Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, let's
Speaker 1: get to James Thompson, partner at buy Box Experts, former
Speaker 1: business head of Amazon Web Services, your Amazon Services. Excuse me,
Speaker 1: joining us on the phone from Seattle. Hey, James, UM,
Speaker 1: let's go through these numbers here, because even though Charlie
Speaker 1: talked about them just now, they are certainly worth repeating.
Speaker 1: For Amazon, first quarter net sales beat estimates one eight
Speaker 1: point five billion dollars, first quarter operative income beat estimates
Speaker 1: one eight point nine billion dollars, Online stores net sales
Speaker 1: fifty two point nine billion dollars, handily beating estimates there.
Speaker 1: And then here's here's the big one. This is the
Speaker 1: guidance sees second quarter net sales one billion to one
Speaker 1: hundred sixteen billion. The estimate was one eight point three
Speaker 1: five billions. So how's Amazon doing well? You give me,
Speaker 1: you give me two minutes to look over the earnings numbers.
Speaker 1: Welcome to my life. There you go. So a couple
Speaker 1: of things thinking about for Q two. UM, Amazon is
Speaker 1: likely going to do Prime Day at the end of June.
Speaker 1: So that's going to count in the in the Q
Speaker 1: two numbers. This is a holiday that Amazon invented, that
Speaker 1: inspired by for inventing holidays, if it creates capitalism, invent
Speaker 1: the holiday. So uh, yeah, that that's an Amazon holiday.
Speaker 1: We're now in years five or six. Amazon's got most
Speaker 1: of the kinks worked out in the system. Um, it's
Speaker 1: interesting to see that they're moving it, but most likely
Speaker 1: and again they haven't announced the exact date, but all
Speaker 1: indications suggest that it's going to be before the end
Speaker 1: of June. It's interesting that they're moving in a little
Speaker 1: bit earlier. UM. And I think there's a few interesting
Speaker 1: things that are that tell us that there may be
Speaker 1: issues on the horizon. The fact that they're doing Prime
Speaker 1: Day in June at the same time that we're seeing
Speaker 1: Amazon placing big, big bets with brands. Uh. You know,
Speaker 1: we're we're seeing Amazon placing six to nine months worth
Speaker 1: of inventory orders all at once that they want to
Speaker 1: make sure that those products get on the ships, get
Speaker 1: into the United States, and get into their warehouses before
Speaker 1: Q four. We haven't seen Amazon do this kind of
Speaker 1: thing before. Uh. It's an interesting move. It means their
Speaker 1: warehouses are going to be fuller than usual by the
Speaker 1: time we get to the beginning of Q four. As
Speaker 1: much as Amazon has been able to continue to build
Speaker 1: out its facilities different fulfillment facilities, the reality is demand
Speaker 1: for prime space from both vendors as well as through
Speaker 1: party sellers. Everybody wants to be prime eligible that that's
Speaker 1: that's the goal, and it's hard to keep up with
Speaker 1: the demand and Amazon struggling I believe, to to keep up,
Speaker 1: and that's going to create a situation where it come
Speaker 1: Q four, a lot of these successful third party sellers
Speaker 1: that have become completely reliant on FBA, on the Fulfillment
Speaker 1: by Amazon program, they're going to find that they can't
Speaker 1: get an inventory space. And I think we're going to
Speaker 1: see a situation where between their continued recovery of the
Speaker 1: ECONO of me as covid gets under control, and Amazon
Speaker 1: struggling with inventory space. I think by the time we
Speaker 1: get to queue four, that that's when we're going to
Speaker 1: see that Amazon has actually um not been able to
Speaker 1: keep up with the demand for its its marketplace. So
Speaker 1: then what happens to Amazon's business. Do we get to
Speaker 1: the time around the holidays this year and Amazon says, hey,
Speaker 1: in order to actually get these products to you by
Speaker 1: the time that you expect you need to order them
Speaker 1: by this date, or is it is it something that's
Speaker 1: that's more severe than that, that that you're actually not
Speaker 1: able to find what you're looking for on Amazon and
Speaker 1: it's not able to get to you. Well, let me
Speaker 1: be clear, Amazon always puts the customer first, So I
Speaker 1: don't think we're going to see customers being told that
Speaker 1: you can't have this, or you you can have it,
Speaker 1: but you're gonna wait much longer than usual. I think instead,
Speaker 1: what we're going to see is companies that sell products
Speaker 1: that aren't necessarily the absolute top selling items, they're going
Speaker 1: to find it very difficult to get their products into
Speaker 1: the Amazon warehouses. So consumers are likely going to be
Speaker 1: moving to a model where you can have the best
Speaker 1: selling product, but you can't have the fifth best selling
Speaker 1: product or that that's best selling product. And you know
Speaker 1: Amazon's all about choice. I want to be able to
Speaker 1: go there to find everything I want. If I can't
Speaker 1: find the purple pokadad version I need, where do I go? Well,
Speaker 1: I don't know where to go after after looking at Amazon.
