Bit by bit, Amazon sellers are eyeing the public markets.
Although Amazon’s third-party marketplace has been around since 2000, Amazon sellers have historically been far too small to reasonably consider going public. But as Amazon’s overall customer base ballooned this past year, so did the size of its top sellers. According to Amazon’s most recent earnings report, seller services — the amount that third-party sellers pay Amazon in commissions, fulfillment fees and so on — grew 57% year over year in 2020. Per Jungle Scout, 2% of Amazon sellers now boast lifetime profits of over $10 million. The third-party vendor Pharmapacks, for instance, brings in at least $250 million in annual sales.
For that upper tier of sellers, going public is no longer out of the question. The best encapsulation of this happened last August, when Anker — a Chinese electronics company that began as a third-party seller on Amazon in 2011 and now sells in stores like Best Buy — hit the stock market. Today it has a market cap of close to $10 billion. More quietly, another Amazon-native company, Mohawk Group, has finally gained traction after a year and a half of struggling in the public markets. It’s much smaller than Anker, with a market cap of $873 million, but its stock has been surging: since a low of $1.70 per share in mid-March 2020, its share price has leapt up to around $33 today. And it suggests that, as the Amazon marketplace consolidates, some vendors may be sturdy enough to stand up as their own public companies.
“I can definitely see more Amazon companies try to go public,” said Sean Emory, a founder of the investment firm Avory & Co. He added that the path of a seller from the Amazon marketplace to the public markets looks different than that of a typical brand. “Traditional go-to-market is, let’s build a brand, let’s try to take it to the traditional brick and mortar. That was historically it,” he said. On Amazon, he went on, what matters isn’t the name brand of a company but rather the discoverability of its products in a search result.
He pointed to Mohawk, which encompasses a mix of products that the company launched itself or acquired from successful vendors. (Avery & Co has also invested in Mohawk.) While few consumers have ever heard the name Mohawk Group, they’ve surely seen their products on Amazon. The company’s hOmeLabs brand, for instance, includes a set of dehumidifiers, ice machines, refrigerators and other home products that regularly rank above veteran players like Frigidaire.
Going public is a risky endeavor, especially for a small seller. Mohawk had its IPO in June 2019, just five years after it first launched. It didn’t go well: the company was still too small and poorly resourced. Seeking Alpha called it a “failed IPO” at the time, bringing in just $33 million of its anticipated $50 million in gross proceeds. “We did go public definitely too early, and when we knew that was going to be the case, you live with the consequences of your mistakes,” Fabrice Hamaide, the CFO at Mohawk, told Modern Retail.
But in 2020, Amazon’s record year gave a big boost to Mohawk itself — and Mohawk has seen a flurry of investment especially since December, when several prominent Wall Street banks, including investment bank Oppenheimer, began to assign analysts to track Mohawk for the first time. According to Emory, the endorsement of those analysts “naturally creates a flywheel upward.”
As risky as IPOing is for a third-party marketplace seller, Hamaide said that he’s seen some benefits. Mohawk has embraced a strategy of acquiring successful products on Amazon and other marketplaces. It has an algorithm that tracks keyword trends, pricing changes and around 550 other variables across e-commerce marketplaces. That algorithm helps the company identify products that are worth acquiring. And in those purchase talks with sellers, he said, the ability to offer liquid stock is a big draw. “Today, on the [mergers and acquisitions] side, it’s proven to be an advantage,” he said.
Although Mohawk now sells its products across a number of e-commerce sites, including Amazon, Walmart, Rakuten and several others, any company that is built around a marketplace it can’t control is taking a risk. The biggest Amazon sellers rely on their products receiving top slots in search result — and it isn’t totally out of the question that Amazon, through an algorithm change or something more dramatic, could knock those products down.
To Emory, though, the rising competition from platforms like Walmart is mitigating that risk. “I don’t think they want to artificially put up the #6 dehumidifier and push down the #1 dehumidifier,” he said. Because of Walmart, “they’re even more incentivized to give the consumer what they want.” Mohawk, for its part, uses its algorithm to track — on an hour-to-hour basis — shifts in the marketplace, which it claims insulates it from potential changes on Amazon’s end.
Hamaide said that he expects many other sellers to grow to the size of Mohawk (and potentially try their hand at an IPO one day). The Amazon marketplace is such a large ecosystem, he said, that “there’s not going to be only one big company in the entire space. There’s going to be multiple players.”