This figure has exploded from $1B in 2015 to a current annual run rate of ~$32B.
For decades, Jeff Bezos shunned ads.
But now, Amazon’s ad business is huge: it’s on a $30B+ annual run rate (more than 2x the combined sales of Twitter, Snap and Pinterest).
Here’s how it happened 🧵
This figure has exploded from $1B in 2015 to a current annual run rate of ~$32B.
But the business is so lucrative that Amazon’s interface has been swamped with ads:
◻️ First 3-7 search results (left in red)
◻️ Most of the product page (right in blue)
The approach was codified in a famed 2003 research paper: “Amazon Recommendations: Item-to-Item Collaborative Filtering.”
◻️"Customers who bought this also bought this"
◻️"Customers who viewed also viewed"
Have been replaced w/ ads:
◻️ "Sponsored products related to"
◻️ "Brands related to this category"
(Of course, increasing the goods in someone's basket is worthwhile for Amazon)
While Bezos didn’t like ads, he tapped Paul Kotas (who worked w/ him at DE Shaw) to run experiments on AMZN's valuable digital real estate.
The 1st project was banner ads. But it directed users off the platform and the idea was canned.
Amazon was dependent on Google search slots to drive traffic. The company even created a “Google Reliance” metric to track this dependence…which could potentially be existential.
However, Amazon owns the last foot of the transaction funnel: the purchase.
And, today, 60%+ of product searches actually start on Amazon.
To stand out, sellers are wiling to pay for sponsored placements (just like brands buying grocery store shelf space)
◻️ sponsored products (search)
◻️ sponsored brand
◻️ sponsored display ads
◻️ sponsored posts
◻️ sponsored videos
Ads have grown so much that -- in 2018 -- it passed MSFT to become the 3rd biggest digital advertiser after FB and GOOGL.
The avg. cost per click (CPC) on Amazon Ads is climbing. And it's not uncommon for merchants (~5m on Amazon) to spend up to 50% of a product on listing fees and ads.
A number of companies are raising big money to "roll up" Amazon merchants:
◻️ Thrasio ($3.4B raised)
◻️ Perch ($909m)
◻️ Heyday($800m)
◻️ Razor Group ($560m)
◻️Elevate Brands ($373m)
Using Google's 68% margin for its core business as a comp, Benedict Evans writes:
"Given [Amazon Ads] margin structure and incremental cost base, it's highly likely to be generating similar absolute profits to AWS." 🤯
Def follow @TrungTPhan to catch them in your feed.
Here's a one that might tickle your fancy: https://t.co/B3SWUCF2cd
ASML is the most important company you've never heard of.
— Trung Phan \U0001f1e8\U0001f1e6 (@TrungTPhan) August 22, 2021
The $300B+ Dutch firm makes the machines that make semiconductors. Each one costs $150m and access to them are a huge geopolitical flashpoint.
Here's a breakdown \U0001f9f5 pic.twitter.com/pARj3x7Kwo
https://t.co/jGZs8brnVR
BI: https://t.co/jlQcktIFEi
The Information: https://t.co/fKOEJAFEwv
CNBC: https://t.co/HBtXX54cjP
Inc: https://t.co/BzHCfFTvHN
Marketplace Pulse: https://t.co/oDFsn3GVG3
More from Trung Phan 🇨🇦
The Wall Street Bets due diligence on Wendy’s is gold.
The catalysts are:
◻️ The release of a new summer salad
◻️ The @Wendys Twitter account, which has mastered “meta pragmatic roasting” (which is effective with younger people)
◻️ The fact it literally sells chicken tendies
OP:
Here’s a more fundamentals-driven analysis of Wendy’s
https://t.co/A2k19S9M7J
😂😂😂
Further Wendy’s analysis from @CliffordAsness !!
The catalysts are:
◻️ The release of a new summer salad
◻️ The @Wendys Twitter account, which has mastered “meta pragmatic roasting” (which is effective with younger people)
◻️ The fact it literally sells chicken tendies
OP:
Here’s a more fundamentals-driven analysis of Wendy’s
https://t.co/A2k19S9M7J
😂😂😂
\u201cThe name of the company is Wendy\u2019s International $WEN. It is a cutting edge high tech firm out of rural Ohio that is awaiting imminent patent approval on the next generation of summer salads that have both huge military and civilian applications.\u201d pic.twitter.com/qmk4hkKL3N
— u/1ronyman (@1ronyman1) June 8, 2021
Further Wendy’s analysis from @CliffordAsness !!
