Amazon & Airbnb Earnings Reviews
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Amazon & Airbnb Earnings Reviews
Exploring the results of these giant marketplaces
1. Amazon (AMZN) -- Q2 2023 Earnings Review
a. Demand
Beat revenue estimates by 3.4% & beat guidance by 2.4%.
Beat AWS revenue estimates by 2.8%.
Demand Context:
14.8% 3-yr revenue CAGR vs. 19.1% last Q and 19.5% 2 Qs ago.
Advertising revenue rose 22% Y/Y vs. 21% Y/Y growth last quarter.
b. Profitability
Beat GAAP earnings before interest and tax (EBIT) estimates by 67%.
Beat $0.34 GAAP earnings per share (EPS) estimates by $0.31.
GAAP Gross margin beat estimates by a robust 210 basis points (bps).
Margin context:
GAAP net income is very noisy due to mark to market equity valuation swings with its Rivian stake. This quarter, it enjoyed a $200 million valuation benefit vs. a $3.9 billion hit Y/Y.
c. Guidance
Beat revenue estimates by 1.6%.
Beat EBIT estimates by 30%.
Capital expenditures for 2023 to be $50 billion vs. $59 billion Y/Y as it expects FCF to ramp going forward. CapEx will grow within AWS despite (support AI infrastructure) falling overall.
d. Balance Sheet
e. Call & Release Highlights
Fulfillment:
Amazon continues to get faster with deliveries as customers reward these efforts with better conversion and higher future purchase consideration. During the quarter, Amazon fulfilled more than 50% of Prime Member orders in its 60 largest U.S. markets same day or next day. Its same or next day deliveries have quadrupled vs. 2019. While service improves, it is beginning to see its fulfillment efficiency overhaul bear fruit. As a reminder, it’s transitioning its national U.S. footprint to 8 local regions. This means less miles to fulfill, faster service and lower cost. Thus far, this change has cut touches per package by 20%, reduced miles to fulfill by 19% and bolstered the proportion of packages shipped within local regions. Its smaller, same day facilities are now the fastest growing fulfillment mechanism for the business. This is great news considering the format comes with the lowest costs out of any Amazon fulfillment flow. Following the success here, it now plans to double its footprint of these smaller, more local warehouses.
The margin tailwinds continue. 60% of Amazon sales came from 3rd party sellers which is a new company record. That business is higher margin than its 1st party revenue. It also continues to layer on high margin sponsored ad placements with a recent algorithm update juicing returns and lowering cost per impression for buyers. Finally, Amazon Hub Delivery will allow it to tap into local business partners to add fulfillment capacity without building out fixed costs. When taking this all together, not only does Andy Jassy see UCAN marketplace EBIT margin getting back to 4% like it was in 2019… he sees more upside beyond that. The thesis is playing out. The last 5 quarters of Q/Q margin expansion based on reduced costs and ramping growth is just the beginning.
Raised selection in the U.S. Amazon store with Dyson, Ralph Lauren Fragrances and a deepening partnership with Victoria’s Secret. Amazon is its only 3rd party retail selling partner.
Subscribe and Save (allows Prime Members to schedule routine deliveries) has crossed $1 billion in cumulative consumer savings delivered and tens of millions of subscribers.
Amazon Day Deliveries (allows members to pick a day out of a week to get packages) is leading to 30% fewer boxes used for fulfillment (combined deliveries).
AWS:
Amazon leadership talked about an encouraging cloud customer shift from optimization usage to adding new workloads. This led to growth stabilizing at 12% Y/Y during the quarter while that stability continued through July.
Jassy talked again about the different layers of AI. Model training with prediction and inference seasoning is first. This is where Amazon’s chip sets (trainium for training and inferentia for inference) are key. They supposedly offer great cost and efficacy advantages for model seasoning and will be a great complement to Nvidia’s supply constrained H100 chips. For example, its Graviton CPU chipset raises performance by 40% per Jassy.
Model creation as a service is another layer where Amazon’s foundational large language model (LLM) called Bedrock comes into play. Bedrock allows developers to openly and easily customize and build on top of it for business-specific use cases. Other pieces of Gen AI include consumer applications like ChatGPT as well as automation tools like Amazon CodeWhisperer which will directly compete with Microsoft Copilot.
Amazon will not directly monetize generative AI tools for now. It’s focused on “democratizing access by lowering costs and boosting access to companies of all sizes and talents” to take advantage of the wave. Its approach mirrors Meta’s more closely than Microsoft’s.
Amazon discussed previously announced products from its recent AWS event. Highlights can be found in this article.
Notable customer wins this quarter included:
Omnicom is using Bedrock and Amazon EC2 Trn1n instances for Gen AI application development (powered by Bedrock). EC2 runs on Amazon’s custom AI training semiconductor set called Trainium.
EC2 Trn1n is a category of Amazon Elastic Cloud Computing. Elastic simply means that instances (virtual servers) can greatly scale up or down. EC2 Trn1n Instances have been shown to cut model training time and cost to train by 20% and 50% respectively.
Royal Philips and 3M are now both using AWS Gen AI products.
Experian named AWS as its preferred cloud provider as part of its transition to the cloud.
Grocery:
Amazon Fresh is still in experimentation mode. The company has not mastered the format it thinks will optimize traction here. So? It will not lean into growth until it does.
Added General Mills and Coke brands for its grocery delivery.
