Amazon touts efficiency as Q2 advertising revenue grows 18%

Dive Brief:

• Amazon’s advertising services segment grew revenue 18% year-on-year to $8.76 billion in the second quarter, according to an earnings statement. 
• Healthy growth in ad sales contrasts with how other digital platforms fared over a period marked by weak advertiser demand. Amazon saw net sales up 7% YoY to $121.2 billion in Q2, exceeding expectations, though its e-commerce business remained vulnerable. 
• Amazon gave a sunny outlook and highlighted features that could stoke further engagement in the months ahead, including a slate of upcoming streaming programming that includes “Thursday Night Football” and a pricey “Lord of the Rings” series, along with a buzzy new partnership with Grubhub. 

Dive Insight:

Amazon’s ads business has had a patchy 2022 so far but weathered a challenging second quarter better than rivals. The company started breaking out the services segment earlier this year after generating $31.15 billion in ad revenue in 2021.  

Soaring inflation and global events like the war in Ukraine hampered broad-based advertiser demand during the period, eating into the growth of heavyweights like Meta Platforms’ Facebook and Google’s YouTube. But Amazon operates a little differently than other digital platforms, leaning more toward the retail media end of the spectrum. 

The company is well known for sponsored product and search listings that can be tied to the point of purchase on its behemoth e-commerce marketplace. As marketers face belt-tightening measures — and as consumers get choosier with their wallets — media placements that can be linked directly to sales results may be more appealing.   

“I think our advantage is that we have highly efficient advertising,” said Amazon finance chief Brian Olsavsky on a call discussing the Q2 results with analysts.

“People are advertising at the point where customers have their credit cards out and are ready to make a purchase,” Olsavsky added. “It’s also very measurable.”

Amazon accounted for 50% of all retail media ad spending in the January-May period this year, tailed by Walmart, according to new Standard Media Index (SMI) data. Ad spending on the category in total grew 31% YoY to reach its highest levels in the five years that SMI has tracked it.

It remains to be seen if Amazon’s slowdown in e-commerce will eventually carry a more concrete impact on its advertising prospects. Amazon’s online sales declined 4% YoY in Q2 to $50.86 billion, a stark contrast with earlier pandemic highs.

Other Amazon revenue streams include its ad-supported streaming offering Freevee (f.k.a. IMDb TV), which has broadened its content slate and tools for marketers, and the livestreaming service Twitch. Freevee was a central part of Amazon’s pitch to brands and agencies at the Newfronts in May, highlighting forward-looking technology like a solution that can virtually insert product placements into a show after production has wrapped. Amazon also runs an ad-supported tier for its music-streaming service and has a number of bets in the podcast space. 

In relation to video, Amazon sees opportunities but noted that its work there is still early days. The company is looking to programming like its exclusive broadcasts of “Thursday Night Football,” which kick off this season, and Amazon streaming TV ads as a means to build out video capabilities.