Amazon’s ad sales surge 41% to record $4.8B

Dive Brief:

• Amazon’s advertising sales jumped 41% to a record $4.8 billion during the key holiday quarter, outpacing the e-commerce giant’s yearly revenue growth of 21% to $87.4 billion. The company’s “other” revenue category mostly comes from ad sales, according to a quarterly announcement. Amazon’s total revenue beat analyst estimates of $86 billion, per data cited by CNBC.
• Profits in Q4 rose 8% to $3.3 billion from the prior year, reversing the 25% slump in Q3 as it rolled out a costly one-day shipping service for Amazon Prime members. CFO Brian Olsavsky said the one-day shipping service ended up costing the company $500 million less than it had forecast, Reuters reported.
• Amazon Prime membership ended the quarter at 150 million worldwide, up from 100 million in April 2018 when it last reported the figure in a letter to shareholders. Revenue from subscription fees surged 32% to $5.2 billion in Q4 as more shoppers signed up for Prime than ever before, CEO Jeff Bezos said in the announcement. Amazon forecasts sales of between $69 billion and $73 billion for the current quarter.

Dive Insight:

Amazon again showed strong ad sales growth as the e-commerce company leverages its strength in reaching customers as they shop. The growth rate of 41% was slightly less than the prior quarter’s 45%, but ahead of 34% and 37% from the first two quarters of 2019, respectively.

“I think broadly with advertising, so much of this is about having, developing great relationships with these advertisers, because I think they appreciate the fidelity we can provide around shopping outcomes. We’re uniquely positioned to do this given our retail business,” Dave Fildes, Amazon’s director of investor relations, said on the earnings call.

With advertising, Amazon sees an opportunity to create an omnichannel service that combines its programmatic demand-side platform (DSP), search ad tool, customer data and ad-serving service into a one-stop shop of data and ad buying, per Forrester Research. It offers brands a unique opportunity to advertise to consumers as they’re ready to purchase on the site.

“We’re focused on … brands as an advertising customer set and a lot of focus on providing the products and tools that are going to help customers and really inspire them. So, things that we’re really excited about [are] stores, so a brand can customize and curate a multipage store. It allows them to better tell customers who they are share their story,” Fildes said. “So, we can help deepen the brand engagement and the customer loyalty through that type of option. Some other things like posts, which helps customers discover products and brands. And it’s through a curated feed that features the brand’s lifestyle content and it’s on a mobile detail page. And there’s international expansion in some other areas.”

Amazon is growing as the most significant threat to Google and Facebook, which have been called “the duopoly” because of their dominance in digital advertising. Amazon’s ad sales gain of 41% was higher than Facebook’s 25%, but the social network has a longer history of selling ads and a bigger base for comparison. Facebook-owned Instagram will boost its advertising revenue 47% to $13.9 billion this year from 2019 despite slower user growth in the U.S., researcher eMarketer forecasts. Alphabet, the parent company of Google and YouTube, will report its quarterly results on Monday.

Amazon’s report also shows that its push into one-day shipping is starting to reap rewards after a costly start. Not only did the quicker delivery service come in under budget, but likely gave many consumers another reason to sign up for Amazon Prime. The subscription service costs $12.99 a month or $119 a year, and gives customers access to streaming media services, discounts at Whole Foods Market and other benefits.