Jefferies Analyst Brent Thill breaks down his biggest takeaways from Amazon Prime Day 2020

Amazon said third-party sellers earned more than $3.5 billion during this year’s Prime Day. Brent Thill, Jefferies Analyst, joined The Final Round to discuss this and what this year's Prime Day signals for the company.

Video Transcript

JEN ROGERS: Well, welcome back to "The Final Round." Stocks still lower here, although the DOW is just about green. Amazon shares, though, are off again here today, off just 1.2%. Prime Day is finally over. How did they do? I want to bring in Brent Thill, Jefferies analyst. So Brent, first of all, did you buy anything?

BRENT THILL: I bought a lot. And I bought a lot of things that I probably should have never bought. So I think it's, you know, this classic thing. You go there for a few things. Then, all of a sudden, your cart's $400. So I think definitely there was a lot bought. But I think that trend's been ongoing. I don't think this was a one and done, right? The trend line is continuing towards their way.

JEN ROGERS: So I tried to stay away this year because I've spent a lot before. I didn't buy anything. I'm trying to spend my money in New York City. But what is success like? I don't even-- like, they always seem to do well. So what-- when you look at it, what do they need to do to make it a home run for you? And did they cross that?

BRENT THILL: We don't know enough details, to be honest. I mean, they said $3 and 1/2 billion, which you mentioned that's up 60%. So 60% growth is better than 40% last-- you know, last quarter and what they passed. The Street's looking for 30% total growth.

But at $3 and 1/2 billion, we have no idea because it's such a rounding error to the overall business. We're talking about a $90 billion quarter on a $3 and 1/2 billion third party number. That does include first party, and it doesn't include advertising. It doesn't include AWS, doesn't include anything else.

Overall, right, the trend line's phenomenal for what's happening with Amazon across both the retail business and the software business. And we're more excited, honestly, about the software business, which is every company in the planet is using AWS to power their business. That's recurring, it's high margin, and it's very visible.

And if this was spun off, which it's not, and they don't have any intention to spin it, it would trade at a astronomical multiple as an independent company. So we look at the sum of the parts. And we still think that AWS is one of the more exciting components. Yes, the retail business is doing great.

But I think, look, the consumption trends of how we act are changed. I think everyone, to your point of going back into stores, at some point, we're all tired of getting cardboard boxes. So I think there will be-- once we get a vaccine, I think that's going to be the biggest headwind to tech, both software and the commerce names, once we get an official vaccine. But for now, I think that trade is in, and these names are still longs until we get that. And that's probably not going to happen until 2021.

SEANA SMITH: So Brent, just to be clear, I mean, it sounds like you're saying that you don't think Amazon-- or the Prime Day really matters to Amazon then at all in the whole scheme of things. Because we talk about how important it is, and it sounds like a lot of people, at least, saying that scheme of things is not that important. But it does do a good job of getting people into the ecosystem, which, obviously, is something that Amazon wants to do and will then be profitable for them in the future.

BRENT THILL: Yeah, I mean, obviously driving Prime membership sales is key. We look at international penetration at less than 10%. So you have an incredible opportunity internationally, even in the US. You still have room that does drive that high margin recurring revenue and then keeps you on the ecosystem.

So we're not dismissing or trying to downplay the importance of Prime Day. What I'm just trying to do is put this in context of $3 and 1/2 billion on a $90 billion quarter. The trend lines had been going their way for quite some time. And so this is a mile marker that is a good one. But there are so many other great things around the story, great engines of growth, that keep powering this forward.

So, important, but not really relative in the grand scheme of things of everything that's going on, right? We are buying more online. The older demographic is coming to Amazon because they're the most at risk of going to a Target or Walmart and contracting the virus.

Every-- I've covered software for 25 years. Every major company we talk to is putting their backbone on AWS. And that is a decade long commitment. It's not a one or two-quarter, hey, did you buy an Echo Dot this quarter? It's this is a multi-year, and sometimes multi decade, commitment by these companies, which gives investors recurring visibility and high multiples.

We have software companies trading at 30 to 40 times revenue, Snowflake trading at 50 times revenue. If AWS was independent, again, I think you'd see a much higher stock if they even spun out AWS. And we're not saying they're going to, but we look at the sum of the parts and continue to get very excited about the overall business.

MELODY HAHM: Brent, how serious of a headwind is antitrust scrutiny here? Because we've talked about it. We have to talk about it. But when you think about even the concept of Prime Day, it's essentially a marketing arm, right, for a lot of the Amazon native products and even some internal brands that they've concocted to compete with third party sellers. Of course, this has been under scrutiny by lawmakers. As an analyst, how are you taking this seriously?

BRENT THILL: We take regulatory seriously, but the point to our clients is, don't worry about it. It's a sideshow. It's not the main act. And if you watch the Microsoft stock during their investigation, right, it was up over 900 plus percent during that. And it was a very long, drawn out process.

So there's going to be ongoing regulation. It's good. It's protecting all of us as consumers. Government's doing what is right. These big tech platforms are going to react and do the right thing for their consumers because they want it back.

So there is a middle ground. We think, again, it's a sideshow. Don't worry about it. And the reason why you don't worry about it is that everyone-- Facebook, Google, Amazon, Microsoft-- they're all under arrest. And there's not going to be one rule for one vendor. And so the point is, is everyone is under the same rulebook.

But there's really no rulebook right now, right? So I think the way that we look at it is from an investment perspective, anytime there's a regulatory headwind and it knocks these stocks down, you buy them. And it's paid off. Just look at the chart showing right now. Look at what happened with Microsoft in the '90s, in the 2000s period. It's an incredible, incredible buy.

So I think, right now-- you raise a really good point because here's the point. What did Amazon disclose today? They disclosed $3 and 1/2 billion from third party sellers. Third parties are small businesses, mom and pops, selling items.

They're showing the government we just generate $3 and 1/2 billion of value. And this is from you selling your-- whatever you're selling, right? It could be an electronic. It could be some type of gadget, a pair of sunglasses, right? I think they made a point to highlight this, that they're helping SMBs.

Same thing at Facebook, right? We've said this, that this boycott doesn't mean anything to Facebook because they're helping SMBs shut their front door and get online and sell and stay relevant. And so our belief is regulatory is going to be there, but it's not-- it's a sideshow. Don't sweat it as an investor.