Wake Up People! A Coffee Mocktail & a POV on $ADBE, $AMZN, $BIGC, $SAP, & $SHOP Q3 Results
Issue №18 - We have fallen back and it's cold outside, time for an espresso-based mocktail to wake up as we take a sober look at Q3 Results from Adobe, Amazon, Big Commerce, SAP, Shopify
It’s that time of the quarter when we sober up and look at results from large public players in our market - this week, Q3 results from Adobe, Amazon, Big Commerce, SAP, and Shopify. And since the days are short - and at least in Seattle, damp - we need some coffee to do this! So let’s mix up an espresso-based mocktail modeled off an Espresso Martini and get down to it!
I look forward to your comments and thoughts. Thanks for reading and I hope you enjoy! Cheers!
Mocktail: Wake Me Up! An Espresso-based mocktail modeled off the Espresso Martini
Well, once again it’s that time of year in the northern hemisphere when we need to replace the energy we get from the sun with… coffee. It is also not a bad time on the calendar to back off on the booze for a little pre-holiday reset - lord knows we will be drinking plenty soon. So let’s marry those two factors and feature an espresso-based mocktail - the appropriately named Wake Me Up!
This mocktail is pulled from the pages of Derek Brown’s collection of mocktail and low-ABV recipes, Mindful Mixology. It is an interesting choice of book title, as it reflects the fact that Brown wanted to approach his mixing and drinking more mindfully as he and his partner started a family - but not necessarily stop drinking alcohol all together. The book contians a good set of both low-ABV “shims” and non-alcoholic mocktails. (For more on Low-ABV, see C&C №6.)
I have written about my own evolution as a mixologist looking at mocktails before - and will not bore you with that again unless you want to dig in (see C&C Issues 4 & 13) - but suffice to say that what I also love about this book is that it wraps crafting of non-alcoholic drinks under the banner of mixology. There has been some debate over use of the name mocktails - or whether they are simply non-alcoholic drinks - but I lean on the side of ‘mocktail’. My feeling is that it gives the person you are serving a sense that there was thought and effort and craft put into the drink and that you are approaching serving them a drink with the same intention as you would a boozy cocktail - not simply offering them a soda or a mineral water.
Bring on the ‘80’s London vibes
Like many mocktails, this drink takes some inspiration from a cocktail. And since the Espresso Martini is having (another) moment, maybe that is a good one to think about. The Espresso Martini is a product of the 1980’s, created by the godfather of the London cocktail renaissance, Dick Bradsell. Bradsell was born northeast of London in Bishop’s Stortford (goodness, I love British town names) but was raised on the Isle of Wight - with his first career as a proper adolescent delinquent. In 1977, his mother sent young Dick to London to live under the watchful eye of his ex-RAF uncle who managed London’s Royal Naval & Military Club (also known as the ‘In & Out Club’), who gave Bradsell a job as a chef trainee.
Years later, a friend gave Bradsell the opportunity to train as a barman at a new members club in London called Zanzibar and introduced Bradsell to David Embrey’s influential book The Fine Art of Mixing Drinks. With the book in hand, Bradsell immediately felt he had found his calling. Bradsell went on to work in many of London’s finest cocktail bars, including the legendary avante-garde members’ club The Colony Rooms - a Soho hideaway that sported some of the finest contemporary artwork of any bar in the world as artists such as Lucien Freud, Damien Hirst, and Tracy Emin were invited to trace their art for drinks. Each bar Bradsell worked at benefited from the passion he reportedly brought to his craft - and he is credited with creating many iconic and important modern cocktails, including the Detroit Martini, the Wibble, the Bramble, the Raspberry Martini, and the Espresso Martini. Each of these was likely enjoyed by ladder-climbing yuppies with shoulder-pads in their blazers and sardonic new wavers alike. (I speak as a well-practiced sardonic new waver myself.) If you want to dive deeper into Bradsell’s colorful career and 1980’s London, check out his fun, rather punk, and unfortunately posthumous memoir/cocktail-book Dicktales. (Bradsell sadly passed away in 2016 at his home in London after a battle with brain cancer.)
