March 4th, 2024: Shopify GMV closing in on Amazon, Macy’s announces a new vision, Amazon aggregator Thrasio declares bankruptcy, and Klaviyo reports 2023 Q4 earnings
Today’s episode of the Watson Weekly podcast is sponsored by Commercetools.
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It’s March 4, 2024 and this is the Watson Weekly - your essential eCommerce Digest!
Today on our show:
Shopify GMV Closing in on Amazon
Macy’s Announces a New Vision
Amazon Aggregator Thrasio Declares Bankruptcy
Klaviyo Reports 2023 Q4 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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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….
Shopify GMV Closing In On Amazon
Next Year Shopify GMV Will Reach 50% Amazon Third-Party GMV, What's Next?
Recent data from Marketplace Pulse has estimated Amazon’s GMV for 2023 and pegged the number at $700 billion dollars. That breaks down as $480B third-party and $220B first-party. Wondering what Shopify’s number was? $236B.
If you run the growth trendlines out far enough which is admittedly a dumb exercise, by 2036, Shopify will Eclipse Amazon Third-Party GMV. Which is interesting. That might seem like a long-time, but it's not.
To understand that trendline, you need to unpack the growth rates. Amazon total GMV is growing at about 11% y/y, it's third-party GMV growing at 13%. (Amazon 1P growing at only 6%). Shopify on the other hand is growing at around 19% y/y -- about double Amazon's rate.
Given this, I wondered what it would take Shopify to cross Amazon. The numbers look like this AT CURRENT RATES:
* By 2036, Shopify GMV will cross Amazon 3P GMV.
* By 2038, Shopify GMV will have eclipsed all Amazon GMV.
Of course by these dates, especially for Shopify, it might be Gross Payment Volume we are concerned about and not GMV
Speaking of, what are some things that are likely to happen by then to make this transition happen faster?
On the Amazon side, they could be seeing headwinds.
Well, it's possible the Shein and Temu start threatening Amazon more and more. After all, Chinese 3P sellers make up a huge chunk of Amazon. These companies are already targeting US-based Amazon sellers starting now, and just getting started.
It's not outside of the realm that there is a changing of the guard happening, in a bear scenario. No wonder Amazon is trying to capture off-Amazon GMV (hello Buy With Prime!)
On the Shopify side, they could be seeing tailwinds:
These tailwinds include acquiring more companies, and in their sweetspot - payments. An area which Shopify has not yet dabbled in yet. By 2038, it's not outside of the realm of possibility that Shopify could have acquired not only Stripe, Affirm, but also others like Adyen too.
In such a scenario, there are opportunities for Shopify to go "upstream" and "downstream". Despite Shopify's logistics experience, history tells us that going downstream is much easier, however. In other words, Amazon used to pay UPS to deliver its parcels.
Payments. Shopify currently pays Stripe (and others) to process its payments. That % of "owned payment processing" is in fact the number to watch in the next 10 years with Shopify. Outright acquiring or taking ownership-level stakes in Stripe, Affirm, Adyen and others are all on the table.
And this is assuming Shopify doesn't "go upstream" and build its own marketplace, although that is possible too as Advertising, Shop Cash and Shop app, which might become material over that time scale.
Comparing Shopify to Paypal not really fair -- Shopify doesn't own an independent payment processor like Braintree, etc. Yet. But pay attention because Shopify Gross Payment Volume is growing 3x Paypal, even though Shopify GPV is one-tenth Paypal's $1.5T.
One day perhaps Paypal will wake up and realize Shopify is a threat. As Elon said, Paypal had a better roadmap 20 years ago. I kind of agree with him
[References:]
Our Second Story
Macy’s Announces a New Vision
So this is a funny one. Watson Weekly listeners know that I have covered the activist investors circling Macy’s who have been talking about how Macy’s is squandering the value of their real estate, most especially their Herald Square New York City real estate.
Because, you know, they kind of are.
Well, there has been a new development! Macy’s has announced a bold new vision. And that vision includes shutting down a whole bunch of stores.
