Amazon FBA Businesses Will Become More Valuable

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Amazon FBA
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A Boston-based eCommerce group called Thrasio has just raised $750 million to buy up small FBA businesses, raising its total capital raised to almost $2 billion. Thrasio has been buying $1.5 million in FBA revenue per day, according to Joshua Silberstein, their co-founder, in an interview with the FT. There’s a lot of copycat firms doing similar things in the US and in Europe.

This makes sense since yields on returns from real estate, the stock market, bonds, and other asset classes are ridiculously low or even negative. So in a low yield environment, there’s enormous investor appetite for investments that returns… well, something.

The current S&P 500 PE ratio is about 40.

Compare that to FBA businesses that commonly sell for 2-4x annual profit (not sales). Of course, a lot of that is justified since Amazon FBA is inherently a risky business (reasons not to sell on Amazon FBA) with risks of being shut down in addition to the regular risks of being a small business.

Having said that, those that achieve economies of scale can overcome a lot of the above mentioned risks with better Amazon relationships (Amazon rolls out the red carpet for Anker that sells over a billion on the marketplace), supplier pricing, and consolidated marketing.

So what does that mean for Private Label FBA sellers?

It means that as more investors like Thrasio, Perch, SellerX, Heyday, Heroes as well as small private investors flood the market, it can start driving up valuations for FBA businesses.

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