Sent Items #170: Monday, November 18, 2024

Getting right into it because there’s a lot to talk about.

Two big stories on my mind:

(1) Shopify continues to KILL IT!

Quarterly earnings out last week and the company seems to be performing the best in its history. It’s a bright signal that e-commerce continues to grow leaps and bounds. Shopify’s revenue is growing faster than GMV - and best of all, this isn’t even their Q4 holiday sales quarter!

If you've been in e-commerce over the last 10 years, investing in Shopify has been the biggest no-brainer stock pick (Disclosure: I'm 🇨🇦 😆 ). Heck, a 6300% return since it IPO'd in 2015. If you invested $1,000 in 2015, you would now have $63,000. Pretty good return!

Last quarter revenue grew 26% (6th consecutive quarter of >25% revenue growth). It did so with 19% free cash flow margins.

The company is growing tremendously at massive scale; it is profitable (Q3 net income was $828m of real profit, not fake fantasy obscured profit), and has lots of cash on its books.

(2) The second big story, of course, is tariffs. I am going to write more about this in the coming weeks, but my quick “hot take” is that I am increasingly feeling like Trump is not going to do anything dramatic. His sound bites are one thing, his actions have historically been very different 🤪 

As my friend Dylan Carden wrote in a William Blair research note, the seeming consensus is to take Trump at his word that he will seek to raise tariffs on Chinese goods to 60% (from 7.5%-25% now) and impose a blanket 10%-20% tariff across all other imported goods. As per the context of any new tariffs, there are a handful of things to consider. One, since 2018 the share of textile and apparel imports from China has been cut significantly, accounting for 22.5% of the total in 2023, down from 32.6% in 2018, while the more recent threat of incremental tariffs is likely to bring this number down further still.

I do believe that the new administration will propose and execute on change, but it will not be as dramatic, and as swift, as the pundits and media are making us fear.

But the issue is also so nuanced, as we all know. There are potentials for tariffs on imports (by ocean). There is potential for tariffs on individual parcels coming in from China (via air), as well as coming in from Mexico (by lande). Further, changes to tariffs and/or de minimis can impact all countries, or some, or some more than others.

I recently heard Scott Galloway mention that 88% of gifts under the tree are Made in China. I can’t imagine that raising tariffs to 60% on China would be too welcoming by U.S. consumers. Therefore, while it's necessary to plan, my $0.02 (well, $0.03, because, you know, inflation) is that unless you are operating on behalf of a large Chinese marketplace, you will probably be fine'ish continuing to operate "as is" for the foreseeable future.

FedEx and UPS locked in Price War to Lure Small Businesses (link)

• UPS and FedEx, which began offering discounts to larger customers last year, are now aggressively chasing smaller customers, giving them breaks that are typically reserved for large shippers. UPS said it offers discounts for parcels that travel longer distances or that originate in spots where the carrier is looking to boost productivity.

• The cost to ship a ground parcel declined 2.5% in the latest quarter, compared with the same period a year ago, because of higher discounts from carriers and because the packages shipped were a lower average weight.

• The shortened period between Black Friday and New Year’s Eve means carriers will have to scramble to ship more parcels daily during the peak season than last year. And because of the later Thanksgiving date, some retailers expect more consumers to shop in-store this year.

• Domestic average revenue per package was roughly flat at FedEx for the quarter ended Aug. 31, compared with a year earlier. The carrier’s domestic parcel volume was also flat. At UPS, average revenue per package in the latest quarter fell 2.2%, helping drive a 6.5% increase in parcel volume. UPS said it was pleased to win new customers.

Amazon reportedly working on Echo Frames for delivery drivers (link)

• Amazon is developing smart glasses for delivery drivers. The aim is to give drivers turn-by-turn directions, thereby shaving seconds off of each delivery.

• The project is part of Amazon’s efforts to increase efficiency in the last 100 yards of a delivery. Codenamed “Amelia”, the smart glasses are based off the existing Echo Frames platform. Unlike the current audio-only Frames they would have an embedded display that could give a driver more precise directions — for example, turning left or right after getting off an elevator.

• Amazon is also exploring camera capabilities using that embedded display, enabling drivers to take photos of packages as proof of delivery. Theoretically, doing all this would allow drivers to carry more packages because the glasses are hands-free, while all those saved seconds would allow drivers to squeeze in more home deliveries in a single shift.

• Amazon is reportedly having issues making glasses with a battery that can last a full eight-hour shift while also being light enough to wear all day. Another problem is many people already have corrective lenses, and thus far, consumer smart glasses haven’t always been capable of accommodating every prescription. It’ll also have to convince its entire fleet of drivers — many of which are third-party contractors — to adopt the technology. It could take years for Amazon to gather enough data on that last 100 yards (i.e., building layouts, sidewalks, streets, driveways, etc.) to make its vision a reality.

Amazon debuts discount store with everything under $20 to take on Temu and Shein (link)

• In the worst kept secret in retail, Amazon has officially launched their Temu/SHEIN/TikTok competitor named Amazon Haul. Shoppers can buy $1 eyelash curlers and oven gloves, or a $3 nail dryer.

• A few things:

• Prices: $1 - $20

• Shipping: Free unless basket is <$25 (then it’s $3.99)

• Returns: 15 day allowance unless <$3 retail in which there are no returns allowed

• Delivery: 1-2 weeks

• Brands: Only generic

• Product Offering: All major categories with no backing of branded FBA sellers

• Reviews: Not currently shown

• Interestingly, it’s only accessible through Amazon’s mobile app, not Amazon.com

As my friend Juozas Kaziukėnas just posted on LinkedIn:

FedEx’s CEO Is Charting His Own Path—in the Smith Family’s Shadow (link)

• This was a great read on the changing of the guard inside FedEx. Until recently, Fred Smith, Founder of FedEx had been their first and only CEO. But a little over 2 years ago, Raj Subramaniam (a FedEx “lifer”) stepped into the role. I have met Raj on several occasions - he is charismatic and kind. He was the regional President of Canada a couple decades back so we bonded over Tim Hortons and hockey. This article talks about Fred Smith’s reign over the company and how Raj is positioning himself, in a way, as the “anti-Fred”. Good read to understand the origins of FedEx and where the company is headed.

U.S. Postal Service Recommends New Competitive Prices for 2025 (link)

• It wouldn’t be the end of the year without announcements of shipping rate hikes! The USPS filed with the Postal Regulatory Commission (PRC) for Shipping Services price changes to take effect January 19, 2025. The proposed adjustments were approved by the Governors of the USPS. The change would raise Shipping Services prices approximately 3.2% for Priority Mail service and Priority Mail Express service, 3.9% for USPS Ground Advantage and 9.2% for Parcel Select. Although Mailing Services price increases are based on the consumer price index, Shipping Services prices are primarily adjusted according to market conditions.

• But there is some nuance to the numbers as e-commerce shippers who purchase shipping labels online often purchase through marketplaces (like Etsy, eBay or Shopify) and shipping services offer rates through USPS Connect eCommerce, which is the program that allows platforms and marketplaces to offer better discounted USPS shipping rates to their merchants.

• The USPS will not raise the rates of Mailing services (dominant rates) in January, as previously announced.

To close, as we head into the holiday season, a gentle reminder to tip your delivery carriers now. Don’t want until Christmas week. Giving them the cash now goes a long way.

Have a great week

- Matt

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