I’m kind of reminded of the phrase “tell me you are responding to your activist real estate investors without actually telling me you are responding to your activist real estate investors.” Here is Macy’s bold new vision:
First, they are going to close 150 unproductive stores. How many stores does Macy’s have? Around 500. That means that 30% of your stores were so unproductive that all it took was an activist investor press release to push you over the edge? That is some indictment.
Moving on to bold point number two in their plan.
Invest in the remaining 350 stores. Well that sounds like a good plan, as long as you can prove there is a return on that investment. Which does Macy’s tell us this in their plan?
They do not.
Other points include revitalizing their assortment, focusing on their luxury brands like Bloomingdale’s and Blue Mercury and modernize their supply chain.
I would tend to think that there is a lot of money in Macy’s supply chain that could be found by modernizing. Which will help them with their cost structure.
All of which is great, Isuppose. But if Macy’s bold new vision doesn’t include merchandise that people care about, then all this will do is improve their per-store profitability without fundamentally changing Macy’s trajectory over the long-term.
[References:]
Our Third Story
Thrasio Declares Bankruptcy
We had a little bit of a dueling headlines story this week in the news. You might call it a boxing match. In one corner you had the title “Thrasio declares bankruptcy.” In another corner you had “Thrasio taking steps to strengthen its financial position.”
Well both are true, but guess which one has more spin applied to it?
If you don’t know who Thrasio is, they were founded by a pair of founders Joshua Silberstein and Carlos Cashman ostensibly to acquire and rollup Amazon businesses.
How many Amazon businesses had these folks operated ever? Like Mark Baum’s moment at the banker conference in the Movie the Big Short, “Zero” is the answer.
Zero.
Given how complex it is to operate one Amazon-based business for more than a few minutes, you might think there would be a little humility applied to this business.
From the beginning acquiring “Amazon businesses” was fraught with peril.
* you don’t own the real estate.
* you don’t own the customer.
* you don’t own the data.
* you can’t control the playing field.
* besides that Mrs. Lincoln, how was the play?
Unfortunately the operators didn’t care about the odds. They just kept accepting more money. Did I mention that the company raised 3.4 billion dollars. Just let that sink in. Now as part of its bankruptcy it’s listing assets in the estimated range of 1 to 10 billion, and debts of half a billion.
So, what is the real value of this business?
What’s that number I mentioned earlier? Likely closer to zero than most would like to admit.
[References:]
[PAUSE]
And Our Last Story
Klaviyo Reports 2023 Earnings
Last week Klaviyo reported their 2024 full year earnings, and here are a few takeaways I have.
1 - Klaviyo continues its progress in the Mid-Market
Some of the most impressive stats on the call are related to mid-market penetration.
* There was 80% growth in customers paying them over $50k/year.
* Overall, Klaviyo is up to 143k total customers.
The mid-market penetration at the moment is mostly e-mail, but they are also making progress on SMS.
2 - Klaviyo Has Pressure On Its Pressure on Gross Margins
It was clear from the call that SMS gross margins are less than E-mail gross margins. SMS has penetrated 16% of the Klaviyo base at this point. Look out Attentive. As SMS expands, it makes it harder for Klaviyo to grow profits dollar for dollar compared to E-mail. In other words, they need Reviews and CDP to work too. You almost have to believe it will all work.
3 - Klaviyo’s 2024 Forecast Declined Relative to 2023
Klaviyo grew revenues 48% y/y in 2023 to $700M, but is forecasting a 28% growth rate in 2024. This mostly seems due to Klaviyo not projecting another price increase. It also explains why they are adding to “sales capacity” which is a euphemism for spending more on sales and marketing as a % revenue than before, and that sales capacity will be slightly less efficient than SMB customers where the payback is sooner.
4 - Worrying non-GAAP measures.
While Other people may not mind, but, since WeWork exploded, I get skeptical when companies start putting too much faith in non-GAAP measures. When I read “Klaviyo-Attributed Value” being talked about to Wall Street, I can’t help but hear “Community-Adjusted EBITDA” which was made famous from Wework.