Speaker 1: So that's that's one major trend I'm looking at and
Speaker 1: I'm anticipating based on some of the stuff we're already
Speaker 1: seeing with our first party and third party clients. Uh,
Speaker 1: there are issues on the horizon at a time when
Speaker 1: there's so much uncertainty and we're not necessarily hearing guidance
Speaker 1: from every company out there that's reporting earnings. This quarter,
Speaker 1: the company is saying that it's going to see net
Speaker 1: sales from a hundred ten billion dollars to a hundred
Speaker 1: and sixteen billion dollars, handily beating estimates that we're at
Speaker 1: a hundred and eight point three five billion. This gets
Speaker 1: to that central question of what life looks like on
Speaker 1: the other side of the pandemic. It's something that Pinterest
Speaker 1: talked about earlier this week. It's something that Twitter made
Speaker 1: reference to in its own earnings that just came out
Speaker 1: to what extent people continue to use the products they
Speaker 1: used during the pandemic. Is Amazon to you in a
Speaker 1: different position than other companies because it's p kind of
Speaker 1: have been known to keep their habits when they when
Speaker 1: they start to use Amazon products and services. I start
Speaker 1: again with the customer, and I asked myself this question.
Speaker 1: If I'm a customer and during the pandemic. All those
Speaker 1: retailers I went to before the COVID started, I wasn't
Speaker 1: interacting with those retailers. And by the way, a lot
Speaker 1: of brands who are exclusively reliant on retailers to tell
Speaker 1: their story to consumers, a lot of those brands were
Speaker 1: hurt because the retailers weren't open or the retailers didn't
Speaker 1: have well established e commerce in place for COVID. So
Speaker 1: I then look at the alternative. I go to Amazon.
Speaker 1: Guess what, I can find what I want on Amazon
Speaker 1: and Amazon can market specifically to me and my needs
Speaker 1: as a consumer. If I know that I can go
Speaker 1: somewhere and Amazon is going to be looking out for
Speaker 1: me and suggesting products that actually are relevant to me,
Speaker 1: I can engage with the brand the brands that I
Speaker 1: want on Amazon. That's pretty enticing when every other retailer
Speaker 1: has struggled to be able to con tinue that discussion
Speaker 1: with consumers during COVID. So the longer the short is,
Speaker 1: I expect Amazon is going to continue to do very
Speaker 1: well post COVID because consumers who either did or didn't
Speaker 1: have Amazon experienced pre COVID, They're going to say, you
Speaker 1: know what this experience is a whole lot more robust
Speaker 1: than anything I can get with my local retailer. Yeah.
Speaker 1: I like to go in and try stuff out, but
Speaker 1: the reality is they always have my color, my size,
Speaker 1: and they certainly aren't as good at making recommendations to
Speaker 1: me as Amazon is. I'm wondering about other highlights from
Speaker 1: the earnings report. Um, and I know you didn't necessarily
Speaker 1: work on this when you were at Amazon, but Amazon
Speaker 1: Web Services has certainly turned into an incredibly important part
Speaker 1: of the company's business. I mean, essentially, starting out as
Speaker 1: an experiment at the company, they invented a category there. Um.
