eCommerce media in times of COVID-19
Earning season is here and it’s time to see how the big online retailers are doing (and specifically their eCommerce media). From the reports and the transcripts of the earning calls we can learn a lot on Q1 but also on Q2 and the effect of COVID-19 on the eCommerce media space.
Here are some insights from the companies that have already published their Q1 reports.
p.s. If you want to know what we know about the changes in April scroll all the way down.
“Amazon’s Ad Business Proved a Highlight Amid Wider Q1 Earnings Miss” (Adweek)
Amazon advertising business was again the fastest growing business of the company, climbing 44% YOY to $3.906 billion in revenue. That’s almost 11% of the GMV of Amazon online sales.
When asked about the advertising revenue in Q1 and Q2 here is what Dave Fildes, Director IR, had to say:
“On advertising what we’ve seen is it’s been a very strong quarter in ad revenue… advertising growth rate has stayed consistent with last quarter. And we’re very happy with the progression of that that offering for not only sellers, authors, vendors and positive impact it’s had on customer selection… ”
As for Q2 and the Corona virus effect here is what he said: “We did start to see some impact. Yes. In March, some pullback from advertisers and some downward pressure on price, but advertising continues to advertise at a high cliff. It wasn’t as noticeable maybe as with what some others are seeing, and it’s probably offset a bit by the continued strong traffic we have to the site. So it’s a bit of a mixed bag. We have again, as I said, downward pressure a bit on pricing.
But I think we have a the large portion of our advertising relates to Amazon sales, not things like travel and auto which offsite which may have been disproportionately impacted at least early on here in the COVID crisis. And I think our advertising will prove to be very efficient as well. And it can be directly measured. So even as people are cutting back perhaps on advertising, or are their costs, I think this will be one area that will prove its value. It has in the past.”
In other wards while Google and Facebook and other online publishers suffer from massive advertising decrease in some categories such as travel and cars, Amazon, and most likely also other eCommerce sites that are not focused on these verticals, are less affected.
eBay Promoted listings continue to perform well.
In their Q1 2020 earning call last week eBay SVP Finance and CFO Scott Schenkel said: “Advertising continues to drive revenue growth and had a strong start to the year. In Q1, Promoted Listings delivered $137 million of revenue, up 111%. Nearly 1.2 million sellers promoted more than 310 million listings in the quarter. Sellers continue to adopt Promoted Listings to drive conversion while buyers are seeing a better eBay experience with fewer third-party ads.
Although third-party ad revenue continues to decline, our overall advertising revenues grew more than 25% for the quarter. In Q1, we raised performance standards for all sellers which modestly reduced the number of Promoted Listings, but yielded improved conversion. We remain on track with our plan to deliver $800 million in total ad revenue this year on our way to building $1 billion advertising business in the next couple of years.”
2 interesting takeaways:
(1) More than 1 million sellers ran promoted listings ads. That means that there is an important and significant long tail of sellers/advertisers that shouldn’t be ignored and when given the opportunity they jump on the advertising bandwagon.
To enjoy that stream of long tail ad revenue you must have a scalable self-service Sponsored Product Ads platform.
(2) eBay raised performance standards for all sellers which modestly reduced the number of Promoted Listings, but yielded improved conversion.
When offering Sponsored Product Ads there is often a dilemma of fill rate vs. relevancy (and conversion rate).
It’s easy to reach 100% ads fill rate if you don’t mind the CTR and conversion rate by serving ads that are less relevant but by doing that you hurt the shopper experience.
If you can reach better CTR and conversion rates by offering less ads but more relevant then the fill rate will be smaller but the shopper experience will be better and also the revenue from the clicks.
“Here’s Why Etsy Stock Skyrocketed 69% in April” (fool.com)
Etsy did extremely well in Q1 in terms of GMV and Promoted Listings (now called Etsy Ads).
The increase in Etsy’s service revenue (which mostly consists on Etsy ads) is 3X higher than the increase in the marketplace revenue (71% increase vs 22.6% yoy) and this channel is already responsible to more than 30% of the company’s revenue.
Few months ago they changed the advertising model for their sellers and separated onsite and offsite ads (read here).
