Amazon’s ad business grows

While the company's profitability has continued to slow, ads are bringing in more revenue than ever and more video opportunities are around the corner.

Amazon’s profitability has continued to slow, demonstrated in its recent Q3 financial filings. The ecommerce giant’s net income dropped to $2.1 billion in the quarter, down from $2.9 billion in Q3 2018. That caused the company’s stock to dip slightly in the hours following the release, to just under US$1,700 per share (although Amazon’s stock price has hovered around the same marker since August).

Nevertheless, Amazon is gradually building its ad business.

The “other” segment, which primarily consists of advertising revenue, pulled in $3.6 billion for the quarter, a growth rate of 45% year-over-year. Some other sources of revenue make up this category, such as Amazon gift cards, but CFO Brian Olsavsky said in a call to shareholders that advertising is still leading the way, and that ad revenue in particular grew by more than 45% (although he did not specify how much revenue came from ad sales).

Olsavsky added that Amazon’s advertising growth is driven primarily by its swaths of purchasing data – it’s used points of purchase (and, in many cases, non-purchase) to leverage its advertising business.¬†“[Amazon's search ad business] is still early and what we’re focused on really at this point is relevancy, making sure the ads are relevant to our customers… And to do that, we use machine learning, and it’s helping us to drive better relevancy,” he said.

Olsavsky’s¬†statements underscore the value of that data, with the CFO adding that the ad platform “is increasingly popular with vendor sellers and third-party advertisers.”

Director of investor relations Dave Fildes also added that it’s expanding its focus on video and OTT offerings for brands, and growing its OTT offering overall. Fire TV connected TV systems and Fire TV Sticks provide video advertising opportunity, and those are on the rise. The company reported 37 million active users of the Fire TV system, up from 25 million one year ago. The company also takes a 30% cut of inventory from OTT apps on the Fire TV platform, and gets video supply from ad-supported streaming network IMDB TV, as well as any video publishers that use Amazon Publisher Services.