Hey bartender, “I need something that will wake me up, then fuck me up.”
The Espresso Martini itself has a great story behind it. As Bradsell told it, he was working at London’s Soho Brasserie in 1983 when a famous model came into the bar and asked for something that would, “Wake me up and then fuck me up.” Bradsell was a gentleman and never disclosed who the model was, which I think only adds to the legend. Think of all the legendary models of 1980’s - Naomi Cambell, Cindy Crawford, Christy Turlington, et al - and imagine them saddling up to the bar mid-afternoon with oversized sunglasses covering last night’s excesses as she attempted to fortify herself for the evening ahead. Imagine some New Wave hit blaring away - annoyingly and a bit too loud - over the bar’s sound system as she sat down. I thought long and hard about the music choice to pair here, but I am going with the Eurythmics Sweet Dreams (Are Made of This) as it feels of that moment. (Released in 1983 - and propelled by a well produced music video on constant loop on MTV - it was not only a well-crafted ear-worm, it is also, in my opinion, sufficiently annoying.)
Bradsell’s choice of espresso was inspired by the restaurant having only recently installed an Illy espresso machine next to the bar. Bradsell went to work and created something he originally called a Vodka Espresso, and served it on the rocks - versus up, as we have come to expect. Technically speaking, the name Vodka Espresso is actually more appropriate than Espresso Martini as well, since the Espresso Martini is not a martini at all. (No vermouth! Let’s get the Big Ten Competition committee to investigate!)
Later on, while Bradsell worked at the Pharmacy, Damien Hirst apparently renamed the cocktail to the Pharmaceutical Stimulant - no doubt reflecting on its origin story as he did so. By the end of the 1980’s, the drink was often simply referred to as an Espresso Martini when it began to be served up - and that was how patrons came to know it and order it.
Personally, I think this drink should have always been served up. Since the goals to were clear - to both wake-up and fuck-up - it should be served ‘up’, right? But if anything this is just evidence that even the icons take time to refine.
Times have changed, maybe we just need a ‘Wake Me Up!’
We don’t always want a drink - be in at this moment, this hour (writing at ten in the morning), today, this month, or forever - but that does not mean we don’t want to mix. This mocktail cuts the ‘fuck me up’ out of the Espesso Martini and leans into ‘wake me up’ - as three ounces of espresso should do the trick.
This drink also calls for a great vegan ingredient as well -aquafaba - to bind and emulsify the mocktail together and hold the air in the liquid to create the great, and critical froth we expect. Aquafaba sounds exotic, but it in many ways could not be more common or pedestrian. You probably have loads of it in your pantry right now. Aquafaba is simply the starchy water left over from soaking beans (ok, legumes for you high-falootin’ foodies out there). In fact, the word aquafaba means literally that - it is from the Latin aqua (water) and faba (bean).
Used as an egg or egg-white substitute in many vegan recipes, aquafaba’s composition of carbohydrates, proteins, and other soluble plant solids - which have migrated from the seeds to the water, typically during cooking - gives it a wide spectrum of emulsifying, foaming, binding, gelatinizing and thickening properties. The most typical aquafaba comes from chickpeas (garbanzos!), but it can also come from soaking and cooking other leguuuumz (quite fun to say in a faux French accent) such as black beans, navy beans, lima beans, and even dried peas. Now I am not saying that your mocktail-interested drinkers and guests are likely to be vegan, but hey - bonus!
This mocktail also uses apple cider vinegar, which gives it a punchy little sour twist. After trying the original spec, I evolved it (reflected in the spec below) and added some agave syrup and cacao cocktail bitters. Technically of course, cocktail bitters contain some level of alcohol - as a preservative rather than a key aspect - which we not really wanting to add here, but we are only adding a couple of dashes and the end result of this mocktail will be a very small amount - less than a typical kombucha, for example.
Now, let’s wake up people!
Cheers!
