In a follow up to our recent article about how Amazon’s multi-billion dollar investments will trigger the next stage of growth for the company and the stock, we present this insight from Insider Intelligence, which focuses on the company’s surging advertising business for which Amazon, for the first time, unveiled revenue numbers in an earnings report.
Hint: it’s a massive and profitable business.
Bigger already than many rivals.
Here’s why that matters.
The news: Amazon’s advertising revenues rose 32% in Q4 2021 to $9.72 billion, reaching $31.16 billion for the year, per the company’s earnings release.
The Q4 growth was actually a slowdown from increases of 52% in Q3 and 88% in Q2, when the retailer hosted Prime Day.
More on this: This was the first time the retail giant broke out its advertising revenues.
Amazon’s ad business generated more annual revenues than the company’s physical stores ($17.08 billion) and roughly the same amount as Amazon Prime and its other subscription services ($31.77 billion).
The business is larger than YouTube’s ad business, which grew 46% to $28.85 billion last year, per a filing from parent company Alphabet.
Amazon sees ample room for ad growth: “We’re excited to continue innovating in areas like sponsored ads, streaming video, and measurement.
Of course, advertising only works if we make it useful for Amazon customers.
When we create great customer experiences, we build better outcomes for brands,” said Brian Olsavsky, Amazon’s CFO, during the earnings call.
Why it matters: Amazon’s first-party data on consumer shopping and purchase habits offer it an advantage over the more general online behavioural data that Facebook and Google provide.
Amazon has been largely unaffected by the privacy tweaks made to Apple’s operating system.
Amazon’s ad business is a key cog within the retailer’s flywheel.
Because advertising is extremely profitable, it provides Amazon with cash to fine-tune logistics and speed up delivery times.
Advertising revenues also allow it to invest in original content for Prime Video to drive media usage.
The ad business helped offset a slight slowdown in first-party online sales during Q4 2021, when compared with the prior year.
Q4 2020 included Amazon’s Prime Day, which shifted to June last year.
We expect Amazon’s share of the US digital ad market will jump 1.7 percentage points this year; by the end of 2023, it will increase its share to 14.6%, primarily at the expense of Google and Facebook.
The big takeaway: Amazon’s ad business is poised for growth, since the company’s offerings enable marketers to reach huge groups of in-market shoppers with high purchase intent, making it extremely important for brands to defend their search position, much as they do on Google.