Many ad companies and traditional media owners are braced for painful contractions as coronavirus brings marketing spend to a halt. However, Amazon’s ad business has emerged as a bright spot in the company’s Q1 financial update despite belt-tightening from brands in other areas.
The e-commerce giant disclosed on Thursday (30 April) that its ‘other’ division (which chiefly comprises revenues from its advertising arm) had seen a gain of 44% over the past three months to reach $3.9bn. Though Amazon doesn’t break out its ad revenue figures, chief financial officer Brian Olsavsky told investors that the Q1 ad growth rate was in line with Q4 2019, when he disclosed that it grew at a 40% clip.
The trajectory outstripped the growth of its more established offerings like online sales (24%), subscription services (28%) and Amazon Web Services (33%).
Overall, Amazon’s total earnings for the first three months of the year showed the retailer to have been an early winner of the global pandemic. The behemoth pulled in the equivalent of $33m an hour, with revenues clocking in at $75.4 bn between January and March.
Amazon’s Q1 profit was $2.5bn, down from $3.6bn on the same period last year, and Amazon founder and chief executive Jeff Bezos cautioned that this would dip further in light of Covid-19-related spend.
Bezos cautioned that despite soaring revenues, shareholders should “take a seat” because the company planned to spend $4bn or more in the next three months on coronavirus-related expenses – such as getting products to customers and keeping employees safe.
“This includes investments in personal protective equipment (PPE), enhanced cleaning of our facilities, less efficient process paths that better allow for effective social distancing, higher wages for hourly teams, and hundreds of millions to develop our own Covid-19 testing capabilities,” he explained.
This $4bn spend from Bezos will be equal to Amazon’s entire profit for Q2, a reality which caused Amazon’s shares to plummet immediately after.
Amazon’s director of investor relations Dave Files said it had seen “some impact” from advertisers belt-tightening as a result of Covid-19.
“In March, [we saw] some pullback from advertisers and some downward pressure on price, but how but advertising continues to advertise at a high cliff,” he said.
“It wasn't as noticeable maybe as with what some others are seeing, and it's probably offset a bit by the continued strong traffic we have to the site. So it's a bit of a mixed bag. We have again, as I said, downward pressure a bit on pricing.
He also noted that a “large portion” of the firm’s advertising related to Amazon sales, “not [to] things like travel and auto” – sectors which have been disproportionately impacted by coronavirus.
“Our advertising will prove to be very efficient as well,” he assured investors. “And it can be directly measured. So even as people are cutting back perhaps on advertising, or are their costs, I think this will be one area that will prove its value. It has in the past.”
Amazon’s boom in business comes as platforms and media owners look for ways to stave off the impact of coronavirus on their ad revenues.
For its part, Facebook posted a rise in revenue and profit in the first quarter of 2020, but cautioned its advertising business could be impacted by the ongoing situation.
In the UK, broadcasters like Channel 4 and ITV have predicted their ad sales could decline by as much as 50%.
Advertisers have had mixed responses, with Coca-Cola putting the brakes on all marketing spend while P&G has pledged to ramp up its investment.
The most recent Bellwether report from the Institute for Practitioners in Advertising (IPA) revealed that UK ad spend had hit its lowest ebb since the 2009 financial crash.