At a time where ad budgets are being slashed, it appears that e-commerce giant Amazon is reaping the ad dollars as the company announced its financial figures for the ad business during the first quarter of 2020 (January – March).
During Q1, the ad business grew 44% year-on-year to $3.91 billion, surpassing the growth of its existing offerings including online sales (24%), subscription services (28%) and Amazon Web Services (33%).
In terms of the duopoly, Amazon continues to lead both Google (13%) and Facebook (17%) in terms of growth. However, the e-commerce retailer’s ad business still lags behind in comparison with Google and Facebook recording figures of $17.4 billion and $28 billion respectively in Q1.
Growth up, profits down
Although its ad business has done well, Amazon’s profits have taken a shortfall over the period with the business recording profits of £2.5 billion, down from $3.6 billion on the same period last year.
Amazon chief executive Jeff Bezos warned that profits may dip further as the company is set to spend over $4 billion in the next three months on coronavirus-related expenses – such as getting products to customers and keeping employees safe.
For advertisers specifically, it’s been a tricky few weeks for them to pay or run ads due to the e-commerce retailer in March introduced some changes to its product shipping and categories as well as its affiliate programme.
According to a piece on Digiday, this was due to help Amazon easing pressure on its own supply chain, but in return, this may have forced advertisers to rethink their ad spend budgets on certain products via the marketplace.
Furthermore, as noted in The Drum, Amazon’s director of investor relations Dave Files stated there has been “some impact” from advertisers restricting on budgets as a result of the current climate.
“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 heavily impacted by the Coronavirus pandemic.
Assuring investors, Files concluded that Amazon’s advertising will prove efficient during this period despite advertisers cutting back, proving its value in the long run.