Article Resources: I would like to call out the great resources used in the research for this article:
Dicktales, by Dick Bradsell. Mixellany, 2022
Wake Me Up! Mocktail spec, serves one:
3 oz (~90 ml) - Espresso (See note. Substitute: Cold brew coffee concentrate)
1 teaspoon (~5 ml) - Apple cider vinegar
1 teaspoon (~5 ml) - Agave syrup (Substitute: simple syrup)
1/2 oz (~15 ml) - Aquafaba (see note)
2 dashes - Cacao bitters (Substitute: Chocolate or Mole bitters)
Garnish - Espresso beans
The process:
Add all ingredients to an empty cocktail shaker. Add ice, cap shaker and shake vigorously. Remove/strain ice from the shaker - or pour into another shaker - and dry shake (see note) for 30 seconds. Strain into a martini or cocktail glass and garnish with whole espresso beans.
Notes:
Espresso: Ideally make this ahead of time and chill in the refrigerator or freezer before using.
Aquafaba: Easiest way to get a good aquafaba is a can of chickpeas (garbanzos!) and simply use the liquid. Alternatively you can soak any dry beans overnight, or in a pinch use a can of another kind of beans - which will work, but may not emulsify quite as well as chickpea aquafaba.
Join Cocktails & Commerce: Mix & Learn - Composable Commerce, Content & Cocktails!
Bill and I thoroughly enjoyed joining ITG on the recent webinar to talk composable cocktails and commerce. We mixed negronis and boulevardiers and apparently had a great time and said a few insightful things along the way about both cocktails and commerce. (Our memory is a little fuzzy, we were drinking after all.)
So join us for the next one on November 30 as we share our knowledge and perspective on composability - both in cocktails and commerce - and do a deeper dive into headless content with special guest, Dina Apostolou from Contentful.
If you hurry, you may even get a great cocktail kit to mix along with us! It is going to be a blast. (Register here, and do it quickly!).
Note: If you are a commerce technology or services business interested in working with Cocktails & Commerce for virtual or in person events, contact us here.
Analysis: Looking at Q3 Results from Adobe, Amazon, Big Commerce, SAP, and Shopify
First - from looking at each of these five public companies operating in commerce and commerce technology spaces - let’s just recognize that AI is everywhere now. If customers were not already confused about what to make of Generative AI, sorting through all the opportunities their vendor community is bringing to them will certainly help.
Second, we are in a phase of the enterprise technology market where large install bases - even if it is legacy technology - is an advantage. I know, last week I was a bit critical of legacy commerce platforms and how they are ‘compost-a-washing’. (OK, I left that in as it amused me - composable+washing. Hilarious.) But the reality is that as a business model it works pretty well, especially in lean times.
OK, let’s see what we can make of some of these players and what we think it means for commerce. (And let me know what you think of this format and approach. Maybe it is interesting, maybe it is not - always be learning!)
Adobe | $ADBE | Bring on the magic, man
Adobe posted record Q3 revenue of $4.89 billion, a gain of 10.4% year-over-year. On the earrings call, Shantanu Narayen, CEO, made the case that the company is benefiting from booming demand for AI products, and that the company is “unleashing AI-enhanced creativity”. If ten percent is evidence of this unleashing, well then there is a lot more unleashing happening in this world than I thought - though to be fair, much of the value companies like Adobe believe they are creating is yet to be realized in financial results.
In the Digital Experience segment, of which commerce is a part, revenue was $1.23 billion, representing 9.7% YoY growth and beating analysts expectations of $1.22 billion. Digital Experience subscription revenue was $1.10 billion, representing 12 percent year-over-year growth or 13 percent in constant currency, demonstrating that Adobe is doing a good job of not beefing up services revenue to compensate for relatively modest overall growth. Per Adobe, growth was driven by Its continued focus on innovation with Adobe Experience Manager and growing demand for Workfront.
Overall, Adobe is managing to keep its cost of sales and operating expenses under control, resulting in one of its most profitable quarters ever. To this point, Adobe reported a net income of $1.4 billion for the three-month period, which qualifies as one of the most profitable quarters in company history.
