Advertising still a drop in the bucket for Amazon

The e-commerce giant's ad business is growing, but growth has slowed from its initial 2018 rise.
Amazon

E-commerce giant Amazon’s earnings have been called “disappointing” by numerous business and financial publications.

The Seattle-based tech company reported USD$63.4 billion in earnings for the quarter ended June 30, which was indeed up from $52.9 billion in the same quarter last year.

But the big disappointment came from its net income of $2.6 billion. Even though it was up slightly year-over-year, it fell short of analyst expectations, sending stock down to $1,974 per share at market close on Thursday (from $2,000 at the beginning of the day). Shares fell by about 2.5% in after-hours trading.

For its upcoming Q3, Amazon delivered guidance in the range of $66 to $70 billion, compared to analysts’ prediction of $67.27 billion.

The lower-than-expected profit was driven partially by higher than expected expenses. It also saw growth in its Amazon Web Services of 37%, but that growth rate was the slowest yet.

Also up 37%, however, was Amazon’s “other” category, which mainly covers its burgeoning ad business. The “other” category rose to $3 billion in revenue. Unlike Amazon Web Services, which saw its growth rate slow from 41% last quarter and 45% in Q4, the category encompassing advertising is seeing faster growth, having only grown 34% in Q1.

It pales in comparison to the 95% year-over-year jump Amazon’s stock made in Q4 2018. Last year, analysts first began to note that Amazon could be a potential contender to break up the “digital duopoly” of Google and Facebook. While the two indeed bring in the vast majority of money spent on digital advertising and far outpace Amazon – Facebook reported $16.2 billion in ad revenue¬† this quarter, and Google took in a whopping $32.6 billion in ad revenue in the same period – analysts, buyers and other digital experts have identified Amazon as a rising star, possibly taking a bigger piece of the pie down the road. A recent Juniper Research study predicted that Amazon’s ad business could have a 7.7% share of the global digital ad market by 2023, up from its 2018 share of 3%.

But the Q2 results show that despite solid growth, Amazon is still a long way’s off from Facebook and Google – and that advertising is still far from being Amazon’s bread and butter.¬†Whereas in Q2 2018, the “other” category, then having brought in $2.19 billion, represented just under 5.5% of the company’s revenue today, the “other” category represents 4.7% of Amazon’s total income – meaning that although ad dollars are rising, Amazon is far from becoming known primarily as an ad giant.

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