Many stories in this edition revolve around the initial stages of growth and innovation, ranging from early-stage SaaS startups to how large incumbents are evolving.
Regarding eDreams, note that looking at adjusted EBITDA is not the best way to look at it, as Prime revenue is received up front, but recognized over time. The fairer, and more accurate, way to look at this is via cash EBITDA margins., which are clearly going up, and should continue to go up as long as the percent of Prime members that are at least one year old grows relative to first year Prime members. This gets to you other point on variable costs. In the early days of Prime (we are still in early days in my opinion), variable costs will run high as they are paying google, etc., to help them find new Prime members. It's in the second year, that performance marketing drops off, for the most part. See the Prime tab in the quarterly financials spreadsheet they release for a more clearer view on Prime. LTM Prime Marginal Profit Margin went from 30.6% five in Q3 23 vs 37.8% in Q3 24. This proves out that performance marketing drops off as Prime members cross the first year threshold.
You mention " It's in the second year, that performance marketing drops off, for the most part." Where do you see this? Prime is in its 7th year. And I don't see any sign of performance marketing dropping off (other than the natural drop during COVID).
They are still spending performance marketing for new subscribers. It's after the first anniversary of a sub, that performance marketing spend goes down. Said another way, they pay for google to get a sub in year one, after that, customers, for the most part, go directly to eDreams. As long as they are growing sub, they will be spending money on performance marketing (as they want to get more people into the program). The way to infer what is going on is the direction of the margins over time. If the above is true, margins should grow as the percent of 1-year and older Prime members grow as a percent of total Prime members. This is happening, which is why you see the LTM Cash Marginal Profit Margin going from 30.6% last year to 37.8% in the current quarter.
Regarding eDreams, note that looking at adjusted EBITDA is not the best way to look at it, as Prime revenue is received up front, but recognized over time. The fairer, and more accurate, way to look at this is via cash EBITDA margins., which are clearly going up, and should continue to go up as long as the percent of Prime members that are at least one year old grows relative to first year Prime members. This gets to you other point on variable costs. In the early days of Prime (we are still in early days in my opinion), variable costs will run high as they are paying google, etc., to help them find new Prime members. It's in the second year, that performance marketing drops off, for the most part. See the Prime tab in the quarterly financials spreadsheet they release for a more clearer view on Prime. LTM Prime Marginal Profit Margin went from 30.6% five in Q3 23 vs 37.8% in Q3 24. This proves out that performance marketing drops off as Prime members cross the first year threshold.
I will look into the cash EBITDA evolution. Thx for your comment.
You mention " It's in the second year, that performance marketing drops off, for the most part." Where do you see this? Prime is in its 7th year. And I don't see any sign of performance marketing dropping off (other than the natural drop during COVID).
They are still spending performance marketing for new subscribers. It's after the first anniversary of a sub, that performance marketing spend goes down. Said another way, they pay for google to get a sub in year one, after that, customers, for the most part, go directly to eDreams. As long as they are growing sub, they will be spending money on performance marketing (as they want to get more people into the program). The way to infer what is going on is the direction of the margins over time. If the above is true, margins should grow as the percent of 1-year and older Prime members grow as a percent of total Prime members. This is happening, which is why you see the LTM Cash Marginal Profit Margin going from 30.6% last year to 37.8% in the current quarter.