Adobe does not split out Adobe Commerce revenues in their public reporting, but we know from market checks that new-logo acquisition in commerce is very low, and growth is coming from cross-sell and up-sell of existing accounts - both utilization and cross-sell across the Adobe Digital Experience portfolio.
Meanwhile, Adobe’s plan to acquire Figma is still undergoing a regulatory review- both in the US and Europe. The planned $20 billion acquisition was announced in late 2022 - a bold move and a big bet on collaborative design.
Shares of Adobe were 4% lower after reporting results, but have since recovered and have since hit a new 52-week high. From an investor perspective, Adobe shares are up well over 50% year-to-date.
Adobe’s Q3 Theme Song: Heart, Magic Man
Amazon | $AMZN | Start looking for the advertising recovery center now, Amazon is addicted
Amazon reported overall Q3 2023 revenues of $143.1 billion, a gain of 13% YoY. That is a decent performance given the company has been in a cost-cutting mode for the past year as it corrected from the aggressive expansion it undertook during the pandemic - and that is showing up in its profit margin of 7.8%, the highest Amazon has seen since early 2021. During the Q3 earnings call, Amazon CEO Andy Jassy and CFO Brian Olsavsky focused on “continued AWS headwinds”, their optimism of AI’s impact on AWS as well as their own e-commerce operations, and their expectations for continued growth in Amazon’s advertising business.
Sales in Amazon’s core e-commerce business continued to modestly recover, expanding just 7% YoY - better than the 4% growth seen in Q2. But it is important to realize that these are not inflation adjusted numbers, and in my view represent middling results, especially given that Q3 included the results of this year’s Prime Day promotion in July - which Amazon described as its biggest ever sales promotion. Meanwhile, physical stores - which includes Whole Foods and Amazon Go stores - also posted modest growth of 6% $4.9 billion and remains by far the laggard in Amazon’s business portfolio.
In contrast, digital advertising continues to be a bright spot for Amazon, with 26% YoY growth to $12 billion in Q3. This is driven by third-party sellers advertising on Amazon, as well as from large advertisers' ongoing shift in focus from ‘awareness’ brand marketing to bottom-of-the-funnel product ads and sponsored products. This is of course driving growth in Retail Media Networks overall, but it is clear that Amazon is far outpacing key online advertising rivals - crushing Google’s ad growth of just 9% YoY, and outpacing Facebook’s ad growth of 23% (Notable in that Facebook is comping very poor numbers from a year ago as they struggled to respond to Apples privacy changes.)
Jassy claimed on the call that Amazon has “barely scraped the surface” on how to integrate advertising across all of Amazon’s video, audio, and grocery opportunities - and that Amazon has also started focusing on “externalizing sponsored products to third-party websites.” From my perspective this is an ongoing slippery slope and is setting traps for Amazon’s e-commerce business in particular that will erode market-share and customer trust long-term. On top of that, Amazon continues to milk their third-party sellers, expanding services and products for third-party merchants that many are forced to use to play ball. Revenue from third-party seller services was up 20% to $34.3 billion. (See C&C Issue №3 for more on Amazon’s e-commerce ‘traps’.)
Meanwhile, AWS continues to be challenged to unlock the growth it saw just a few years ago and continues to give up market share to Microsoft and Google. Amazon Web Services grew just 12% YoY - which remained flat from Q2 - while Microsoft reported Azure revenue jumped 29%, and Google Cloud expanded by 22%. Jassy and CFO Brian Olsavsky continued their narrative that AWS continues to see customers focused on “cloud cost optimization”, while painting a picture that AI workloads from large enterprise customers give optimism for a turn-around.
Investor’s overall are buying the story and love the ad business - Amazon's stock is up over 40% year-to-date and shares popped 5% immediately following the earnings report - but Amazon remains challenged in its biggest businesses and its addiction to the high of the ad business a little too much.
