shipping costs on ~13% of orders.
- Shipping Changes – For Prime, AMZN shifts to UPS/FedEx, away from USPS.
So what Ben saw is a 7x increase in volume (I'll have to do my own sometime, I bet it's higher!), yet Amazon is making more profit on Ben than before from an absolute dollars basis (but smaller on a % basis) - but think of the share of Ben's online wallet that Amazon now 'captures' and think of how many fewer google searches for products Ben probably performs (Google Prime!).
Seriously you should read the entire report it is chock-full of great graphs and deeper analysis than I can do justice.
Another great Wall St. Analyst that I read religiously is Scott Devitt @ Morgan Stanley. Scott has been writing a series called the 28 days of Amazon where he is updating on Amazon through the Holiday. Each day he is publishing a little nugget about Amazon and two really caught my imagination as they were very thought provoking.
The first relates to an area near and dear to our hearts: Amazon's 3P program:
~33% of Amazon.com unit sales are sold by third-party merchants (3P). We assume a significantly lower ASP on 3P units due to category mix (used books, agency eBooks, etc.) arriving at ~$10B-$12B of gross merchandise value (GMV) or ~20% of Amazon.com's $58B 2011E GMV. We assume Amazon.com generates ~$1.3B in 3P net revenue at an 80% gross margin, which means 3P accounts for ~12% of Amazon.com's gross margin dollars.
Here you have in one dense paragraph a lot of key metrics around 3P from Devitt's estimates:
- 33% of units are 3P (we all knew that)
- 3P is $10-12b in GMV (new!)
- That represents 20% of Amazon's overall GMV (new!)
- In fact Amazon's "REAL" GMV is $58-1.3+12 = ~$70b (Amazon understates GMV really because they only count their revenue of 3P, not the GMV).
- 12% of Amazon's profit is driven by 3P
Here's the second one relating to Amazon's fulfillment capabilities:
We expect Amazon.com to exit 2011 with a ~40 million square foot one-to-one, multi-node fulfillment infrastructure. No other company in the world has such an infrastructure, including offline retailers with much larger revenue bases. We see very little opportunity for Google to be relevant in fulfillment, as described in yesterday's WSJ article. However, we do believe Amazon.com's close relationship with its customer could have long-term negative ramifications for the 40% of retail-focused Google search queries.
Scott then goes on to compare Amazon's key retail metrics (rev/ft and turns) to other retailers. Amazon generates $1300/sq-ft, Costco $1,113 and Walmart does $440 (Amazon is 3X 'efficient' as Walmart!)
There's also this chart which is worth 1m words and I'll leave you with to ponder going into the weekend: (LTM stands for Last Twelve Months - essentially looks back a year)
Disclosure: I am long google and amazon. eBay (EBAY) is an investor in ChannelAdvisor where I am CEO.