Latest / Retail Media Breakfast Club / Amazon Q1 Earnings Scorecard: Winners, Losers, and the Calm Before the Tariff Storm
Transcript
- winners and losers amazon q1 earnings === [00:00:00] When the dust settled on Amazon's Q1 earnings last week, the headline numbers looked solid. Amazon beat on sales up 9% year over year. Gross profit was up 14% year over year, and 19% ad revenue growth. But if you scratch beneath the surface, you'll find an ecosystem in a bit of upheaval. While Amazon positions itself for the coming tariff storm vendors, sellers, and even consumers are already feeling the shock waves. Here's a look at who's winning, who's losing, and what it means as we enter the eye of the storm. Good morning and welcome to the Retail Media Breakfast Club. I'm your host, Kerry Masters, and every weekday at 6:00 AM Eastern, I bring you candid and real discussions in the world of retail, media and marketplaces in just 10 minutes. So bring your [00:01:00] own cup of coffee and we'll get smarter about retail media together. Winner for now. 1P vendors for a few golden weeks. First party vendors experience something rare. Amazon placing massive purchase orders to stock up before tariffs hit referred to as forward buying on the earnings call one first party vendor on Reddit reported purchase orders worth an unusual 10 to 14 weeks of cover for. Items that were sourced from China, but this is about as hollow as victories can get. I've also heard from at least one, 1P vendor with US sourced items that Amazon has already pulled right back on purchase orders, even with consumer demand being very healthy in their category. In the earnings, Amazon took a $1 billion hit from this forward buying strategy covering extra freight [00:02:00] fees, warehouse surge costs, et cetera. What goes up must come down. Vendors need to expect purchase order cancellations and cuts as these inventory surpluses. Work through the system. So the takeaway here is that this $1 billion expenditure signals just how seriously Amazon is preparing for tariff disruption for one P vendors. Those inflated orders that you might've seen in the first part of the year you may just be on borrowed time. /Loser China reliant small sellers, Chinese sellers face. The perfect storm Trump's 145% China duties. Piled on top of Amazon's rising fees. But here's where it gets interesting. The advantage still tilts towards Chinese manufacturers who are directly factory sourced while US brands adding minimal value, think of those get rich quick with FBA [00:03:00] crowd. While those US based sellers struggle with the fact that they are essentially a middleman marking up. The cost. China direct sellers are increasingly leveraging AI for branding and marketing capabilities that level the playing field. So the reality is here that the Chinese sellers who adapt with technology are going to outlast those US middlemen type of brands that add limited value to the supply chain. So I think we'll start to see a bit of a clearing out of that business model / winner, Amazon's ad business ad revenue climbed 19% year over year to $13.92 billion. Now, Amazon's fastest growing line in the p and l . Outpacing even AWS by the way, it continues to baffle me how the [00:04:00] financial analysts always ask a ton of questions about AWS, but practically nothing about advertising, even though it is often outpacing that growth. It is a little smaller, but. Relatively speaking it. It's interesting how little attention it gets gets from the analysts anyway. Here are some levers that have been driving that add business growth. One is. Last year, Amazon rolled prime video ads into every US Prime account unless subscribers pay that $2 99 extra. And so that has helped Amazon's ad supported reach to grow to 275 million monthly US viewers. That is huge, and this has become a really attractive source of upper funnel ad inventory for both endemic. Brands and non-endemic brands. So that's one factor here. Another is, and this is my [00:05:00] reading of things, Amazon just continues to innovate with their ad product and in particular the AI. Capabilities around ad creation and relevance. I'm hearing from brands who are using Amazon's AI tools to build sponsored brand video ads for long tail products that they would never otherwise bother to create video assets for. So that is creating. more penetration into a product catalog for Amazon. So they're capturing both that upper funnel brand budget and the bottom of funnel performance budget from brands of all different sizes and industries. But the most substantial driver overall is just. Tailwinds that propel retail media. Right now, retail media is a hot topic and it's getting hotter, especially compared to other digital media channels like Meta and Google, who by comparison grew their ad businesses a little bit slower. So [00:06:00] Amazon's was 19% year over year growth in Q1. Meta did. Okay. 16% year over year growth in Q1, but Google kind of struggling here, eight and a half percent year over year in Q1. The reason is retail media is future proof against things like cookie deprecation. Whenever that is going to happen and we're closer to the purchase for consumer products, when we're talking about retail media, and that is. Very, very attractive in today's economic environment where ROI is very important. And the final winner here is Consumers Hunting for Bargains. Amazon, CEO, Andy Jassy said that overall site prices haven't appreciably gone up yet during the earnings call, and that is probably due to that forward buying on first party inventory. So the cost increases haven't flowed, flowed through yet. The mix of three P sellers, some of which have adjusted their pricing, some of which have not. And, we are seeing [00:07:00] this play out in some data as well that was sent to me from Momentum Commerce, and they tried to answer the question. Are consumers on Amazon reaching for lower price products more often? And the answer is yes. According to this new data, there have been four consecutive weeks of the 1000 most popular products on Amazon being less expensive year over year so it's unlikely that products have miraculously just gotten cheaper over the last year. It's more likely that people are trading down to lower priced purchases in general. The other element here that was. Clear from Momentum Commerce's data is that consumers have been stockpiling, and that was earlier data from Momentum Commerce showed that in one category, diapers. The established diaper brands were losing ground to more affordable alternatives. They found that the current top 100 diaper products [00:08:00] dropped 3.9% year over year in average selling price. Meanwhile, historic bestselling diapers, raised prices 8.5% year over year. So consumers shopping this category are substituting the big. Brands. The brands that have increased their prices, they are trading down in diapers in particular. So while we're seeing price inflation, we're also seeing consumers trade down stockpile as well, and that's creating some very wobbly. Sales dynamics on Amazon. Momentum commerce also notes that prices across Amazon are holding pretty steady more broadly, since it will take time for that full price impact to emerge again, largely due to Amazon's one P business. Whenever we talk about winners and losers, we're talking about a zero sum game Every winner. In this situation [00:09:00] creates a loser. Amazon's Q1 results Pleased investors in general, while merchants and brands are kind of bracing for impact. If not now, then in Q2, But Amazon is still playing chess in an industry full of checkers. Players positioning itself to capture advertising dollars as the inevitable pricing pressures squeeze traditional E-commerce models. The standout here is advertising, of course, which has become a necessity for endemic brands. But of course that advertising income also represents a little bit of a cost on the advertiser side. So those were my winners and losers from Amazon's Q1 earnings. In another episode this week, I'm gonna talk about all the AI takeaways from the earnings call and what you need to know about what Amazon is building in their thousand plus AI applications. So make sure you're subscribed to Retail Media Breakfast Club so you don't miss that episode. [00:10:00]