It’s a half-a-trillion-dollar market already. We’re talking about the total value of goods sold on Amazon.
It soared from $277 billion in 2018 to $490 billion in 2020, according to MarketplacePulse.
But take a look at the chart below, and it’s clear that one side of Amazon’s incredibly successful business stands out. Marketplace sellers.
As a reminder, Amazon Marketplace is a platform for third-party sellers that Amazon provides. The “retail” segment is where Amazon sells products for its own profit.
And the third-party Marketplace segment is booming. In 2020, its total merchandise value soared from $200 billion to $300 billion. In other words, it added $100 billion in gross merchandise value in 2020.
For comparison, that was the total eBay sales in 2020. Amazon Marketplace is a retail behemoth in a class of its own.
Which brings us back to the investment side of things…
Buyout Frenzy for the Best Brands
This space is going crazy this year. Top brands on Amazon Marketplace are getting bought out at a record pace.
If you do the work and develop your e-commerce store, attract customers and make it to the top of Amazon rankings… you could start getting some interesting calls soliciting a sale.
Forget about hedge funds and private equity buyers. There’s a whole new class of investors snapping up successful Amazon retail sellers.
They are called “roll-up” companies, and they are just getting started…
Over the past 18 months, they raised over $7 billion to be deployed purely for buying up the best third-party Amazon sellers.
The total amount raised soared by nineteen times over just one year.
As the world started shopping online due to the pandemic and multiple lockdowns, some brands became too big to be ignored.
There are about five million third-party sellers on Amazon. In 2020 alone, about one million new outlets appeared due to surging demand.
Industry insiders say that about 50,000 of them, or about 1%, make $1 million or more in annual revenue.
Some, like a beauty vendor Pharmapacks, make more than $250 million per year in revenue.
These are the juicy targets for the roll-up industry.
But to buy them all, you would need much more than the total $7 billion in roll-up capital.
In fact, it would need to increase by almost eight times from its current level to buy these companies’ annual revenue.
And revenue multiples that the sellers are bought at could go much higher than one.
Which means that the roll-up industry will continue booming.
Will some of the roll-up funds go public? It’s always a possibility.
We would suggest watching this space for potential investment opportunities.
Some of the names you want to add to your watch list are Thrasio, Perch, Branded, SellerX, and Berlin Brands Group. There are other players, and new names come up all the time.
Thrasio is one of the biggest names. It’s valued at over $3 billion itself.
More Ecommerce Opportunities
This market is hot, and it’s getting hotter.
But here’s something interesting… not all Amazon sellers want to be sold to the roll-up companies.
Some of the best-known brands go public by themselves.
Like Mohawk Group Holdings (name changed to Aterian in April), for example.
It started trading in mid-2019 on public markets. When the Covid pandemic began back in February 2021, its share price went up to $47.66. It was 377% higher than its original opening price of $10.
Aterian is not the only example. Anker, a popular consumer electronics brand, started trading publicly in August 2020. That year it was projected to reach $1 billion in annual sales.
This is another way of approaching this hot market. The largest brands could decide to go public and open themselves up to individual investors.
Watching this space could also be fruitful, in our opinion.
Option #3: the Marketplaces Themselves
Even though we mostly talked about independent sellers and the companies buying them, let’s not forget who provides the platform for these sellers to grow.
Amazon is the leader here. Walmart, however, is #2. Best Buy also runs a marketplace.
All three of them, of course, have their stock trading on public markets.
And over the past three years, all three have done very well.
Amazon has appreciated by 77%, Walmart by 61%. Best Buy shares have risen by 49%.
This is definitely one of the opportunities that you might also consider. Whatever is going on on the marketplaces, the companies that run them might benefit from the overall growth.
As always, do your own research before making an investment decision. We will continue keeping you informed of the world’s biggest and potentially most lucrative trends.
Thank you for your loyal readership,
The Financial Star team