Here are some things they said in the earning call about Etsy Ads: “And last but not least, I certainly want to mention the successful launch of Offsite Ads. It launched in the first quarter and we feel great about how it’s going so far. And of course, Etsy Ads, which is formally known as promoted listings is also are continuing to perform very, very well.”
“I want to emphasize that we think Etsy Ads is doing great. It’s not a great trajectory, but again if visits is growing slightly slower than overall GMS, then we may see Etsy Ads grow a little slower than GMS in the second quarter in particular.”
“Offsite Ads is off to a great start, we’re with the launch. By the way, we think the team did a really nice job getting that product launched and just to take a second on Offsite Ads too… And on Etsy Ads, what used to be called promoted listings, we continue to see that be a very popular product. And so our sellers like it, they’re investing in it and it delivers really good value for them. So we’re also pleased with what we’re seeing on Etsy Ads.”
“Etsy Marketplace: April was Extraordinary”
As for Q2 and COVID 19 Etsy disclosed stats from April showing huge jump in traffic and sales.
Etsy sold over 12M face masks in April generating $133M in GMS which represent 17% of Etsy marketplace GMS.
If face masks were a category it would have been the second largest in April.
Non-Mask Sales also increased by 79% Y/Y,
The increase was in various categories such as home decor, craft supplies and gifts.
Etsy Ads are expected to show a nice increase as well although for a couple of weeks they removed ads from the mask category.
“in the first part of April, when we are seeing the surge in mask sales, we took the Etsy Ads formerly known as promoted listings off of the mask listing pages, it’s now back on but for a portion of the month of April, there were no promoted listed there.”
One other note about Etsy off site ads – These ads enable Etsy to get the sellers participate and pay for getting more traffic to the site and by that decrease the spend of Etsy.
“In Q1, we tested our PLA channel, which has been excluded from the incrementality testing we did in 2019. This had the effect of reducing our performance marketing spend in the quarter. Q1 marketing expense was $49 million or 21% of revenue, which was flat compared to Q1 2019. Of that, performance marketing from the Etsy Marketplace was $26 million and delivered 16% of overall GMS.”
Overstock, One of the leading online home furnishing eCommerce site, has been running it’s own Sponsored Product ad platform for a while.
In their earning call last week, Adrianne Lee, Overstock CFO, endorsed their Sponsored Products business sayings that: “Our first quarter gross profit came in at $74 million with a margin of 21.9%, a 200 basis point improvement year-over-year. This increase is the result of focused initiatives that lowered shipping and returns cost and drove higher volume through our sponsored products platform“.
Wayfair is another leading American e-commerce website that sells furniture and home-good that also presented very strong results in Q1.
Their relatively new Sponsored Product ads offering was mentioned among the reasons for the increase in revenue: “Third, we have invested heavily in our house brands in a few ways including red carpet merchandising and a growing base of unique products. Our house brands now represent more than 75% of our sales. These merchandising investments are allowing us to unlock incremental margin opportunity. And finally our supplier facing services starting with CastleGate and sponsored product listings are growing….
And then we added a fourth pillar, which is supplier services. So that’s CastleGate and Wayfair-sponsored products. And that’s early on but that’s on other very large one.”
The French Amazon competitor released Q1 results and also presented an increase in the Sponsored Products revenue: “Marketplace vendor value-added services revenues experienced a strong +88% growth, driven by Premium Packs and Marketing services solid performances.”
About Mabaya and our insights on April results
Mabaya’s Sponsored Product Ads platform is a white label solution for marketplaces and online retailers who want to run their own ecommerce media and enable their sellers and brand partners to promote their products within the store. The company has vast experience in the ecommerce media space, serving billions of Sponsored Product Ads for major ecommerce sites.
During April we served +20% ads than in the previous month. Some stores had more than X2 impressions.
The clicks were also higher in more than 20% (in avg).
More interesting is that the conversions on April were X1.5 higher than on March (and the conversion rate was also much higher than usual), the CPC was more than 30% higher and the spending on ads doubled itself.
If you want to boost your eCommerce media business give us a call.
Coming soon… Walmart, Jumia etc.