Outlook: Amazon Investors Take Leap of Faith

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Before the market open on Thursday, Amazon (NASDAQ:AMZN) announced a record year for Marketplace Sellers. The company made many important disclosures about 2013, including: over one billion units were sold on Amazon by Marketplace Sellers, which now total over two million; these units were cumulatively worth “tens of billions of dollars”; the number of Marketplace Sellers using Fulfillment by Amazon (or, FBA) increased by over 65 percent year-over-year; the number of FBA units shipped grew by over 50 percent year-over-year during the holiday season; and the number of FBA units shipped in Q4:13 was more than the combined total for 2010 and 2009.

We believe Amazon earned billions of dollars from these Marketplace Sellers in 2013. Although the total amount earned by Amazon is unclear given a relative lack of detail, we believe the figure is at least $4 billion (roughly 5 percent of our total revenue estimate for 2013), although we think that the overall figure is likely much higher. We arrive at our $4 billion estimate using an average referral fee of 13 percent (referral fees range from 6 – 15 percent for the most part) on $20 billion of sales (totaling $2.6 billion), plus a $1.00 pick & pack fee per unit and a $0.42 weight handling fee per unit for each of the one billion items sold (totaling $1.4 billion).

If the company’s “tens of billions of dollars” comment means that overall Marketplace Sales were $30 billion, the revenue contribution to Amazon could be $6 billion. We note that our ‘pick & pack’ and weight handling fee assumptions are base case (as are our estimates for the other items except the referral fee), and will scale up as size and weight increase. There are also additional fees for certain items that we have not factored into our assumptions. For example, media items incur a variable closing fee that non-media items do not. Our revenue estimate also does not take into account any monthly subscription fees for professional sellers. We have included a Selling on Amazon Fee Schedule here: Selling on Amazon Fee Schedule.

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