Speaker 1: Amazon Web Services revenue for the first quarter beat estimates.
Speaker 1: It was thirteen point five billion dollars. Estimates were at
Speaker 1: thirteen point nine billion dollars. Um. What is that telling
Speaker 1: you about how Amazon is still able to eat those
Speaker 1: estimates even though we're seeing increased competition from Microsoft and
Speaker 1: earlier this week hearing from Google as well. Well. I'm
Speaker 1: definitely not an a AWS expert by any means. One
Speaker 1: of the key things to keep in mind here is
Speaker 1: that as more and more companies realize that they need
Speaker 1: to have an e commerce presence, even if they're not
Speaker 1: selling on Amazon. They need to have the backbones, they
Speaker 1: need to have the systems in place that allow them
Speaker 1: to become e commerce relevant. And AWS helps brands to
Speaker 1: become more efficient, helps them to host different types of
Speaker 1: capabilities for consumers or customers. So Amazon is going to
Speaker 1: continue to grow the whole process of how do they
Speaker 1: communicate expectations and how do they manage that? You know,
Speaker 1: that's an art that every company needs to figure out. Um,
Speaker 1: we will continue to see more and more demand for AWS.
Speaker 1: Now I think back to my time at Amazon. One
Speaker 1: of the most impressive things about AWS was that they
Speaker 1: are aggressively going out of their way to lower prices
Speaker 1: as often as possible. That's an amazing model to have
Speaker 1: to be in a position where you're trying to lower
Speaker 1: the cost every consumer in this case business customer. Uh
Speaker 1: And that's a model that not necessarily every other cloud
Speaker 1: service company has been able to keep up with. You've
Speaker 1: got this huge competitor called Amazon. They're aggressively lowering prices regularly,
Speaker 1: and you're trying to grow to beat them, and you're
Speaker 1: faced with a lower cost competitor every month. It's an
Speaker 1: interesting model. So at the end of the day, AWS
Speaker 1: will continue to grow and it continue to be a
Speaker 1: big cash cow that helps to fund other parts of
Speaker 1: the business um and even if they start to slow
Speaker 1: down at some point, they are learning so much from
Speaker 1: different types of customers about how to offer better services
Speaker 1: to the next customer that needs an AWS capabilities. Amazon's
Speaker 1: Amazon is going to be a major player for decades
Speaker 1: to come in this space, James, I want to go
Speaker 1: back to something that you talked about earlier and the
Speaker 1: challenges that you potentially see Amazon having was specifically with
Speaker 1: the Fulfilled by Amazon program later this year. It splain
Speaker 1: what exactly it is and and because I don't think
Speaker 1: consumers necessarily know that when they're ordering something on Amazon,
Speaker 1: even though it does say, and some consumers do look
Speaker 1: where it's coming from, it's not necessarily coming from Amazon.
Speaker 1: Many many, many three or third party sellers. Rather than
Speaker 1: fulfilling the orders themselves, they will ship products in bulk
Speaker 1: into Amazon's warehouses, and Amazon will actually do the order
Speaker 1: fulfillment when the customer places the order. So when you
Speaker 1: buy that product from a third party seller on Amazon
Speaker 1: and you magically get an Amazon branded box, that's because
Speaker 1: the box actually came from an Amazon facility Amazon basically
Speaker 1: serves as the warehouse and storage and order fulfillment service
Speaker 1: for that third party seller. Well, there's only so much
Speaker 1: facility space to put third party seller inventory. While Amazon
Speaker 1: can scale up the number of orders they fulfilled, especially
Speaker 1: in Q four, um, there is a physical limit to
Speaker 1: how much inventory can be in a warehouse at any
Speaker 1: given point. During my time at Amazon, we were regularly
Speaker 1: had to deal with situations where in Q four whatever
Speaker 1: warehouses were available were cloaks to capacity. Fast forward a
Speaker 1: decade and now there's that many more facilities, but there's
Speaker 1: that many more consumers that want products that are magically
Speaker 1: delivered to them within one day or two days. That
Speaker 1: requires Amazon to have this huge network of fulfillment centers,
Speaker 1: but also Amazon to have what they now do, They
Speaker 1: own the last mile delivery for somewhere north of of
Speaker 1: all orders that are prime eligible here in the US. UM.
