Amazon lifts the lid on its $31bn advertising business

4 Feb 2022

Image: © Oleksandr/Stock.adobe.com

The e-commerce giant’s advertising revenue last year was greater than that of Microsoft or YouTube.

Amazon has for the first time published its advertising services revenues, revealing that the US e-commerce giant made $31.2bn in ad revenue last year. The figures were included in the company’s fourth-quarter earnings report for 2021, with ad revenue in the last quarter up 32pc to $9.7bn.

It provides more clarity on a growing part of Amazon’s business. The last major earnings break out the company made was when it separately reported Amazon Web Services (AWS) for the first time in 2015.

Future Human

The sheer size of Amazon’s ad business puts it ahead of many other tech companies, including Microsoft, which reported advertising revenue in 2021 of more than $10bn in its most recent earnings call. While $31.2bn is around half the ad revenue reported by Google last year, it soars past YouTube ad revenue for 2021.

Amazon has been creeping into the market share of Google and Facebook, two of the biggest players in the digital ad space. Some analysts think Amazon’s advertising business is booming because nearly three in four consumers start their online search for a product on the Amazon website, according to a study by Jungle Scout.

“Amazon has done such a great job of becoming the ‘everything store’ that they have been able to convince consumers that whatever you want will be there,” Wedbush analyst Michael Pachter told GeekWire. “Instead of searching on Google, Amazon customers commence product searches on Amazon, hence a shift of ad dollars away from Google and to Amazon.”

However, Amazon’s advertising business differs from others as some of its ad revenue comes from sellers in the form of ‘sponsored products’ and ‘sponsored brands’ – a bit more akin to promo material in a supermarket, but on a larger digital scale.

Prime price hike, cloud earnings and Rivian

Amazon also said in its earnings report that it is raising the price of its Prime service by $20 to $139 on 18 February for new customers and on 25 March for existing ones. This is the first price increase in four years.

Andy Jassy, Amazon CEO, said the company saw higher costs in the last quarter of the year due to inflationary pressures and labour shortages. Still, Amazon reported a fourth-quarter revenues of $137.4bn – a 9pc increase on the fourth quarter of 2020. Revenue for the full year was up 22pc to $469.8bn.

Even though the quarter marks the first period of single-digit growth by Amazon since 2017, investors have shown confidence in the company’s performance and shares jumped 14pc in extended trading after the earnings call yesterday (3 February).

Revenue was strong in its AWS cloud segment at $17.8bn, exceeding StreetAccount expectations of $17.37bn. Cloud-driven growth has been a trend in recent Big Tech earnings, with Microsoft and Google reporting bumps in cloud sales.

Amazon reported a profit of almost $12bn from its stake in electric vehicle company Rivian, which went public in November. After the earnings call, shares of Rivian jumped by 3pc in extended trading.

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Vish Gain is a journalist with Silicon Republic

editorial@siliconrepublic.com