August 12th, 2024: Amazon reports Q2 earnings, Allbirds reports financial results, Amazon signs deal with Pinterest and TikTok, and Shopify crushes its earnings
It’s August 12, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Amazon Reports Q2 Earnings
Allbirds Reports Financial Results
Amazon Signs Deal With Pinterest and TikTok
Shopify Crushes Its Earnings
- and finally, The Investor Minute which contains 5 items this week from the world of venture capital, acquisitions, and IPOs.
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BUT FIRST in our shopping cart full of news….
Amazon Reports Q2 Earnings
While I was out on break, Amazon had earnings. And oh yeah, Wall St. freaked the fuck out.
Let's first discuss the freakout, I would consider it a variety of factors:
* The main driver is a worse than expected employment labor report in the United States showing employers slowing hiring.
* Secondary drivers included Investor AI ROI worries (which has driven NVIDIA's crazy bubble-like rise), Buffett halving his Apple shares, and Japan's Nikkei which was mostly a reaction to the US labor report.
Take a breath, it was a rough week for your portfolio. The question on my mind is simple: Is this the sound of the other shoe dropping finally?
The labor market has outpaced expectations for the last 6 months. It couldn't escape what consumers have been telling us about reality forever. If the Fed does drop rates, it is a signal we are probably either in a recession or about to be in a recession. However, the sound of rates dropping would be music to consumers and the economy in some sense. Let’s face it, we are a United States economy that is still propped up by federal spending.
Let's talk about Amazon, though. It didn't have a bad quarter. It's actually executing well and fundamentals have not changed. Amazon is however adjusting to the consumer. A few things stood out:
* Amazon feels we are going into a cycle where with consumers trading down consistently, unit volume will outpace GMV gains. This means lower ASPs.
Over the years, Amazon has had the luxury of its "Can't Realize a Profit (CRaP)" program to remove first-party items (mostly) that Amazon cannot, well, profitably sell due to advertising, shipping costs etc.
Amazon is reversing these trends and I call it Amazon's new CRaP Flywheel.
* Amazon reduces its cost to serve.
* More items become profitable to serve.
* Selection expands.
* Fulfillment speed improvements drive speed improvements.
* Amazon gains consideration for new categories like every essentials / convenience/pharmacy.
* Unit velocity improves and Amazon gains share of wallet from competition.
* Higher sell-through gives them more money to invest in reducing cost to serve. The CRaP Flywheel rolls on.
A few other tidbits from Amazon's earnings - where is Amazon reducing cost to serve?
* Regionalizing its outbound fullfilment network - not done here.
* Regionalizing its inbound fulfillment network - just getting started here.
Did I mention that it's horrible to walk into a pharmacy or other essentials retailer these days due to product being locked up? Who do you think that benefits?
Amazon.
My advice to retailers:
* Batton down the hatches and dust off those worst-case plans I spoke about at the beginning of the year. Not because you WILL need them, but because, well, you might need them.
* Consider further improvements in your cost to serve, and how that might help you expand growth - not just fuel your bottom line.
* Ratchet up your storytelling so that you can help consumers make decisions faster and differentiate your offers from the myriad of competitors out there.
And hang on tight. It's going to be a wild finish to this year.
[References:]
Our Second Story
Allbirds Reports Its Financial Results
Allbirds is reporting to Wall St. that it is entering the next phase of its transformation. Like a Phoenix rising from the ashes, is there really anyone still watching to see what’s next?
Most consumers have moved onto other brands like On Running and Hoka. Nonetheless, here is what Allbirds reported:
The San Francisco-based footwear company reported that Q2 revenues dropped 26.8 percent to $51.6 million
Net loss was $19.1 million
Allbirds said the sales decline was driven by lower unit sales, which was partially offset by higher average selling prices, international distributor changes and retail store closures.
