B2B Payments

Earnings Edition Pt. 1: Amazon, Amex and eBay

There are many reasons to fall behind the news. Sometimes the news is so terribly uninteresting to watch that it just seems better to stick with Netflix. Sometimes the news is hard to take seriously because it really seems as though it might be some kind of elaborate prank that the media is playing on us all for unknown reasons — *cough* cable news *cough* U.S. primary election coverage *cough*.

But sometimes there’s just an avalanche of news.

Last week was that week. It was the week that Amazon decided to bring the pain to fake reviewers, Russell Simmon’s RushCard glitched so hard that hundreds were left without access to their money and Sony decided that, heck, since everyone else is doing it, it would jump in too and launch a mobile payments platform.

And that was just last Monday. There were four days of fun still to be had.

And keeping up with all the fun that was fit for the public interwebs as always was PYMNTS — paying particular attention to our favorite fun: Q3 earnings. The short report? They’re drinking champagne at Amazon, whiskey at Amex and Red Bull at eBay.

Need to know more? Then the Data Dive is your destination.

 

Amazon — Party Hats For Everyone

Oh what a difference a year can make.

Last year, Amazon’s Q3 report was met with so much mockery it’s hard to catalog — various jokes about fat ladies tuning up, getting burned by the Fire (phone), even The New York Times got in on the act, cracking wise about chickens coming home to roost.

American’s premier eCommerce outfit truly whiffed Q3 last year with an operating loss of $544 million. Most thought that was an incredible accomplishment considering that it also racked up $20.58 billion in sales during that time period. It was regarded as an art form to lose half a billion on $20+ billion in revenues.

A year later, though, and the world is not talking about chickens — roosting, preparing to roost or otherwise — anymore. Now, when talking Amazon, the commerce ecosystem is talking about geese.

Of the golden egg-laying variety.

Amazon is running a profit — a whole two quarters is a row — woo hoo! And now the question is not about the end of Amazon but about the beginning of the new Amazon.

Earnings beat expectations as Amazon posted a profit of $79 million on a revenue of $25.36 billion. U.S. sales were particularly strong, up 23 percent on the year to $25.4 billion. Operating income was $406 million in the third quarter, and cloud computing also provided a strong boost.

The Street liked the results, and Amazon‘s stock soared. It was up 10 percent on Thursday (Oct. 22) during after-trading hours and closed that day at $618.70/share.

Amazon posted a quarterly profit of $92 million (a nice change of pace from the $126 million loss a year prior) during Q2 — an event that shot the stock price up 19 percent. That big bounce was enough for Amazon to displace Walmart as the world’s largest retailer by market cap.

Profitable or not, Amazon is still Amazon, which means it was fairly tight-lipped on some hard numbers. No matter how many analysts asked and how many ways they asked it, Amazon had no new info to offer on exactly how many Prime customers there are, how fast they are growing or how much money they actually make for Amazon.

What Amazon would speak about is how Prime is part of its emerging vision for the future.

“Prime Now has been expanded to 14 metro areas. We’ve had same-day delivery now in 16 metro areas. We’ve built 14 new fulfillment centers. We’ve launched multiple devices (Echo, Dash Button) … So, there’s a lot of investment going on, and there will be continued, especially related to Prime,” said Brian Olsavsky, Amazon senior VP and CFO.

And in perhaps a nod to what’s next, or to provide air cover, he added: “Innovation and investment will continue and can be lumpy.“

Lumpy innovation and investment? There’s the old Amazon we know and love.

 

American Express: Party Hats For No One

Oscar Wilde famously noted that the best thing about being in a gutter is the view of the stars above you.

Based on its Q3 earnings report, we can assume the team over at American Express is at least taking comfort in the excellent view of the constellations these days.

American Express reported that the firm’s bottom line fell 16 percent from this time last year — a combined result of a strong U.S. dollar and increased expenses. In a nod to continued margin declines and competitive pressures, the payments giant also sliced its full year financial projections.

Amex also missed the Street’s projections for the third quarter of the year. Earnings per share were $1.24, instead of the $1.31 forecasted, and well below the $1.40 seen last year.

Expenses were the center-stage player during September, which offset recent growth in U.S. card spending. All in all, expenses were up to $5.7 billion during the latest period, up from $5.6 billion a year ago.

The growth in U.S. card spending, incidentally, was also offset by declines in card spending outside the U.S. — an outcome of the “strong dollar” in international markets. The continued strength of the dollar, while likely only temporary, exacerbated pressures on the top line, pulling revenues down to just under $8.2 billion. That figure is once again below consensus expectations and short of the $8.3 billion seen last year.

Q3’s earnings are the latest stumble in a year of them for the massive payments player. The firm has weathered the high-profile breakdown and breakup of the company’s relationship with Costco, which had served as the biggest Amex co-branded card relationship. That was followed almost immediately by announcements that American Express’ relationship with JetBlue was also coming to an end.

This has pushed a flurry of activity and spending from Amex, centered on building and maintaining new cardholder relationships even as the Costco relationship comes to a close early next year.

