ChatGPT-4 Plugins: Gateway to Increased Sales at Amazon and Expedia?
By: Melissa Otto, CFA
Generative AI chatbots have taken the world by storm, but who will benefit from their usage? The market is full of debate about how these chatbots may disrupt search, user behavior, payments, and productivity. On top of this, the FTC has begun an investigation into how ChatGPT and OpenAI may threaten the privacy and data of consumers. Given the surge of interest and investment in generative AI, we focus here on a few examples of how AI chatbots may start to impact company fundamentals.
In this report, we show Expedia (NASDAQ: EXPE) and Amazon.com (NASDAQ: AMZN) revenues that may begin to benefit from generative AI chatbots. Visible Alpha has identified some of the critical line items in a company’s financial model to monitor, which may provide an early read into the trends. The dispersion of estimates and number of sources can reveal debates and changing trends in a company’s fundamentals, which can help to uncover potential new alpha not yet fully captured in the stock price.
What are plugins?
According to OpenAI, plugins connect ChatGPT to third-party applications. These plugins enable ChatGPT to interact with APIs defined by developers, enhancing ChatGPT’s capabilities and allowing it to perform a wide range of actions. Plugins enable ChatGPT to do things like:
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- Assist users with actions; e.g., booking a hotel, shop for food, buy clothing
- Retrieve real-time information; e.g., sports scores, stock prices, the latest news
- Retrieve knowledge-base information; e.g., company docs, personal notes
Source: https://platform.openai.com/docs/plugins/introduction (July 6, 2023)
Companies in the consumer space may benefit from the capabilities of generative AI to assist users with actions by reducing noise and presenting users with specific goods and services they want to buy. Public and private companies, like Instacart, Shop.com, Shop, Amazon.com, Expedia, Kakaku.com, DoorDash and Kayak all currently have plugins on ChatGPT-4.
Background of capabilities
Users can access ChatGPT-3.5/4 and Google Bard generative AI tools by PC or mobile. The user’s experience is different depending on where and how the prompt is made. On a PC, ChatGPT-4’s beta version offers more capabilities than on mobile and seems to offer more capabilities than Google Bard, due to the many beta plugins available in ChatGPT-4 on a PC. Currently, ChatGPT-4 subscribers can access all of the plugins, but there is a waitlist for developers. According to OpenAI, “if you are a developer who has ChatGPT Plus and you are interested in making a plugin, you will need to fill out a form and join a waitlist.”
Through its beta features, ChatGPT-4 allows users to enable up to three plugins at a time on a PC. There are currently hundreds of plugins in ChatGPT-4 available for users to save and then enable as part of the three that can be run in their chats. Through ChatGPT-4, users can align their plugins to the type of prompt they are making. For example, if a user wants to book a hotel, they can start a new chat, then directly enable the Expedia plugin. In the chat, the user then adds a prompt, “hotel and flight Maui”, for example. ChatGPT-4 will automatically pick up the Expedia plugin and sync with ChatGPT-4 on PC, but not on mobile like Bard can with Google Search.
Figure 1: ChatGPT-4 Expedia plugin prompt and results
Source: ChatGPT-4 with Expedia plugin (July 11, 2023)
The user can then simply link directly and make a purchase. The Expedia plugin also surfaces prices, reviews, duration and details, which help keep the user in the specific plugin/application. How will this plugin impact revenues and operating profit at Expedia?
Figure 2: Expedia’s revenue breakdown
Source: Visible Alpha consensus (July 12, 2023)
Bard seems to have better basic functionality on mobile, given its sync to Google Search and also more timely data, since ChatGPT results do not automatically incorporate information beyond September 2021 (enabling a specific plugin is required). For example, an iPhone user can ask Bard for hotel recommendations and then directly access a link to booking.com to make the reservation in a mobile environment. In ChatGPT on mobile, this connection between the prompt results and a transaction can not currently be done. ChatGPT-4 users currently can not access the plugins on mobile.