Whole Foods grew revenue solidly and expanded margins.
International:
Amazon is still losing money here… but that’s as expected. It launched in 10 new geographies since 2018 and is focused on global scale and service vs. margin optimization today. It took the company 9 years to be EBIT positive in UCAN. International, leadership thinks, is on a very similar path.
Other News:
Launched MGM Studios distribution to license its content and Amazon’s to other streamers.
New Pinterest partnership to post ads on its website for Amazon store products.
Amazon Business (B2B offerings) crossed a $35 billion revenue run rate. Buy with Prime is delivering a 25% conversion spike for merchant customers.
Amazon Pharmacy customers doubled Y/Y and its Rx pass is off to a good start.
Macro green shoots continue to strengthen as inflation eased across several cost buckets.
f. Takeaway
There is nothing to pick at here. Wonderful quarter and enough said.
2. Airbnb (ABNB) -- Q2 2023 Earnings Review
a. Demand
Beat revenue estimates by 2.5% & beat guidance by 3.3%.
Met nights & experiences booked estimates.
Average Daily Rate (ADR) was supposed to fall Y/Y due to mix shift but rose instead.
Beat Gross Booking Volume (GBV) estimates by 2.1%.
Demand Context:
17.7% 3-yr revenue CAGR vs. 28.5% Q/Q & 19.8% 2 Qs ago.
Wildly easy 3-yr comps so we used 2-yr comp data instead. Conversely, tough Y/Y demand comps due to unleashing of pent-up Omicron variant demand in Q2 2022.
FX neutral (FXN) revenue growth was 19% Y/Y.
Cross border nights rose 16% Y/Y but aren’t back to 2019 levels.
APAC cross border rose 80% Y/Y.
High density urban nights rose 13% Y/Y for 48% of total nights vs. 47% Y/Y.
28+ day stays accelerated following Airbnb’s debut of a discounted service fee for guests after 3 months. Nights booked for 3+ month stays rose to 25% of long term stays vs. 18% when this was announced. It’s working. For more evidence, 50% of new listings offer 3+ month stays vs. 22% when it launched.
b. Profitability
Beat EBITDA estimates by 12.5% & beat guidance by 15.2%.
Beat GAAP EBIT estimates by 15%.
Beat $0.78 GAAP EPS estimates by $0.24.
Margin Context:
Q1 & Q2 are seasonally strong FCF quarters.
Interest income is why net income > EBIT.
Y/Y EBITDA margin contraction is as expected via pulling forward marketing spend.
Sales & marketing up 28% Y/Y.
G&A up 12.3% Y/Y; R&D up 20% Y/Y; operations and support up 10.7% Y/Y. It saw leverage in every cost bucket besides R&D.
c. Guidance
Next Quarter:
Beat Q3 revenue estimates by 3.7%.
Beat Q3 EBITDA estimates comfortably.
Nights booked Y/Y growth to be a bit better than 11%.
ADR to rise Y/Y in Q3 due to mix shift “outweighing impact” of new pricing tools.
Full year EBITDA margin guidance was raised from flat Y/Y to modestly up Y/Y which is better than consensus. It will also likely realize operating loss carry forwards which will boost net income by about $2.8 billion when it happens for a single quarter later this year. Something to be aware of.
d. Balance Sheet
$10.4B in cash & equivalents.
$2 billion in long term debt.
Bought back $500 million in stock as part of its $2.5 billion program announced last quarter. Since Q2 2022, its diluted share count has been reduced by 2.7% to more than offset dilution.
e. Call & Letter Highlights
Supply:
Another quarter, another acceleration in hosting supply. Airbnb has now delivered accelerating Y/Y supply growth in every quarter since it went public in 2020. This quarter set a new record for net listings added. These hosts are readily embracing Airbnb’s pricing tools announced as part of its summer release event. A summary of these releases can be found in this article. That trend is leading to apples to apples ADR in North America FALLING 4% Y/Y while hotels see about 7% inflation on their apples to apples rooms. Affordability initiatives are working and Airbnb Rooms (rent a single room within a host’s living quarters) is merely beginning to ramp which will help more.
Demand:
Nights and experiences booked accelerated all quarter from 10% Y/Y in April to 15% Y/Y in June. As it lapped the Omicron variant and enjoyed the fruits of more marketing spend, guests responded. Importantly, 90% of its traffic remains direct and unpaid. Active bookers rose Q/Q in all regions.
Products:
Leadership teased near future sponsored listings and other ad products becoming available eventually. It wants to do this in a way that doesn’t unfairly help its professional hosts. Not sure how it will pull that off.
For expansion within the core, it talked up several service up-selling opportunities in the works.
International:
Brazil and Germany continue to grow at a torrent pace. Nights booked vs. pre-pandemic times in Germany and Brazil are up 63% and 110% respectively. Germany is growing into one of its largest markets. Its marketing playbook is working wonders and it will take this playbook to South Korea and Japan next where it’s under-penetrated.
AI:
The team fully expects AI to reduce its fixed cost needs on a longer term basis and to allow it to build a virtual travel agent to boost service quality and matchmaking.
f. Takeaway
This was a very good quarter any way you look at it. The pricing tools are working like they’re supposed to while profits explosively compound and demand continues to briskly grow. Just like I said, the viral screenshots going around on tanking Airbnb demand and pricing was anecdotal noise. Irrelevant, misleading noisy. Business is booming.