Allbirds reaffirmed its 2024 sales guidance, which projects net revenues of between $190 million to $210 million, with U.S. net revenues of between $150 million to $165 million. This is down from overall 2023 revenue of 254 million - about a 20% year over year decline that the company is expecting.
The point about lower unit sales is fascinating to me because it is the exact opposite of what many retailers including Amazon are reporting right now — higher unit sales and lower ASPs.
Allbirds is somewhat of a sad retail story that used to be a brand that recognized comfort and sustainability. Product expansion and overinvestment seems to have given its competitors a big opening that they have plowed right through.
[References:]
https://footwearnews.com/business/earnings/allbirds-transformation-q2-earnings-1203673986/
https://finance.yahoo.com/news/allbirds-reports-second-quarter-2024-200500449.html
Our Third Story
Amazon Signs Deal With Pinterest and Tiktok
Amazon has signed a new partnership with both Tiktok and Pinterest. Here are the details:
Buyers will be able to buy products from Tiktok and Pinterest without leaving those apps.
Shoppers will see Amazon product recommendations on the “For You” feed.
Users can link their Amazon accounts directly to Tiktok and buy products directly from ads.
Buyers who link their accounts will see Prime eligibility, real-time pricing, delivery estimates, and product details directly on the app.
What’s my take on it?
This is almost like Buy With Prime from these social media apps.
This is a response to the rise of value-oriented marketplace Temu which is a pure marketplace and owned by PDD that is now in 60 markets around the world.
Doesn’t this also ensures that Amazon is not cut off from an emerging source of product discovery/inspiration.
Is this Amazon using Tiktok data to target users?
TIktok becomes distribution for Amazon retail media network
To be clear, this is not Amazon getting its own Tiktok Shop. This is a special deal. There are some question I have still - like on Tiktok Shop day how much exposure will Amazon get, knowing it could crowd out its own Tiktok’s own influencers.
After all, there is only one scroll for the For You feed.
Amazon is increasingly seeing ways to get products in front of its Prime audience and attract new Prime members. Perhaps this also explains why Amazon has been so desperate to sell more cheap items. But in other news…
Congrats TikTok Shopping you have fully arrived as a purchase channel. What will you do with your newfound power?
[References:]
https://www.bloomberg.com/news/articles/2024-08-08/amazon-deals-let-shoppers-buy-products-on-tiktok-pinterest?srnd=phx-technology&sref=IruMQhSQ
https://www.tiktok.com/business/en/blog/amazon-ads-native-checkout
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And Our Last Story
Shopify Earnings Report Is All Upside
High merchant signups, particularly in Europe, and a large number of merchant signups are pushing MRR and subscription solutions revenue. Expense discipline doesn't hurt either.
This quarter offered a little something for everyone:
100% growth in free cash flow margin to 16%.
* Very strong growth in Europe generally.
45% growth in Shop Pay transaction volume y/y to $16B.
30% growth in gross payment volume to $41.1B.
27% growth in subscription solutions revenue. [new merchants, shorter trials, standard plan pricing adjustments]
Gross Profit dollars grew 25% to $1B.
Q2 MRR up 25% y/y.
Revenue (25% ex-Logistics y/y) growing faster than GMV (22%). [International growing faster at 27%]
Gross margin growth, but mostly ex-Logistics with some puts/takes.
Relatively flat opex, up 5% (compared to 25% revenue this is good results)
Enterprise:
* Merchants mentioned: QVC, B&N, Away, TravisMathew, Topps, Vince Camuto, Casper, Toys R Us (TRU).
* TRU looks live but others not yet, no date given.
* Looks like mostly custom-built sites, a few SFCC, one SAP (TravisMathew - wow talk about overkill) and one Magento (Topps) in this mix.
B2B:
* 34% more B2B merchants got orders y/y [6x order count increase from last year]
* 140% B2B GMV growth
About the only people not happy with this situation is the Shopify manager who wants a bigger team. Because you aren't going to get it ;-)
Tidbits:
* Shopify Plus now 31% of the Total MRR $169M.
