While Amazon is still a powerhouse digital advertising player, there may be signs it is facing the repercussions of higher interest rates and smaller marketing budgets.
In its latest quarterly earnings report on Thursday, the company announced $12.77 billion in advertising revenue, marking a 20% year-over-year growth. However, this fell short of Wall Street’s expectations, which anticipated $13 billion for Q2 2024.
Although advertising isn’t Amazon’s primary revenue source, it enables one of the company's highest profit margins. Amazon’s advertising offerings include sponsored product listings on its retail site and video ad opportunities on live sports and other Prime Video content. In January, Prime Video began showing ads to viewers who do not pay an additional $2.99 monthly fee. At the Variety Entertainment Summit during CES 2024, Amazon predicted reaching 115 million US viewers through its Prime Video ad offering.
For comparison, Meta surpassed analyst expectations with a 22% growth in advertising revenue year-over-year this past quarter. In contrast, Alphabet, Google’s parent company, missed expectations with only a 10% increase in advertising revenue over the last year.
Overall, Amazon said it earned $1.26 per share Q2 2024, ahead of the $1.03 expected by LSEG analysts. However, revenue came in lighter than expected at $147.98 billion versus the $148.56 billion LSEG estimate.
Amazon's primary revenue driver remains online sales, earning $148 billion in the past quarter, up 10% from the same period last year. Amazon Web Services (AWS) also exceeded analyst expectations, reporting $26.3 billion in revenue, a 19% increase year-over-year.
“We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth,” Amazon president and CEO Andy Jassy said in a statement. “As companies continue to modernize their infrastructure and move to the cloud, while also leveraging new Generative AI opportunities, AWS continues to be customers’ top choice.”
Despite these positive results, Amazon’s weak guidance of $156.25 billion in revenue for the upcoming third quarter disappointed Wall Street. The company cited consumer wariness due to global economic uncertainty, noting that people are cautious about purchasing big-ticket items. Additionally, events such as the Olympics and the upcoming Presidential election are drawing attention away from shopping.
“Customers only have so much attention,” Amazon CFO Drew Olsavsky said during a call discussing the latest report. “When high-profile events occur, like the assassination attempt a couple of weeks ago, people shift their focus to the news. It's more about distractions.”
Forrester senior analyst Nikhil Lai told Campaign India that while Amazon’s ad revenue continues growing, though not as much as expected. “From both endemic and non-endemic brands, Amazon is focused on getting upper funnel ad dollars by investing in planning, buying, and optimisation tools for Prime Video ads, Twitch ads, ads on Fire TVs, and ads on Amazon packages, among other formats. Amazon’s first TV upfront was long on celebrity and short on details about how its shoppable formats will perform. Nonetheless, Amazon’s rights deal for the NBA, which the company struck in partnership with Disney and Comcast, will continue luring index-based media buyers, who are interested in associating their brand with prime-time programming,” he added.
The tech major is also trying to make a bold move to attract brands that aren't currently selling on its platform by offering advertising solutions that attempt to rival those of Google, Meta, and The Trade Desk.
Its latest offering, Performance+, is designed to simplify and enhance the advertising experience and leverages Amazon's vast data and machine learning (ML) capabilities to automate various aspects of campaign management, including setup, audience targeting, and optimisation. This approach aims to provide advertisers with more transparency and control compared to Google’s Performance Max and Meta’s Advantage+ offerings. By offering these advanced features, Amazon hopes to position itself as a formidable player in the digital advertising space, making it an attractive option for brands looking to diversify their ad spend and reach a wider audience.
“Advertising—especially when it occurs on Amazon’s owned and operated properties—continues generating high-margin operating income for the company, helping it offset losses from first-party product sales, third-party seller fees, brick-and-mortar sales, and subscription services,” Lai explained.
This article first appeared in Campaign US and was updated with additional information.