Speaker 1: That's just a massive investment of capital. It's not a
Speaker 1: it's not an exciting investment, but the reality is it
Speaker 1: creates a huge moat an advantage for Amazon relative to
Speaker 1: every other retailer and brand out there. So um, good
Speaker 1: good good times. As a consumer, won't want you to
Speaker 1: get stuff deliver to you fast, but it's hard for
Speaker 1: Amazon to to make make that promise happen without continuing
Speaker 1: to scale its business. Good times for shareholders as well.
Speaker 1: James tom In, thanks so much for joining us. James
Speaker 1: Thompson's a partner at buy Box Experts, our former business
Speaker 1: head of Amazon Services, joins us on the phone from Seattle. Well,
Speaker 1: we are making our way through Twitter earnings. The company
Speaker 1: reported earnings per share and revenue just topping estimates, but
Speaker 1: shares are sinking after lackluster sales and user outlooks. Joining
Speaker 1: us now with more is Kurt Wagner, technology reporter who
Speaker 1: covers Twitter for Bloomberg News, joining us on the phone
Speaker 1: from San Francisco. Kurt uh, It's sort of seems like
Speaker 1: there is a kind of like tale of two social
Speaker 1: media and advertising supported companies here, right, there are the
Speaker 1: facebooks and and and alphabets, right, and then there are
Speaker 1: the Twitters and Pinterests. What's going on with Twitter? Well,
Speaker 1: I think the biggest issue here is that Twitter has
Speaker 1: always been what's called a brand advertiser. You know, they
Speaker 1: get the big brands. You're familiar with, the same people
Speaker 1: who are spending money on television, who like to be
Speaker 1: involved with, you know, big events like the scurs of
Speaker 1: the Olympics, but they're not very strong when it comes
Speaker 1: to what has become the bulk of online advertising, which
Speaker 1: is this direct response advertiser, right the small retailer who's
Speaker 1: trying to target you very specifically to get you to,
Speaker 1: you know, buy something. And so what we've seen over
Speaker 1: the last year is that that direct response has really
Speaker 1: blown up. We've seen Google and Facebook really capitalized as
Speaker 1: all these businesses have gone online. And Twitter meanwhile, is
Speaker 1: still kind of doing the same old brand stuff that
Speaker 1: it's been doing historically, and I just don't think that
Speaker 1: it's really reaping the same benefits that some of those
Speaker 1: bigger companies are. Well. Shares down down more than nine
Speaker 1: point six in the after hours. Is this all about guidance?
Speaker 1: I think of guidance is a big part of it. Um.
Speaker 1: You know, we saw that the numbers came in almost
Speaker 1: exactly where everyone expected they would. Um, But for next
Speaker 1: quarter they've said that, uh, they gave a revenue range
Speaker 1: and the estimates are on the high end of that range.
Speaker 1: In other words, that means Twitter has to basically hit
Speaker 1: the very high end of of what it's giving people
Speaker 1: in order to meet the expectations. So I do think
Speaker 1: there's a little bit of disappointment there and that you
Speaker 1: know what we saw again, Facebook and Google really come
Speaker 1: out and say, hey, not only was cute one strong,
Speaker 1: but we're expecting a good Q two as well. There's
Speaker 1: a really good chance that Twitter might under deliver here, Kart,
Speaker 1: I want to go back to what you said about
Speaker 1: direct responsive. I'm me thinking about what I see in
Speaker 1: my own Twitter timeline when it comes to ads and
Speaker 1: and look full disclosure here, I spent way too much
Speaker 1: time on Twitter, more time on Twitter than pretty much
Speaker 1: any other app. One thing I noticed this week is like,
Speaker 1: even until yesterday, I was still getting ads on the
Speaker 1: mobile app for the Oscars, something that ended on Sunday.
