Amazon and other E-Commerce Platform Financials Round-Up – Q2 2016

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jlee2027_yv75wi72

CEO at esa Software

Bringing innovation through automation to help small business succeed has been my career goal.

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Our customers rely on various e-commerce platforms to run their business. As such, we like to monitor the finacials, performance and future looking statements of these platforms to understand how we can tailor our product to best support our customers. In this articles we’ve recaped the 2016 Q2 performance and provided some additional comments on Shopify, eBay, Amazon, Bigcommerce and Etsy.

Shopify Performance

Last week, Shopify reported their Q2 2016 numbers, which came in at $86 million in revenue with an $8.5 million loss. The 2015 Q2 numbers had shown a loss of only $3.3 million. This is a growing trend with Shopify, as they have continued to lose money since their 2015 IPO. And while their revenue is growing, so are their losses.

Cash is also down to $68 million compared to $147 million in 2015. So, it’s not surprising that Shopify also filed an amended registration, which probably indicates they will be selling additional shares into the market to raise more cash. This is worrisome, as Shopify continues to show spectacular revenue growth, but what’s the point of revenue growth if that makes you lose EVEN MORE MONEY?

It’s a bit of a mystery why that is, as the core business model should be very solid.  Let’s take a look at some of their significant expenses to see what’s going on:

Analysis & Comments:

• Office leases for 2017 are fixed and non-cancellable at $9.5 MILLION, mainly in Canada and San Francisco. All I can say is WOW, that is a lot of money tied up in leases.  Perhaps some of this could be sublet and cheaper space found.
• The company has no debt, but does have a $25 million line of credit if needed. It’s a nice fallback, but given the choice between issuing more shares versus assuming debt, you should always issue shares.
• The real culprit seems to be marketing expenses, which come in high at 34% of revenue. The rule of thumb is to spend about 5-10% of revenue for growing companies. The strategy appears to be to achieve market domination as quickly as possible at the expense of sound financial strategy. This is very risky. Let’s hope that Shopify will find the right time to cut back on marketing and show a profit.
• R&D is also strong at 19%. I’m assuming this includes not just warm bodies but also all the technical infrastructure needed for ecommerce, while rolling out new seller features, which explains this nicely.

eBay Performance

While Shopify is struggling, eBay is doing well. They reported $2.2 billion in sales for Q2 and earnings of nearly $500 million.
Analysis & Comments:

• eBay reported 164 million unique buyers, but no number is listed for sellers. This is not surprising as eBay has not reported this for many years, as they view Amazon as their prime competitor.
• Over $2 billion available in cash. It’s enough to buy and develop the Congo it seems if they wanted too.
• They are setting aside an additional pool of $2.5 billion to re-purchase stock and reduce the number of outstanding shares.
• Despite reports of many disgruntled eBay Sellers, ever-tightening standings, and poor customer service, eBay is a model of financial efficiency in generating profits for it’s shareholders.

Amazon Performance

The largest player by far, Amazon reported $30 billion in sales for its most recent quarter and a pre-tax profit of over $1 billion.
Analysis & Comments:

• Founder Jeff Bozos remains the undisputed king. As he usually does each quarter, he sold a million shares of AMZN and raised $757 million, enough to buy several Caribbean islands and still have money for a luxury yacht to sail there.
• Active buyers – 244 million (reported in 2014).
• Overhead remains at 20%. There is no specific breakdown as to marketing costs on the Summary financials.
• R&D is a tad over 10%. This is about the industry norm.

Etsy Performance

Similar to Shopify, Etsy reported Q2 2016 numbers of $7.3 million in losses on $85 million in revenue.

Analysis & Comments:

• Etsy has been under pressure since it’s IPO to admit more eBay-like sellers to increase visibility, appeal, and the bottom line. So far, they have resisted this pressure insisting they stick to their niche of handmade and vintage items.
• Etsy reported spending 14% on R&D. They have tried several new storefront formats for their sellers, but have fallen behind technically on things like Google Shopping and other SEO friendly features which could boost their sellers.
• Revenue shows a sharp increase of 40% from a year ago.

Bigcommerce Performance

Back in May, Bigcommerce delayed it’s expected IPO because of a “soft market”. As it’s still a private company, financials are anyones guess. However, the same press release did note that Bigcommerce is still raising investor funding. Perhaps they need these funds for expansion or they are operating at a net loss, time will tell when the IPO hits.