Amazon’s gross margins continue to improve
In the previous part of this series, we discussed how Amazon’s (AMZN) operating margins improved in the last quarter. However, this improvement hasn’t been consistent, unlike Amazon’s gross margins. Amazon’s gross margins have continued to increase from 24.8% in 2012 to 29.5% in 2014, as the chart below shows.
The number of third-party sellers on Amazon has doubled since 2006
The main reason for Amazon’s gross margin increase was the increasing proportion of third-party sellers who sell their products on Amazon. Amazon mentioned that about 40% of its unit sales now come from third-party sellers. These vendors benefit Amazon, as the company doesn’t have to bear any product costs but it gets commissions from these vendors. This is a great source of profit for Amazon, as its gross margins associated with these transactions are 100%.
These small third-party sellers need Amazon, as they need a bigger and more popular platform to sell their products. According to a report from the Wall Street Journal, there are a total of 2 million third-party sellers now on Amazon. This total has doubled from 2006. The report also mentioned that the fees that these sellers pay to Amazon can be anywhere between 6% to 50% of sales.
This strategy is bearing fruit for Amazon in the form of increased gross margins. Brick-and-mortar players such as Walmart (WMT), Best Buy (BBY), and Target (TGT) don’t reap this benefit because they have to first buy merchandise and then sell it to their customers.
To get exposure to Amazon, you could invest in the PowerShares QQQ Trust, Series 1 (QQQ), which invests 3.5% of its holdings in Amazon.
Reducing oil prices are good news for e-commerce players. Oil prices have declined by about 60% over the past six months.
Broadcom (AVGO) stock fell ~8.5% after markets closed yesterday following the semiconductor giant's fiscal 2019 second-quarter earnings release. It missed analysts' revenue estimate and cut its fiscal 2019 revenue guidance by $2 billion to $22.5 billion due to sluggishness in its semiconductor solutions business.
The SPDR Gold Shares ETF (GLD), which tracks physical gold prices, has underperformed the broader markets year-to-date, rising just 4.4% compared to the S&P 500’s (SPY) gain of 15.9% as of June 14. The sentiment for gold, however, has been turning around.
Safe havens such as Treasuries and gold were back in favor on June 14 as stocks fell due to rising tensions in the Middle East, concerns over growth, and the looming threat of the US-China trade war. The tech-heavy Nasdaq Composite Index fell 0.67% in the first hour of trading.
Lululemon (LULU) stock rose 2.1% on June 13 in reaction to better-than-expected first-quarter results and an upgraded outlook for fiscal 2019 overall. The company's first-quarter adjusted EPS grew 34.5% to $0.74 on revenue growth of 20.4% to $782.32 million. Analysts had expected EPS of $0.70 and revenue of $755.31 million. Here's why the outlook got an upgrade.
As of 4:40 AM Eastern Time today, US crude oil active futures were at $51.83, ~4% below their closing level in the previous week. If US crude oil prices stay at those levels today, they'll mark their third week of decline in five weeks.
Amazon is discontinuing its Amazon Restaurants service, which has been delivering food for restaurants in parts of the United States. Amazon Restaurants launched in the United States in 2015 and entered the British market the following year. However, it met strong opposition in the British market.