Speaker 1: And I'm thinking to myself, even before these earnings, I'm
Speaker 1: thinking to myself, why is how is Twitter to the
Speaker 1: point in not not smart enough? And I mean when
Speaker 1: I say Twitter, I mean the app, Like, how is
Speaker 1: the app not smart enough to show me something that's
Speaker 1: more relevant? Well, it's really funny that you say that,
Speaker 1: because I had that experienced a few weeks ago. I
Speaker 1: started seeing ads promoting a baseball game that was over
Speaker 1: h and had been over for a couple of days,
Speaker 1: and I was, you know, similarly disappointed, right, like, who's
Speaker 1: paying to promote a live event to me that is
Speaker 1: no longer live, not only not live now, but has
Speaker 1: happened days ago. And I don't have a good answer
Speaker 1: for why that's the case, other than that, you know,
Speaker 1: advertisers should be maybe paying closer attention to the timelines
Speaker 1: of their campaigns. But you would think Twitter as well
Speaker 1: would not want to show that kind of an ad right,
Speaker 1: It's not very relevant, it's not helpful, certainly to you
Speaker 1: or me. And so I think that that's, you know,
Speaker 1: an example of the kind of thing that they could
Speaker 1: certainly do a better job of. What about when it
Speaker 1: comes to Twitter's product, because you and I've talked a
Speaker 1: lot about this over the last few months, that Twitter
Speaker 1: Investor Day and the way that the company h really
Speaker 1: changed the way that investors were thinking up until then,
Speaker 1: at least year to date, about the company's ambitions and
Speaker 1: the company's ideas for the product. That Twitter is a
Speaker 1: unique product and that it hasn't changed significantly apart from
Speaker 1: the number of characters that you can really type out
Speaker 1: on a tweet since the company was started more than
Speaker 1: a decade ago. Um, what do we learned in the
Speaker 1: earning about the company's thoughts on product Well, that could
Speaker 1: also be I would think um construed as a disappointing
Speaker 1: thing about this earnings report is that there's really not
Speaker 1: much new in here at all. Um. You know, we
Speaker 1: talked about subscriptions as being something that Twitter is looking into.
Speaker 1: There's no updates on subscriptions and their shareholder letter obviously
Speaker 1: Twitter spaces their audio chat room. This is the clubhouse
Speaker 1: competitor right now. Yeah, it's a clubhouse competitor. It's it's UM.
Speaker 1: I think it's actually better position just because there's so
Speaker 1: many people on Twitter will already have a following, UM
Speaker 1: that you know, for someone like me, it works better
Speaker 1: than clubhouse because I don't have to start from scratch.
Speaker 1: But again, no update in the shareholder letter about spaces either,
Speaker 1: And so I just think, like the kinds of things
Speaker 1: that might get someone excited about the future of Twitter,
Speaker 1: we're not really mentioned in this letter. And then you
Speaker 1: couple that with the fact that you know they're they're
Speaker 1: kind of announcing some lackluster projections for next quarter. I
Speaker 1: think that's maybe a combination of what we're seeing here.
Speaker 1: In fifteen seconds, what are you gonna be listening for
Speaker 1: on the earnings call? I am going to be listening
Speaker 1: for some of those product updates. I want to know,
Speaker 1: you know, how spaces is going. Are they getting interested
Speaker 1: in more M and A? And then you know, are
Speaker 1: they getting ready for a newsletter? Subscription? Businesses are all
Speaker 1: new lines of revenue that they could have, and I
Speaker 1: think that would be interesting given their their situation with
Speaker 1: ads right now. Kurt, I know you are swamped. Thank
Speaker 1: you so much for taking the time stepping away from
Speaker 1: crunching those numbers. I really appreciate it. Thanks for joining
Speaker 1: us at Kurt Wagner, technology reporter at Bloomberg News, joining
Speaker 1: us on the phone from San Francisco,