In fact, other co-branded partnership renewals hit EPS by roughly 5 percent last quarter.

Flat spending showed two mixed trends, as the number of transactions grew by 7 percent but the actual amount slipped 3 percent, at least partly due to lower prices paid at the pump.

Within the U.S., card services income was $794 million, down 11 percent year over year, with provisions of $390 million standing in stark contrast to a reserve release in 2014.

The aforementioned pressures will not abate, as implied by guidance for the full year of earnings between $5.20 and $5.35 a share. That is a big step down from the “flat to moderately down” $5.56 a share earned last year.

Missed expectations and this guidance revision did not fill the market with confidence — Amex saw its stock sink 3 percent on the announcement and has been sluggish ever since. Investors are clearly concerned about the firm’s long-term competitive prospects.

Notably, however, the brand still has high-profile fans. Margaret Vitrano, ClearBridge Investments’ resident expert on large-cap growth shares, remains an Amex fan — despite the headlines.

“The credit card market has gotten more competitive. The banks are now playing in this market more aggressively than before. And one question is: Does that mean Amex no longer has a competitive advantage?” Vitrano told Barron’s. “We did a lot of research comparing Amex to other cards to see if they were no longer offering the same value to customers. It’s definitely been a competitive market for the past five years, and that will continue. But Amex, with all of its cards, is still up in the top tier in terms of giving customers value. They are not at a competitive disadvantage.”

From her lips…

 

eBay: More Party Hats Than Anyone Was Expecting

“We don’t want to be like anyone else, and we don’t think that our brand is like anyone else’s.”

So said eBay CEO Devin Wenig during the company’s third quarter earnings results — a proud declaration of individualism from a company working hard to stake out an independent identity following an amicable but high-profile split from PayPal in a marketplace laden with some very big and powerful players.

A perhaps rather tall order, given that the last few earnings reports indicated eBay’s marketplace was sagging — evidence that, many analysts said, without its signature payments platform to buttress its fortunes, eBay may not be able to stand on its own.

As it turns out, a la Mark Twain, reports of eBay’s inevitable mortality might be a bit premature.

EBay has invested hard in its structured data initiatives, which function as a part of the company’s overall plan to create better product indexing and better order optimization.

Wenig noted eBay has just started to recover from a recent Google SEO switch-up that interfered with how eBay’s results showed up in search.

Analysts were reminded on the earnings call that it’s a long-term project but a necessary step to “deliver a more robust commerce platform [that] will be built on a solid foundation of structured data.”

“Ultimately, both SEO and frankly discoverability on eBay are crying for persistence. They are crying for us to understand that just because a listing comes and goes, we’re still selling thousands of [products]. So that, at the end of the day, is why having a persistent view of the products we sell, I believe, is a traffic driver, and it’s a conversion driver because, ultimately, we have 800 million items for sale. This is the world’s biggest store,” Wenig said.

“It can be overwhelming, and we’re asking too much of search. Search is very important, but for search to be the only lever to pick through 800 million items is becoming not sustainable, and ultimately, it causes a reduction in conversion.”

Structured data groups items into more logically organized categories, cutting search time for customers navigating eBay’s massive marketplace. In theory, sellers get more relevant eyeballs, and buyers have the chance to conduct more cross-channel purchases without having to leave the marketplace.

“We are collecting product data from our sellers as they list their inventory on our site. On June 29, we started requiring product information from our sellers across 18 categories in the U.S., the U.K., Germany and Australia. We’ve seen positive reception and adoption in line with our expectations — with limited disruption to the listing process,” Wenig reported about the progress so far.

In the 12 weeks since the new structured data initiative launched, eBay has seen over 27 million new listings successfully mapped and inventoried on its database, and 5 million new products added to its catalog.

In other initiatives, eBay+ (its subscription-based Amazon Prime competitor) is currently being piloted in Germany. Wenig told analysts the pilot program is ramping up and is currently built around free, expedited shipping, free returns and eventually exclusive access to promotions.

“We’ll also promote within this subscription the ability for consumers to sell without fees — hence driving not only buying velocity but also the unique eBay sell-to-buy flywheel,” Wenig said.

In terms of actual earnings figures, eBay’s GMV grew 6 percent on an FX-Neutral basis on the quarter that saw a revenue of $2.1 billion (down 2 percent), YOY. GMV hit $19.6 billion, which was a 2 percent decrease on an as-reported basis. In the U.S., GMV grew 3 percent, but internationally GMV was down 5 percent on an as-reported basis. EBay’s active buyer base grew 5 percent on the year to 159 million.

Guess Carl Icahn was right after all.

 

So. the moral of the story this week? Earnings tell you a lot about what’s not but less about what’s next than we sometimes think. So, though things look bad over at Amex, it’s a brand that’s weathered a lot of storms over 160+ years. After all, things looked worse at Amazon a year ago, and now they are literally bigger than Walmart.

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Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. Check out the February 2019 PYMNTS Digital Fraud Tracker Report

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