If the user is looking to host a party or make a specific recipe, the Instacart plugin will automatically upload a shopping list to a cart to be purchased and delivered or picked up, in one seamless interaction. However, these actions still cannot be done on ChatGPT or Bard for mobile. Plugins are currently not available in Google’s Bard, but Bard does link to Google. At the Google I/O conference in May, the company announced that they will integrate Google applications/services and be adding “tools,” similar to plugins. It’s not clear yet exactly what the tools will do.
Amazon
With Amazon’s Prime Day occurring this past week, we wanted to think about the potential impact to Amazon’s numbers as the generative AI chatbots potentially take hold in the future. How may these impact consumer behavior and drive not only more spending, but also more efficient, faster spending?
Figure 3: ChatGPT-4 Amazon Gift Chooser plugin prompt and results
Source: ChatGPT-4 with Amazon Gift Chooser plugin (July 7, 2023)
Figure 4: Amazon revenue breakdown
Source: Visible Alpha consensus (July 11, 2023)
Currently, the retail third-party seller services segment is expected to expand by almost $100 billion from $118 billion at the end of 2022 to $216 billion by the end of 2027. This business is expected to make up 25% of Amazon’s total revenues by the end of 2027.
Impact to third-party seller services revenue: With greater curation, Amazon can align consumers more quickly to items they want or need to buy. Amazon’s plugin focuses on gift giving and may help drive third-party seller services revenues, including shipping, FBA, and commissions. Visible Alpha has a few sources modeling the third-party line items, including a break out of commission and FBA/shipping revenues. These estimates seem to be worth watching and may serve as a way to capture and gauge how generative AI may be influencing and growing their third-party segment.
Figure 5: Amazon third-party seller services revenue breakdown
Source: Visible Alpha consensus (July 11, 2023)
The profitability of this segment could expand as services revenues scale further, particularly in the North America market. North America operating profit margin is expected to expand 680 basis points and go from an operating loss at the end of 2022 to 6% at the end of 2027, surpassing historic highs of 5%, but still substantially below AWS’s operating profit margin of 28.5% at the end of 2022. Internationally, Amazon generated a -7% operating loss margin at the end of 2022 and is projected to improve it to 2% by the end of 2027. Can applications of generative AI help drive Amazon’s retail business in the U.S. and abroad to higher margins?
Figure 6: Amazon operating profit breakdown
Source: Visible Alpha consensus (July 11, 2023)
There is significant debate about the trajectory and size of these margin improvements in Amazon’s North America business. It will be interesting to see how chatbots may help to drive revenues from third party sellers. The most optimistic analyst is expecting the North America business to generate an ambitious 8% operating profit margin, over 200 basis points above consensus of 6% and $20 billion ahead of the $30 billion of operating profit expected by analysts by the end of 2027. The most conservative analyst is baking in a lower 4% operating profit margin and is expecting revenues to be $10 billion below consensus estimates of $30 billion.
Figure 7: Amazon operating profit margin dispersion
Source: Visible Alpha consensus (July 12, 2023)
The bottom line
ChatGPT-4’s plugins provide a sneak peek into the next generation of innovation to come. While it is early days, generative AI has the potential to make consumers and businesses more productive and effective with more comprehensive, curated responses. By syncing the results to actual products and services, ChatGPT-4 plugins may start to change consumer behavior, leading to potential changes in the digital advertising space, and how and where revenues are generated.
Coming into this earnings season, we are looking forward to hearing updates from companies about their generative AI strategies, chatbot impact, and where we may see AI start to impact the fundamentals of their business models. Will AI drive higher revenues, increase margins, and help companies overall become more profitable and productive?
Generative AI and the Online Travel Industry
By: Melissa Otto, CFA
AI and customer impact
The integration of generative AI presents significant opportunities for companies to get their products and services more quickly in front of customers that are actively looking to purchase. AI innovations may create an increasingly competitive search environment, as companies seek to optimize ad spend and ROI by targeting more specific segments with a curated offering aligned to customer interests.