Here’s an example for you. Did you know Klaviyo lost money last year?
You wouldn't if you listened to the earnings call. $36M just in Q4, and $330M for the full year. In fact, they lost 6 times more than the previous year. Now almost all is stock-based-compensation which they might tell you doesn’t matter. And perhaps it does not, look I am not a financial wizard.
But Warren Buffet would tell you to be skeptical, so yeah I trust him more.
It’s nothing personal. Another Shopify proxy entity does the same: Global-E, and other non-Shopify proxy entities like BigCommerce. The bills do come due: pay me now or pay me later.
Klaviyo’s Non-GAAP operating margin of 12% means that: “ If we didn’t have to pay these pesky employees, we would be rich!”... which…. Still, I like Klaviyo, but at some point you want to see the real profit dollars.
C’est la vie.
To wrap up, let’s talk about Klaviyo’s future for the moment shall we?
Shopify didn’t always care about the mid-market. Even when Plus was introduced in 2014, it was still in the lower mid-market - at best. In the past 5 years, Shopify has smashed through that taking a share of Salesforce customers and a lot of their customers grew up with them.
Though, if you know anything about Shopify, they don’t have a CRM and Salesforce is of course one. Salesforce’s "Klaviyo" equivalent is the old ExactTarget which is pretty tired. In the next 2-3 years, Klaviyo will likely build a CRM for Shopify.
There’s two reasons for this — one Shopify owns 11%, and two, Klaviyo’s exposure to Shopify is ~77% of their customers. Someone will probably need to build a “Service Cloud” too at some point, but likely that task will go to Gorgias, Shopify’s Helpdesk feature.
[References:]
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It’s That Time Friends, for our Investor Minute. We have 5 items on the menu today.
First
TechTaka Raises $9.5M in Series B Funding
Techtaka, a South Korean 3PL fulfillment service, has secured a $9.5 Series B funding round to further grow its South Korean business and expand into US and Japanese markets, as it is currently assisting Korean sellers on Amazon.
Link: https://techcrunch.com/2024/02/19/techtaka-raises-9-5m-for-its-e-commerce-fulfillment-service/
Second
NTWRK Acquires Complex For $109M
Live-stream shopping platform NTWRK has acquired Complex from Buzzfeed for $108.6M, adding $5.7m for office space and severance costs for Complex staff who are being laid off. Can anyone say content and commerce?
Link: https://www.semafor.com/article/02/21/2024/complex-is-sold-to-e-commerce-company
Third
Buildstock Secures $1.6M in Pre-Seed Funding
Buildstock, a B2B construction material marketplace, has secured $1.6M in Pre-Seed funding to enhance its FinTech, AI, and logistics integrations and grow its user base. Marketplaces such as Buildstock accelerate efficiencies in fragmented sectors such as construction. I love vertical marketplace ideas like this.
Fourth
J.B. Hunt to Buy Walmart’s Intermodal Assets
J.B. Hunt Transport Services plans to acquire Walmart's intermodal container and chassis fleets, thereby increasing its revenue in the transportation sector. Walmart uses a services agreement rather than owning rail assets to move its goods.
AND FINALLY …
Crisp Raises $50M in New Funding
Crisp, a retail data-sharing and analytics platform, has secured $50M in new funding through a $20M Series B extension round and up to $30M in debt financing for product development, market expansion, and acquisitions.
Today’s final word for the week of March 4th 2024 is: Aggregator. Every week I still find new investors trying to make the aggregator model work. To be clear, the brand holding company is a great idea. But there needs to be synergies. Like real actual synergies. Of course the tale of the bankruptcy of Thrasio is more complex than this, but if there were any actual deal criteria used before these businesses were acquired instead of just dumb money chasing opportunities, we wouldn’t be in this situation. Still there are apologists for the aggregator model out there. It takes a special operator to pull it off, that’s all I’m saying.
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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.
