Will Amazon Beat Q3 2014 Revenue Guidance?

  • ChannelAdvisor reported its August 2014 same store sales report this week
  • Based on the historic relationship between ChannelAdvisor numbers and Actual revenue growth reported and also change in this relationship, we model Amazon’s September same store sales growth required to beat the company’s Q3 2014 revenue guidance.
  • With ever improving ChannelAdvisor Same Store Sales numbers through the last few months, Amazon looks likely to beat Q3 2014 revenue guidance.

Amazon August CA SSS based revenue analysis

ChannelAdvisor, the provider of e-commerce support services, yesterday came out with its latest Same Store Sales (SSS) for the month of August 2014. The report showed an improvement in Amazon‘s (NASDAQ:AMZN) same store sales even as eBay saw a decline in the Y/Y numbers.

ChannelAdvisor’s latest e-commerce same store sales report showed a strong performance from Amazon, which saw its same store sales grow 45.1% YoY in August 2014. This was Amazon’s strongest performance in 2014 as can be seen from the chart below, bettering last month’s 40.4% YoY growth.

Amazon YoY growth in SSS reported by ChannelAdvisor

Amazon YY growth in Same store sales

Chart 1: Amazon same store sales growth as reported by ChannelAdvisor

As per ChannelAdvisor data, Amazon’s performance has been showing a consistent improvement in 2014. The same has been reflected in the company’s revenue growth reported over the first two quarters of 2014. Amazon reported a 23% YoY growth in Q1 2014, which inched up to 23.2% YoY growth in Q2 2014.

Given below is the Q1 2014 relationship between ChannelAdvisor same store sales (CA SSS) data and Amazon actual revenue growth numbers.

ChannelAdvisor sss (Y/Y)

Jan-14

14%

Feb-14

23%

Mar-14

26.20%

Q1 2014  projection

21.1%

Actual growth reported

23%

Ratio of CA sss/actual growth

0.92

Amazon’s Q2 was the first quarter which included the effects of eBook accounting change in the base period (Q2 2013) and hence the Q2 relationship between ChannelAdvisor data and Amazon actual growth is an indicator of the long term relationship between the datasets. The Q2 2014 numbers capturing the relationship between ChannelAdvisor SSS and Actual revenue growth reported by Amazon is given in the table below.

ChannelAdvisor sss (Y/Y growth)

Apr-14

27.00 %

May-14

28.10 %

Jun-14

34.40 %

Q2 2014  CA SSS projected growth

29.83 %

Actual growth reported for Q2 2014

23.20 %

Ratio of CA sss/actual growth

1.29

The Q2 2014 relationship has moved higher in favour of CA SSS data, which is in-line with the historical values (closer to 1.5), which had temporarily dipped due to eBook accounting changes impacting Amazon revenue growth rates over the last 4 quarters. Based on this relationship and the latest ChannelAdvisor data for July and August, we take a look at what Amazon will have to achieve in September 2014 to beat its revenue guidance.

Amazon Q3 revenue guidance

Amazon’s management has guided to a Q3 revenue range of $19.7 to $21.5 billion, implying a YoY revenue growth of 15% to 26% at the high and low end of the guidance range respectively. At its midpoint of $20.6 billion, Amazon’s Q3 guidance represents a YoY growth of 20.5%, which is lower than the growth reported in the first two quarters of 2014.

Change in ChannelAdvisor SSS to Actual growth ratio from Q1 to Q2

The ChannelAdvisor to Actual revenue growth ratio moved from 0.92 in Q1 2014 to 1.29 in Q2 2014. There were two reasons for the change.

  • Q1 2014 excluded Amazon’s ebook accounting change in the base period, thereby inflating the actual revenue growth reported to some extent while Q2 2014 included the ebook change in the base quarter.
  • ChannelAdvisor tracks only third party sales through Amazon and so the ratio has trended higher due to growth in Amazon’s third party sales. Also the third party units ASP is higher than Amazon sold products, making third party revenue a larger chunk of Amazon’s topline.

CA SSS growth required to beat Q3 guidance

We now use the historical relationship between CA SSS and Amazon actual numbers and also the change in this relationship from Q1 to Q2 to understand what Amazon will have to do in August and September 2014 in order to beat its guidance.

The historic relationship between CA SSS and Amazon actual growth, before the eBook accounting distortion was more or less stable at 1.5. Due to the faster growth of 3P units the relationship might be higher in favour of Channel Advisor data and hence we look at two possibilities of the ratio at 1.8 and 2 in favour of ChannelAdvisor data.

Scenario 1: CA SSS/Actual revenue growth=1.8

ChannelAdvisor sss (Y/Y growth)

Jul-14

40.40%

Aug-14

45.1%

Guidance (Y/Y growth)

20.5%

Q2 2014 implied growth in CA SSS (at 1.8 in favour of CA SSS)

36.9%

Required growth in CA SSS in September 2014

25.2%

Using a relationship of 1.8 between CA SSS and Amazon actual revenue growth, Amazon requires a 25.2% YoY growth in same store sales in September 2014 in order to beat its Q3 2014 guidance.

Scenario 2: CA SSS/Actual revenue growth=2

ChannelAdvisor sss (Y/Y growth)

Jul-14

40.40%

Aug-14

45.1%

Guidance (Y/Y growth)

20.5%

Q2 2014 implied growth in CA SSS (at 2 in favour of CA SSS)

41.0%

Required growth in CA SSS in September 2014

37.5%

Using a relationship of 2 between CA SSS and Amazon actual revenue growth, Amazon requires a 37.5% YoY growth in same store sales in September 2014 in order to beat its Q3 2014 guidance.

Considering the current trend in the SSS growth (as seen in chart 1 above), It is highly likely that Amazon will see a SSS growth rate far higher than  what is required to beat its guided revenue range. By extension, Amazon could well be on way to deliver a revenue beat in Q3.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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