* Shop Pay now 39% of gross payment volume
* Shopify has cooled on the "attach rate" metric, now 3.04%, and considers it an output rather than an input. Of course it was the bees knees when it was expanding significantly. Now Enterprise, payments gross margins, and other things push that down.
* Basically going to stop reporting on capex, they don't need it now that they chucked logistics.
* Shopify made 3 acquisitions in the last quarter. (Checkoutblocks = checkout customization, Threads = ramping early-stage merchants, Peel Insights = inventory visibility)
Guidance for Q3:
* Revenue growth ~23-25% approx, with double-digit free cash flow margins.
* gross margins up 50bps
* headcount will remain flat for a while.
Shopify is currently telling the story they can have their cake and eat it too:
invest in whatever they want
grow as fast as they want
keep expenses relatively flat
If there are warning clouds on the horizon, they aren't letting on. This observer just wonders when Enterprise will become material -- I think it will take a few years even as they start to pile up wins, Shopify is a big company.
This is like the Triple-Lindi in diving and to be honest, I think there are a lot of SaaS vendors that could take a page from Shopify's playbook at the moment -- seeing a lot of elevated headcounts and payrolls on limited revenue growth. (warning: you are way out of step with the market).
[References:]
It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
Apax Partners To Take Tech Consultancy Thoughtworks Private for $1.75B
Apax Partners will take Thoughtworks, a global technology consultancy private in a deal worth approximately $1.75B. Funds associated with Apex will acquire shares of common stock it does not own at $4.40, a 30% premium from Thoughtwork's last closing price. Thoughtworks stock has lost 87% of its value since the start of 2022.
Link: https://www.pehub.com/apax-partners-to-take-tech-consultancy-thoughtworks-private-for-1-75bn/
Second
Blue Yonder Acquires One Network Enterprises For $839M
Blue Yonder has announced the closing of its One Network Enterprises acquisition for an enterprise value of approximately $839M. This addition enables Blue Yonder to offer its customers a multi-enterprise and multi-tier network ecosystem that enables interconnected collaboration.
Third
Prewave Raises €63M Series B
Supply chain risk, compliance, and sustainability platform Prewave has raised €63M in Series B funding. The new funding will be invested in proprietary technology and global expansion. Another superintelligence solution?
Fourth
Naomi Watts’ Menopause Brand Stripes Beauty Acquired by L Catterton
Actress Naomi Watts' menopause brand Stripes Beauty was acquired by L Catterton for an undisclosed amount post-bankruptcy. L Catterton does not acquire celebrity-owned brands but has been investing in women's health businesses.
AND FINALLY …
FullBeauty Acquires Plus Specialist Avenue
FullBeauty Brands acquired affordable plus apparel brand Avenue from City Chic Collective Limited for an undisclosed price. Who said more selection is not a thing in plus-size apparel?
Link: https://www.retaildive.com/news/fullbeauty-brands-acquires-plus-size-avenue/719361/
Today’s final word for the week of August 12, 2024 is: Focus.
There are many companies in the audience that are on the brink of making major adjustments. Sometimes it feels like everything is wrong with your company at the same time. What I would tell you is that if you are considering major changes to correct an issue, ensure that you have focus. What do I mean? If you have 4 problems, but only 1 serious one - many people will try and correct all 5 at once. Instead, what I think you need to hear at this time is simple. Take the serious problem. Measure it, plan it, and fix it. Then monitor. Is it working or not? Make another minor adjustment. How are you doing? Now, reassess your entire problem set again given these new improvements. Don’t assume that your problems will remain the same each month. As your company changes, so do your problems.
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Did you know that RMW Commerce has a brand new podcast? Check out The Watson Weekend for an unfiltered and lively eCommerce chat each week with me, Rick Watson, my co-host Jess Lesesky, and an array of interesting guests and topics. All focused on eCommerce. You can find the Watson Weekend by searching for it on iTunes, Spotify, or Youtube.
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.