More from Tech
The 12 most important pieces of information and concepts I wish I knew about equity, as a software engineer.
A thread.
1. Equity is something Big Tech and high-growth companies award to software engineers at all levels. The more senior you are, the bigger the ratio can be:
2. Vesting, cliffs, refreshers, and sign-on clawbacks.
If you get awarded equity, you'll want to understand vesting and cliffs. A 1-year cliff is pretty common in most places that award equity.
Read more in this blog post I wrote: https://t.co/WxQ9pQh2mY
3. Stock options / ESOPs.
The most common form of equity compensation at early-stage startups that are high-growth.
And there are *so* many pitfalls you'll want to be aware of. You need to do your research on this: I can't do justice in a tweet.
https://t.co/cudLn3ngqi
4. RSUs (Restricted Stock Units)
A common form of equity compensation for publicly traded companies and Big Tech. One of the easier types of equity to understand: https://t.co/a5xU1H9IHP
5. Double-trigger RSUs. Typically RSUs for pre-IPO companies. I got these at Uber.
6. ESPP: a (typically) amazing employee perk at publicly traded companies. There's always risk, but this plan can typically offer good upsides.
7. Phantom shares. An interesting setup similar to RSUs... but you don't own stocks. Not frequent, but e.g. Adyen goes with this plan.
A thread.
1. Equity is something Big Tech and high-growth companies award to software engineers at all levels. The more senior you are, the bigger the ratio can be:
2. Vesting, cliffs, refreshers, and sign-on clawbacks.
If you get awarded equity, you'll want to understand vesting and cliffs. A 1-year cliff is pretty common in most places that award equity.
Read more in this blog post I wrote: https://t.co/WxQ9pQh2mY
3. Stock options / ESOPs.
The most common form of equity compensation at early-stage startups that are high-growth.
And there are *so* many pitfalls you'll want to be aware of. You need to do your research on this: I can't do justice in a tweet.
https://t.co/cudLn3ngqi
4. RSUs (Restricted Stock Units)
A common form of equity compensation for publicly traded companies and Big Tech. One of the easier types of equity to understand: https://t.co/a5xU1H9IHP
5. Double-trigger RSUs. Typically RSUs for pre-IPO companies. I got these at Uber.
6. ESPP: a (typically) amazing employee perk at publicly traded companies. There's always risk, but this plan can typically offer good upsides.
7. Phantom shares. An interesting setup similar to RSUs... but you don't own stocks. Not frequent, but e.g. Adyen goes with this plan.
Ok, I’ve told this story a few times, but maybe never here. Here we go. 🧵👇
I was about 6. I was in the car with my mother. We were driving a few hours from home to go to Orlando. My parents were letting me audition for a tv show. It would end up being my first job. I was very excited. But, in the meantime we drove and listened to Rush’s show.
There was some sort of trivia question they posed to the audience. I don’t remember what the riddle was, but I remember I knew the answer right away. It was phrased in this way that was somehow just simpler to see from a kid’s perspective. The answer was CAROUSEL. I was elated.
My mother was THRILLED. She insisted that we call Into the show using her “for emergencies only” giant cell phone. It was this phone:
I called in. The phone rang for a while, but someone answered. It was an impatient-sounding dude. The screener. I said I had the trivia answer. He wasn’t charmed, I could hear him rolling his eyes. He asked me what it was. I told him. “Please hold.”
Wish I had the audio of Rush Limbaugh telling me off on the phone on his show when I was six. In the meantime, RIP.
— Shannon Woodward (@shannonwoodward) February 17, 2021
I was about 6. I was in the car with my mother. We were driving a few hours from home to go to Orlando. My parents were letting me audition for a tv show. It would end up being my first job. I was very excited. But, in the meantime we drove and listened to Rush’s show.
There was some sort of trivia question they posed to the audience. I don’t remember what the riddle was, but I remember I knew the answer right away. It was phrased in this way that was somehow just simpler to see from a kid’s perspective. The answer was CAROUSEL. I was elated.
My mother was THRILLED. She insisted that we call Into the show using her “for emergencies only” giant cell phone. It was this phone:
I called in. The phone rang for a while, but someone answered. It was an impatient-sounding dude. The screener. I said I had the trivia answer. He wasn’t charmed, I could hear him rolling his eyes. He asked me what it was. I told him. “Please hold.”
