Amazon's Blowout Holiday Season

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On this episode of Industry Focus: Technology, Dylan Lewis is joined by Fool.com contributor Danny Vena to discuss Amazon.com's (NASDAQ: AMZN) holiday press release and some data analytics that point to an impressive share of e-commerce sales for 2017.

A full transcript follows the video.

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This video was recorded on Jan. 12, 2018.

Dylan Lewis: We're going to take a look at some of the data from their holiday quarter on the show, and also some general industry data that we've seen from e-commerce. We're going to take a look at what that means for Amazon (generally good things -- it's hard for Amazon to put up bad e-commerce numbers), and we're also going to take a look at what some of these comments and data from Amazon might mean for other players in the retail space.

First off, Danny, why don't we talk about some info that we got from analytics provider One Click Retail? This is broad-scope e-commerce data that we got.

Danny Vena: One Click Retail passed along some information about Amazon's holiday quarter. We don't necessarily know exactly how that quarter turned out. But basically, the information they provided said that Amazon captured somewhere in the neighborhood of 4% of all retail sales in the country for 2017, and 44% of all e-commerce sales, which is monstrous.

Lewis: That number is staggering to me. There are a couple of different things I think are worth noting there. 44% of e-commerce sales is crazy. You look at what that translates to on the overall retail footprint. We've talked plenty of times on the show about the idea that e-commerce as a percentage of retail is still relatively small. I think it's just around 10%-11%. We think of e-commerce as this thing that has happened already, but we're still well in the growth ramp of e-commerce.

Vena: Absolutely. And the 10%-11% number that you cite includes things that people are not going to be able to buy on e-commerce, like fuel, for instance. If you back out some of those items, the number is actually quite a bit lower, it's like 8.3%-8.4%, for the most recent quarter. So really a long way to go.

Lewis: Some great data from industry experts here. We also got some really interesting stuff from Amazon. I think one of the things I really enjoy with this company is their post-holiday-rush press release. You get a pretty interesting picture of what happened with them on some specific product segments, and some general, broad-stroke data on what's going on with them as a company. Two big things really popped out in this press release. One of them is what's going on with Amazon devices, and the second one is what's going on with Prime memberships.

Vena: One of the things that we should point out going into this is, Amazon has always been really cagey about how many Prime members there are and how many devices they've sold. They tell you, "We sold this many more than the previous year," or, "Sales doubled over this time period," but they've never given a base number. So you don't really know how many devices they have sold.

Lewis: Yeah, it's kind of tricky. When you can't find an original number to work off of, you can't even back into a ballpark on roughly what the number is. I know a lot of folks in the industry have tried, and put out numbers as estimates for people to work off of. But it is a bit of a struggle. To your point about that, in the press release, they say, "Amazon devices ... had the best holiday yet, with tens of millions of Alexa-enabled devices sold worldwide." So we have "tens of millions" as a number, basically. That's what we're working with here.

Vena: And that could be 10 million, it could be 20 million, it could be 100 million. We just don't know.

Lewis: Yeah. Those are all factually accurate according to tens of millions. Other info we got -- the Echo Dot was the No. 1 selling Amazon device this holiday season, and I think importantly, the best-selling products from any manufacturer in any category across all of Amazon. That's pretty staggering.

Vena: It is. Three years ago, Prime Day started as their Christmas in July. And if you go back to the Prime Day they had this past July, they cited similar statistics, saying that Amazon products were among the best-selling for Prime members, and the Echo Dot was the best-selling device across all of the products across all categories.

Lewis: One other thing that really stuck out to me here is what we saw with Prime memberships. They said that in one week, more than 4 million people began Prime free trials are paid memberships. Of course, they don't parse out how much of that was free memberships and how much of that was paid memberships. Last I'd seen for a number, the company had somewhere in the ballpark of 90 million Prime members -- I don't know if that jives with what you remember, Danny. But that's huge growth within a week.

Vena: That's large growth. And you're right, the last number that I've seen anywhere, there are a number of different players out there who are trying to estimate just how many Prime members there are. Again, Amazon is really cagey with that number, they don't really tell us. But there's a company called Consumer Intelligence Research Partners, which puts out a press release every once in a while when they update what their estimates are, and most recently they said that Amazon Prime has approximately 90 million members. And it's not just the Prime memberships, because they get revenue from the Prime memberships, they get additional sales, but what's interesting to note is, when Consumer Intelligence Research Partners released their data, they also said that your average Prime member spends $1,300 annually, compared to $700 annually for non-Prime customers. That's almost twice as much. So Amazon has a vested interest in getting as many Prime members on the books as it possibly can.

Lewis: To tack on to that, I believe that same data also indicated that Echo users spend an average of $1,700 annually. So there's this hierarchy within Amazon customers of the relevant value of each customer type to the company.

Vena: Right. And that Echo number that you cited, I think that's the first time somebody has put out a number like that. Echo sales have been pretty high. Amazon has a two-and-a-half-year lead in the smart-speaker category. And one of the things they found, and I've seen several analysts have put out data on this as well, that says that people who own an Echo device of any sort tend to spend more on Amazon than people who don't. And this is the first time that anybody has tried to put a number to that.

Lewis: Yeah. And when you see that flow-down of $1,700 to $1,300 to $700, you can understand why they're pushing these devices so much, and why frankly, as an Amazon investor, I'm pretty thrilled that they're selling so well. Looking at the company, the e-commerce business, while it's what they're really known for, in a lot of ways, it's not what makes them most of their money. They basically have under 1% margins in North America, and they're actually losing money in their international e-commerce efforts. AWS, their Web infrastructure segment, is really what's driving profits for them and making them able to invest in all of these ventures. You think about the stickiness of an ecosystem and the value of Amazon as a platform, they continue to build that out with things like Prime and with Echo.

Vena: Prime and Echo, but like you said, right now, what's paying the bills is Amazon Web Services. The AWS cloud computing system accounted for not only all of their profitability in the last year, but it also subsidized losses in some of their other categories.

Lewis: It's nice to have a segment like that, that can cut checks for everything else that you're doing, huh?

Vena: Cash cow.

Lewis: One last thing that I want to hit on the Amazon-specific data before we turn things over to company stuff, and this is kind of a razz for you, Danny: The East Coast seemed to be in slightly better holiday spirits this season. Folks bordering the Atlantic Ocean asked Alexa to play holiday music 2.5 as many times than people on the west coast. What's going on over there, Danny? You're in San Diego. You couldn't get into the holiday spirit?

Vena: You know, I think the holiday spirit is a little bit different here. People tend to spend more time outdoors. It's pretty chilly out here, the weather got down in the 50s last night for folks in San Diego. Even during the daytime, it gets sunny, you go outside and walk on the beach, you're not necessarily thinking about playing Christmas music.

Lewis: More of a Mele Kalikimaka Christmas than a White Christmas.

Vena: And if you're familiar with the second half of that, which is appropriate to now, it's "hau'oli makahiki hou," which is "happy new year."

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Danny Vena owns shares of Amazon. Dylan Lewis owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.