Generative AI chatbots, like ChatGPT, expand the capabilities of what software can do by synthesizing business processes and integrating customer questions and needs into a workflow solution. Chatbots may emerge as a valuable and impactful way both to retain existing consumers and to pinpoint new customers. As these chatbots potentially evolve into virtual assistants, the monetization model of search, ads, and traffic may be disrupted.
Travel and AI
Online travel appears to be an ideal area for the innovations from AI to take hold and have a positive impact on revenues.
Figure 1: AI in Bing for travel
Source: Bing.com (June 28, 2023)
Travel-related searches in Bing and Google surface Expedia-sponsored recommendations at the top of search results list. However, further searches for flights and other travel services help users pinpoint the cheapest airfares in a region or country or for a specific time period, but then send the user to a different site away from Expedia to make the purchase.
For example, a user may search Google for “last minute flights to Europe” and discover a low-priced fare to Berlin, which may be purchased directly from the airline, e.g., united.com. Then, the customer searches in Google again to discover a hotel. In this case, the Berlin Ritz-Carlton could be booked through the official site or through various booking sites, like Priceline or Expedia, but with no meaningful price difference.
How can ChatGPT help online travel companies cross-sell and keep their customers spending within their site?
Figure 2: Hotel price comparisons in Google
Source: Google.com (June 27, 2023)
Expedia’s new ChatGPT bot and loyalty program
In Expedia’s (NASDAQ: EXPE) Q1 earnings call on May 4, 2023, CEO Peter Kern highlighted the company’s commitment to deploying AI and machine learning to the product “to enhance the customer experience and move towards Expedia’s North Star of true personalization.” The company has already launched the Expedia plug-in for ChatGPT, as well as ChatGPT in the Expedia iOS app. Expedia will also launch its loyalty program, One Key, in the U.S. in July and later this year globally, across its main brands.
According to Visible Alpha consensus, analysts are currently expecting Expedia to see its operating profit margin improve from 9% in 2022 to 15% by 2027. Excluding stock-based compensation, this margin improvement is driven by a 200-basis-point decline in selling/marketing costs and a 100-basis-point reduction in both technology/content and general/administrative costs as a percentage of revenue. We are watching the role that AI will play in both driving sales growth and supporting these cost reductions.
Figure 3: Expedia’s revenue breakdown
ChatGPT can help synthesize data and may encourage consumers to skip conducting multiple searches in one of the search engines and then switching to another site or application. If the customer books the Ritz-Carlton in Berlin through Expedia or a house through Expedia’s VRBO, they can leverage the ChatGPT plug-in available on the Expedia app for further details, but will not be linked directly to actually make reservations. Airbnb (NASDAQ: ABNB) will also integrate ChatGPT from next year, but will not have a loyalty program. The combination of ChatGPT and loyalty programs may incentivize consumers to book more parts of their trip within specific applications.
Visible Alpha tried out Expedia’s new ChatGPT capability in iOS. Within seconds, ChatGPT returned a detailed 6-day itinerary for a trip to Berlin. Excursions can then be purchased directly on Expedia in “Things to Do,” removing the need to return to Google or Bing to search for ideas and then be rerouted to another site to book the travel experience. ChatGPT can help companies directly offer and cross-sell more products/services to their customers. Loyalty incentive programs can then create stickiness in this evolving consumer behavior.
Figure 4: From ChatGPT on Expedia: Six days in Berlin
Generative AI to support more “experiences” bookings
Purchasing “experiences” has become an emerging growth category in the global travel industry. Leveraging its reviews and enhanced engagement, Tripadvisor’s (NASDAQ: TRIP) Viator experiences have seen strong demand that is expected to continue. According to Visible Alpha, analysts expect revenue from Viator to increase ~34% in 2023 and to reach $770+ million by the end of 2024. Trip Advisor also has plans to integrate generative AI plug-ins, which could add further upside to its Viator segment.
