3 Things to Know About Amazon’s Advertising Business

Amazon (AMZN 1.70%) recently reported its second-quarter financial results, and Amazon Web Services (AWS) and the company’s e-commerce business again got most of the attention.

But savvy investors know Amazon has a burgeoning advertising business that shouldn’t be overlooked. It’s important to take note of three significant things happening with Amazon’s ad business:

  1. Ad sales are growing faster than its competitors
  2. Privacy changes won’t impact Amazon ad sales much.
  3. The company’s ad market share is on the rise.

Let’s take a closer look at each.

Image source: Getty Images.

1. Amazon’s ad sales outpaced its competitors’ growth

Let’s start with what I think is a very important storyline for Amazon’s ad business: It’s growing while larger competitors are pulling back.

In the second quarter, Amazon’s ad sales increased 18% year over year to $8.8 billion. Now, that’s not a huge sum for a company that generated $121 billion in total sales for the entire quarter, but the percentage increase is notable because advertising rivals Meta Platforms, Twitter, and Snap all grew at a slower pace.

For example, Snap’s ad revenue increased by 13%, Twitter’s grew by just 2%, and Meta’s actually declined by 1.5%.

Some of these companies even highlighted a difficult advertising environment, with Meta CEO Mark Zuckerberg saying on his company’s most recent earnings call that “[W]e seem to have entered an economic downturn that will have a broad impact on the digital advertising business.”

Now, contrast that with Amazon chief financial officer Brian Olsavsky’s comments to analysts on its earnings call:

“I’ll just add a little more on advertising because you’re probably wondering again about softness — potential for softness in that or macroeconomic factors. Right now, we still see strong advertising growth … . I think our advantage is that we have highly efficient advertising.”

In short: Slowdown? What slowdown? Of course, Amazon doesn’t make as much money as some of its ad peers, so it’s easier for the company to put up stronger percentage growth. But that doesn’t take away from the fact that Amazon’s ad business looks very strong right now, while some of its competitors are experiencing headwinds.

2. Amazon isn’t fretting over major ad privacy changes

You may have heard that the death of web tracking cookies is upon us. The internet industry is moving away from so-called cookies because, well, online users don’t like them because they don’t like having their every online move tracked.

Apple made a big change to its Safari browsers in 2020, drastically scaling back the amount of tracking that companies can do within the app. Companies that rely on third-party tracking for their entire business (think Meta) are already suffering from these changes. Meanwhile, Amazon is shrugging its shoulders.

Amazon doesn’t have to concern itself much about the death of cookies because it operates its own massive e-commerce platform in which advertisers are knocking on Amazon’s door to let them on the site.

And because Amazon doesn’t have to worry about shifting its ad strategy in the wake of these user-tracking changes, some advertisers will likely be more inclined to spend their money on Amazon’s platform than elsewhere.

3. The company’s ad market share is getting bigger

And finally, Amazon’s continuous ad growth is starting to chip away at larger market share leaders. Consider that in 2019 Amazon held just 7.8% of the US digital advertising market, according to InsiderIntelligence, while Alphabet‘s Google took the top spot, with about 32%, and Meta’s Facebook had about 24%.

But by next year, Amazon will take an estimated 14.6% of the digital ad market — up from 13.3% this year — while Google’s share will have declined to 26.4%, and Facebook’s market share will remain flat.

So, why should all this advertising growth matter to Amazon investors? Because the digital advertising market is expected to grow from $239 billion this year to $315 billion by 2025. And if Amazon can grab a little more of that pie while its competitors have a hard time keeping theirs, Amazon should be able to significantly boost its ad revenue over the next few years.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Chris Neiger has positions in Apple. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Meta Platforms, Inc., and Twitter. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

Leave a Reply

Your email address will not be published.

Back to top button

Adblock Detected

Please consider supporting us by disabling your ad blocker