Amazon ad business jumps 77% as it ‘turns clicks into sales’

Amazon’s ad business has stepped up another gear as increased traffic, new ad products and an increased focus on driving relevancy all conspired to fuel a dramatic jump in growth.During an earnings call yesterday Amazon’s ‘other’ unit, comprised predominantly of advertising but also incorporating miscellaneous sales derived from other service offerings, saw revenue rise 77% year-on-year to more than $6.9bn.

Amazon ad business jumps 77% as it ‘turns clicks into sales’

Amazon’s growing ad business

• Roaring revenues are now close to seven times greater than Twitter, despite the latter relying on advertising for the majority of its revenue while remaining something of a side business for Amazon.

• Whichever way you cut it, a 77% year-on-year rise in revenues for the first quarter represents a spectacular acceleration – dwarfing an already impressive 44% growth rate during the first quarter of 2020.

• Amazon’s ad business has been scaling new heights just as it unleashes a suite of new ad products, such as video product listings and deep learning algorithms, to improve relevancy.

• Basking in the reflected glow of a hyperactive start to 2021, Amazon chief financial officer Brian Olsavsky said: “The advertising team has done a great job turning clicks into productive sales, and the advertising that results is valuable to us as well.”

• Amazon’s outsize performance has seen it cement its position as the (distant) third player in digital advertising behind only Google and Facebook, buoyed by a pronounced consumer pivot towards online spending since 2020.

• As a consequence eMarketer estimates that online spending now accounts for 10% of the US digital ad market.

Why does it matter?

• Recent success still leaves Amazon clutching the coat-tails of Facebook and Google, the undisputed duopoly of ad sales, but does at least give the market leaders pause to look over their shoulders.

• Amazon is likely to further grow its ad business as brands welcome the opportunity for direct sales from placements – something Amazon is uniquely placed to provide.

• Commenting on the shifting tectonic plates of digital advertising, Jesse Cohen, senior analyst at Investing.com, told Reuters: “Outside of its core retail and cloud units, advertising revenue is increasingly becoming another substantial growth driver for Amazon.”

OK, anything else?

• Amazon is enjoying an embarrassment of riches, with its content business also booming.

• Over the past year, hours watched on Twitch have doubled and the service now courts 35 million monthly active users.

• Prime Video has been no less successful, with 175 million people consuming content over the past 12 months – equivalent to seven-eighths of overall users.

• Prime Video is an odd fish in that it operates without advertising a la Netflix, as Dave Fildes, head of investor relations at Amazon, explained: “We look at Prime Video as a component of the broader Prime membership, and making sure it drives adoption and retention. It’s a significant acquisition channel.”