Figure 5: Tripadvisor’s revenue breakdown
Booking Holdings’ (NASDAQ: BKNG) Kayak enables add-ons of experiences to its traditional air/hotel packages and is also experimenting with a generative AI plug-in. Booking’s Advertising and other revenues are expected to generate $1.1+ billion by the end of 2024.
Figure 6: Booking Holdings’ revenue breakdown
Outside of the U.S., Trip.com (NASDAQ: TCOM) and TUI Group (LSE: TUI) will also leverage AI for booking experiences. In the UK and EU markets, TUI’s experiences growth through its Musement business (Other segments) is another example of a company leveraging both loyalty and AI.
Figure 7: TUI Group’s revenue breakdown
In Asia, Trip.com is seeing a reawakening in travel post-Covid with experiences bundled into packaged tours, showing a very strong rebound in expected growth in 2024.
Figure 8: Trip.com’s revenue breakdown
Industry summary
By the end of 2025, Visible Alpha’s global travel industry revenues are expected to expand by $35 billion from 2022-levels. In addition to Asia’s post-Covid reopening, generative AI tools and innovations have the potential to drive revenue growth for travel destinations and experiences.
Figure 9: Travel industry revenue breakdown and CAGRs
The bottom line
Online travel companies appear well-positioned to benefit from the integration of new generative AI plug-ins, like ChatGPT. Given the capabilities of chatbots to suggest itineraries and trip excursions, these tools may help online travel companies grow bookings from the traditional air and hotel segments, but also capture additional revenue from experiences. Loyalty programs may also play an important role in incentivizing the existing customer base to spend more within a dedicated online travel ecosystem.
The experiences segment remains an emerging category in the travel industry and could show substantial expansion longer term. Analysts expect Tripadvisor’s Viator to generate $1.2 billion in revenues by the end of 2027, up significantly from $493 million in 2022, but still small when compared to Booking’s accommodation revenue, estimated to be $25 billion by the end of 2027.
While ChatGPT provides a lot of useful information for travelers, users can not transact directly from ChatGPT. They still have to leave the ChatGPT tool to compare excursion vendors and make purchases. As ChatGPT’s capabilities advance, is the next step to link chatbot results within a site or application directly to the product offerings at sites like Viator or TUI’s Musement?
Netflix Ads; Alibaba’s Global Expansion; AMD’s Data Center; BYD’s EV Growth
By: Visible Alpha Research & Innovation Lab
In our weekly round-up of the top charts and market-moving analyst insights: Netflix’s (NYSE: NFLX) ad-supported tier expected to see rise in revenue and subscribers; Alibaba (NYSE: BABA) expands internationally; AMD’s (NASDAQ: AMD) data center segment projected to see significant rise in revenue and profitability; BYD’s (SZSE: 002594) EV focus expected to drive growth.
Netflix’s Ad-Supported Tier Expected to Support Revenue & Subscriber Growth
Netflix (NASDAQ: NFLX) is expected to experience a steady rise in both revenue and subscribers for its new ad-supported tier, according to analysts. The company launched this ad-supported plan late last year to help address password-sharing concerns.
According to Visible Alpha consensus, Netflix’s ad-supported tier for the U.S. & Canada (UCAN) is projected to generate $396 million in advertising revenue and $284 million in subscription revenue in 2023, along with an expected 6.2 million subscribers. Analysts expect UCAN ad-supported revenue from both advertising and subscriptions to exceed $5 billion by 2027.
Alibaba’s International Expansion Expected to Accelerate Growth
Analysts expect a robust 19% CAGR from 2023 to 2027 for Alibaba’s (NYSE: BABA) International Commerce revenue as the company forges ahead with its global expansion strategy, highlighted by the introduction of Tmall in Europe. Unlike AliExpress in Europe, Tmall will prioritize the sale of local brands to local customers.
Alibaba’s logistics subsidiary, Cainiao Logistics, also aims to expand internationally and has been constructing its own warehouses and recruiting delivery personnel across Europe and Southeast Asia.