Amazon’s Q3 Theme Song - Eric Clapton’s Cocaine (Aka: Ads and Merchant Services)
BigCommerce | $BIGC | Biggie-Smalls remains on the struggle-bus
From the biggest (Amazon) to the “biggie-small” of BigCommerce… poor ol’ BigCommerce continues to limp along. BigCommerce posted Q3 revenue of $78 million - up 8% YoY - with core subscription revenue of $58.7 million, up 10%. BigCommerce posted a loss of $20.3 million in Q3, which is a narrowing of the loss of $30.3 million in the third quarter a year ago.
GAAP gross margin for BigCommerce was 76% in Q3, unchanged YoY. It is not a terrible margin, but loosing money in a slow growth environment means you need to cut costs and boost margins - certainly a factor in BigCommerce announcing a layoff in this earnings call that represents 7% of their workforce. (So if you need good people, some from Biggie-Smalls may be looking.) On an annualized basis, BigCommece claimed an annual revenue run-rate (ARR) of $332.2 million, up a very modest 9% compared YoY - especially when compared to it’s key competitor Shopify and the overall, reasonably beneficial market in the SaaS mid-market and SMB segments in which BigCommerce plays. In fact, revenues in the Americas - the most important market for BigCommerce - grew by only 7% YoY, whereas revenue in EMEA grew by 23% and APAC 2% YoY, though both on a much smaller basis.
BigCommerce has been working for a number of years now to complete their pivot to a mid-market business - which they confusingly call their ‘enterprise’ segment - from their SMB heritage. BigCommerce reported they now have 5,951 of these ‘enterprise’ accounts, which is up just 7% compared to the third quarter of 2022. BigCommerce’s average revenue per account (ARPA) in this ‘enterprise segment’ was $40.4K, up just 4% YoY - which not a good sign, especially in-light of Shopify’s ability to raise thier subscription prices and juice subscription revenues. (Hey, every account matters and I hope that person who brought in account #5,951 got their spiff!)
Lord knows there are a lot of great people at BigC, and they are no doubt trying hard. At the end of October they announced another acquisition, this time of Makeswift, a visual editor for Next.js websites that no doubt is an attempt to make a headless offering more palatable for the enterprise segment, and perhaps to counter Commercetools play with Frontastic. Unfortunately, that will not be enough to see a dramatic change. Roadmap highlights are lacking, and BigCommerce continues to fall behind both Commercetools in the upper mid-market and enterprise segment and Shopify in their core SMB and mid-market segments. Feedonomics was a smart - and from what I can gather a largely successful - acquisition, but the train there seems to be slowing as well.
Unfortunately, tough times seem to continue to lay ahead for BigCommerce as it competes in both a highly commoditized market and lacks both a compelling AI story and the overall level of product innovation needed to differentiate and compete effectively.
BigCommerce Q3 Theme Song: I was of course tempted to use a Biggie Smalls song here, but I am going with Olivia Rodrigo’s, jealousy, jealosy
SAP | $SAP | Hang on Sloopy, Sloopy hang on
SAP reported Q3 2023 revenues of €7.7 billion, up only 4% YoY. SAP has aggressively been pushing clients of ERP and commerce to move to their cloud offerings and highlighted cloud revenues of €3.47 billion, up 16% YoY and 23% on a constant currency basis - reflecting largely the recovery of the euro and European economy as a whole from the shock of the Russia-Ukraine war and resulting inflation and energy price volatility. But the canary in the coalmine here is that software license revenue decreased by 17% to €335m in Q3 YoY, or down 14% on a constant currency basis.
It is clear that SAP has hunkered down around ERP, is focused on customer retention and cross-selling products and services to their install-base there. Net-new customer acquisition is challenged across the board, with ERP customers unconvinced a move off their old SAP ECC and SAP R/3 solutions makes any sort of real business sense. (“Everyone hates it but it keeps on trucking, and the Infosys consultants are out to dinner again!”)
Meanwhile Concur, Ariba, and Fieldglass have also suffered from a decline in business travel, a shift of B2B procurement to e-commerce and marketplaces (see: Amazon Business), as well as a fall and contingent workforce spending.