In 2027, analysts project CNY 140 billion in International Commerce revenue, and CNY 103 billion in Cainiao Logistics services revenue, a 17% CAGR from 2023 to 2027. These emerging businesses are expected to grow at a faster pace than the core China Commerce segment that made up ~80% of revenue in 2022, but is expected to generate a lower 7% CAGR from 2023 to 2027, and to decline to 69% of revenue by 2027.
Analysts Expect AMD’s Data Center to Drive Revenue Growth
AMD’s (NASDAQ: AMD) data center segment is expected to see its revenue grow from $6.7 billion in 2023 to $12.2 billion in 2025. In addition, the profitability of the data center segment is projected to expand significantly from $1.6 billion in 2023 to $4.6 billion in 2025, taking the operating profit margin from ~24% to ~38%.
AMD recently announced the launch of its new high-performance MI300X chip, which the company describes as “the most advanced accelerator for generative AI.” This may help drive further growth in 2024 and beyond.
BYD’s NEV Focus to Drive Rising Revenue Expectations, Say Analysts
Chinese automaker and EV-specialist BYD (SZSE: 002594) is expected to increase its vehicle sales to 4.4 million units by 2025. This is a significant jump from the 1.8 million units sold in 2022 and projected 2.9 million units for 2023.
In 2022, the automaker made the strategic decision to discontinue the production of internal combustion engine (ICE) vehicles and instead focus exclusively on manufacturing hybrid and electric vehicles, also known as new energy vehicles (NEVs).
Analysts project BYD’s NEV segment revenue to grow 62% year-over-year in 2023, reaching a total of CNY 471 billion ($66 billion), up from CNY 290 billion ($41 billion) in 2022.
Novartis Acquisition; LULU’s Global Growth; RENT to Rise; Ford’s EV Sales
By: Visible Alpha Research & Innovation Lab
In our weekly round-up of the top charts and market-moving analyst insights: Novartis (NYSE: NVS) agrees to acquire Chinook Therapeutics (NASDAQ: KDNY); Lululemon Athletica (NASDAQ: LULU) projected to see significant international revenue growth; Rent the Runway (NASDAQ: RENT) subscribers and revenue expected to rise; Ford Motor’s (NYSE: F) Model e division (electric vehicles) to expand.
Novartis Agrees to Acquire Chinook Therapeutics and its Renal Pipeline
Novartis (NYSE: NVS) has agreed to acquire Chinook Therapeutics (NASDAQ: KDNY) for $3.2B up front, driven by Chinook’s innovative rare and severe kidney disease pipeline that will add to Novartis’ existing kidney disease focus. The acquisition is driven by Chinook’s lead program, atrasentan (currently in Phase 3 studies), a selective endothelin A receptor antagonist for IgA nephropathy. Visible Alpha consensus estimates show atrasentan ramping up to $1.25B in global revenue in 2032 ($932M on a risk-adjusted basis). Analysts peg the probability of regulatory approval at a consensus of 67.9%.
Analysts Anticipate Strong International Revenue Growth for Lululemon Athletica, Outpacing U.S. and Canada
Apparel retailer Lululemon Athletica (NASDAQ: LULU) is projected to see significant revenue growth in markets outside of the U.S. and Canada (UCAN). The company currently operates in UCAN, Europe, Asia, and Australasia. According to Visible Alpha consensus, the proportion of revenue generated internationally (excluding UCAN) is expected to increase from 15% in 2022 to 29% by 2027. Revenue outside of UCAN is expected to grow at a CAGR of 33% between 2022-27, and projected to reach $3.9 billion by 2027. Lululemon plans major expansion in its international markets, particularly in China. Analysts project Lululemon will add 49 new stores outside of UCAN in 2023, many of which will be in Asia.
Soaring Subscribers and Revenue to Propel Growth for Rent the Runway
Analysts are expecting strong subscriber growth for Rent the Runway (NASDAQ: RENT), a fashion rental service provider with 129K average active subscribers expected in 2023, according to Visible Alpha consensus. The company claims demand for workwear has been surging as more people return to the office. Analysts expect subscription and reserve rental revenue to grow by 45% in 2023 to $269 million, with projections reaching $404 million by 2026.
Ford’s Revised Business Segments Highlight EV Sales Growth
Ford Motor’s (NYSE: F) revised business segment classification — Ford Blue (gas and hybrid vehicles), Ford Model e (electric vehicles), and Ford Pro (commercial products and services) — has highlighted analysts’ projections for significant growth in revenue and units sold, specifically in the EV segment. Analysts project 63% revenue expansion for Ford’s Model e division in 2023, far surpassing the projected 3% growth for Ford Blue. Ford Model e units sold are projected to rise substantially from 96K units in 2022 to around 795K units by 2026.
Three Key Questions About Netflix Inc. (NASDAQ: NFLX) Earnings in April 2023
By: Melissa Otto, CFA
Netflix Inc. (NASDAQ: NFLX) reported Q1 2023 results on Tuesday, April 18, 2023. What happened in Q1, what is the outlook for Q2, and what are the new questions to focus on?
Overall, Q1 was in line and Q2 guidance came in a bit below consensus. The stock initially traded down more than -10% in after-hours trading post-release, but then rebounded to around flat. As of the following trading day, the stock continued to be weighed down. The discussion in the earnings interview emphasized the paid sharing program and the potential for advertising.
Read more
Winnebago Slowing Down; CRISPR’s Gene Editing Therapy; Alibaba’s New Organizational Structure
By: Visible Alpha Research & Innovation Lab
In our weekly round-up of the top charts and market-moving analyst insights: CRISPR’s (CRSP) new gene-editing therapy is expected to be evaluated by the FDA; franchise sales are expected to drive growth for Xponential Fitness (XPOF); Alibaba (BABA) announces a new organizational structure; Winnebago (WGO) is poised to sell fewer units but at higher prices this year; and analysts continue to cut forecasts for deposits at Schwab (SCHW) Bank.
Royal Caribbean’s Record Bookings; Nvidia and AI Hype; Manchester United Media Sales
By: Visible Alpha Research & Innovation Lab
In our weekly round-up of the top charts and market-moving analyst insights: automotive semiconductors are expected to drive sales growth at GlobalFoundries; On is estimated to double running shoe sales by 2025; NVIDIA’s AI hype is not convincing analysts to raise data center revenue estimates; Royal Caribbean Cruises is poised to operate at >100% occupancy; and media sales is expected to drive Manchester United’s revenue growth.
Pfizer Moves to Acquire Seagen; Apple TV+ Revenue Poised to Jump; Netflix Subscription Fees
By: Visible Alpha Research & Innovation Lab
In our weekly round-up of the top charts and market-moving analyst insights: Seagen is expected to show sharp sales growth as Pfizer moves to acquire the biotech innovator; Apple TV+ revenue is estimated to double by 2024; Netflix is expected to collect more than $20/month in subscriber revenue per U.S. and Canadian subscriber by 2027; and Softbank’s Arm may grow sales more than 70% as Softbank explores an IPO for the chip designer.
Ted Lasso’s AFC Richmond and Erik ten Hag’s Manchester United Challenge for Fan Dominance
By: Visible Alpha Research & Innovation Lab
With its recent promotion back into the Premier League, all eyes are on AFC Richmond and their singular coach, Theodore “Ted” Lasso, as they faced their season opener this week. But, while football pundits and oddsmakers debate Richmond’s chances on the pitch, Visible Alpha’s data suggests that equity analysts are expecting remarkable performance off of it.
Model 3 and Model Y to Continue Dominating Tesla Sales; Carvana Sales Estimates Crash
By: Visible Alpha Research & Innovation Lab
In our weekly round-up of the top charts and market-moving analyst insights: Tesla’s Model 3 and Model Y are expected to continue contributing the most to Tesla’s overall sales; Carvana’s used car sales are projected to move even lower; Coinbase is not expected to recover lost revenue any time soon; and Nerdwallet’s credit cards segment is poised to help drive sales growth.