Christian Klein, CEO of SAP, also focused on AI with ‘SAP Business AI’ capabilities during his earnings call, but a lack of overall innovation and poor acquisition decisions (see: Emarsys) remain a ball and chain. SAP has largely orphaned its commerce, CRM and CX businesses and has lost key talent needed to fuel that business forward - despite a strong and healthy install-base of hybris, Emarsys, and - dare I say - CRM. Every player in enterprise commerce and marketing automation has “SAP install-base” circled at the top of their GTM - and if they don’t they should.
Tough times at SAP, and unfortunately the godfather in Potsdam remains far too personally invested - making ego-driven calls that hold SAP back.
SAP’s Q3 Theme Song: The McCoys’, Hang on Sloopy
Shopify | $SHOP - Bringing the energy, cause Shopify is back on the rails
Hey, why not end on a high note. Shopify reported Q3 revenue grew 25% to $1.7 billion while gross profit increased 36% YoY to $901 million. Gross merchandise volume (GMV) - the total value of merchants’ selling across Shopify - increased 22% to $55 billion. Gross profit also grew, increasing 36% to $901 million.
A huge component of Shopify’s business is of course payments - which they include in Merchant Solutions. revenue increased 24% to $1.2 billion compared to the prior year, driven primarily by the growth of GMV which grew to $32.8 billion, with Shopify processing 58% of GMV on their platform - , versus $25.0 billion, or 54%, for the third quarter of 2022and Shopify Payments. Shop Pay facilitated $12 billion in GMV, a 50% year-over-year increase.
Shopify’s core Subscription Solutions revenue increased 29% to $486 million YoY, driven primarily by adding merchants to the platform and the pricing changes that went into effect for existing merchants on Shopfy’s standard subscription plans. Shopify’s relatively efficient subscription models allowed for the increase to have little impact on churn while boosting revenue and margin.
Shopify’s President and impresario, Harley Finkelstein, of course played up Shopify’s focus on AI, with an emphasis on bringing capabilities to merchants across their platform. While I would like to find a critique here, the truth is that Shopify’s focus on pragmatic AI is both focused and much more tangible to merchants and will pay dividends.
Shopify also announced a partnership with Amazon in Q3, giving Shopify merchants the choice to offer ‘Buy With Prime’ directly within their Shopify Checkout and Finkelstein shared on the call that this will be released “in the coming weeks”. This represents a truce of sorts for Amazon and Shopify, and will likely see strong adoption and benefits for Amazon merchants eager to move their business to a direct model leveraging the Shopify platform. (I wonder if Amazon’s e-commerce folks were on board with this, and if the payments and Prime teams won the political battle inside Amazon.)
Overall, Shopify continues to eat share in the mid-market and become ever more credible in the upper parts of the segment as businesses feel the benefits outweigh the constraints inherent in the platform - with little business case to use more complex MACH or composable solution alternatives - for now.
Shopify’s Q3 Theme Song: Beyoncé’s ENERGY (feat. Beam)
Join us for the first-ever Cocktails & Commerce Office Hours!
(AKA: The Virtual Hotel Bar)
We love cocktails and we love this community. Many a night over the years has been closed out with a cocktail at the hotel bar with others from our commerce community - others from our companies, our partners, our clients, and colorful stragglers-on (you know who you are!). Often ending up at the hotel bar was evidence of poor decision making, but it also led to lifelong friendships, great stories, and often great insights. So bring something to mix and add to the conversation! Join us online for:
Cocktails & Commerce “Office Hours”
Friday - December 8, 2023
4-6pm ET / 1-3pm PT / 10pm-midnight CET
To register send an email to: events@strategyem.com - we will shoot you a meeting invite with an online meeting link. (Don’t worry, there is no marketing and no list sharing. While we don’t want to do that for policy reasons, the real truth is also… we don’t know how! Ha!)
If you are looking for Brian online, you can find him here, here, and here. Bill does not want to be bothered - he is too busy organizing his latest shipment of amari.
Be well, be safe, and here is to good business! Cheers! - Brian
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