Andy Jassy, CEO of Amazon.Com Inc., at the GeekWire Summit in Seattle, Washington, USA on Tuesday, October 5, 2021.
david ryder | Bloomberg | Getty Images
Social media giants Meta and Snap are telling investors that the online advertising market is experiencing turbulence due to the economic downturn. Amazon sends a very different message.
While the bulk of its business comes from e-commerce and cloud computing, Amazon has built a strong online advertising division by forcing brands to pay big bucks to promote their products on Amazon’s website and app. the company.
At the end of last year, Amazon controlled 14.6% of the U.S. digital advertising market, third behind Google at 26.4% and Facebook at 24.1%, according to Insider information.
In the second quarter, Amazon grew faster than any of its larger peers in the market and also beat out the rest of the major players. Amazon’s ad revenue rose 18% from a year earlier to $8.76 billion, beating analysts’ expectations and underscoring the unit’s rapid rise and growing importance to brands.
In contrast, Facebook’s ad business fell for the first time, missing analysts’ estimates, and the company forecast a second straight decline in revenue in the current period.
Here are the growth rates in descending order for the major online advertising platforms.
- Amazon — 18%
- Pinterest — 9%
- Twitter — 2%
It’s not just social media companies that have denounced the difficult advertising environment. Streaming service Roku reported disappointing second-quarter results and said in a letter to shareholders that the current advertising market is reminiscent of the start of the Covid-19 pandemic, “when marketers braced for macro uncertainties rapidly reducing ad spend across all platforms.”
Meanwhile, Amazon reassured Wall Street with guidance for third-quarter revenue growth of 13% to 17%. This is going to be a boon for the advertising division, as “ad business goes like business activity,” said Insider Intelligence analyst Andrew Lipsman.
“Long term, I think Amazon is building an absolute advertising juggernaut,” Lipsman said. “This engine will transform advertising.”
Amazon has a clear advantage over several of the social media platforms that have struggled lately. In 2021, Apple’s iOS privacy change made it harder for ad-supported sites to track users, a move that had an outsized impact on Facebook and Snap. Amazon, on the other hand, is its own separate silo, where advertisers go directly to create campaigns.
Lipsman said companies worried about a possible recession are allocating more of their ad budgets to places like Amazon, where they can more likely see a return on their investment.
“It’s flight to safety for ad dollars right now, and that safety is when you can show measurable returns on ad spend,” Lipsman said.
The prospect of ads leading to direct sales drives much of Pinterest’s current strategy. The company is investing heavily in e-commerce and recently recruited former Google commerce chief Bill Ready as its new CEO, succeeding co-founder Ben Silbermann.
Justin Patterson, analyst at KeyBanc Capital Markets, said there are signs that Pinterest is having some success in e-commerce and that its “algorithms helping people discover contacts or discover items on Pinterest to buy continue. also to improve.
Pinterest’s revenue slightly beat analysts’ estimates and the company also released a disappointing mid-single-digit growth forecast. But the stock soared 12% after activist investor Elliott Management revealed it was the company’s largest shareholder and said: “Pinterest is in a unique position in the advertising and shopping ecosystems.”
Despite all the pessimism surrounding the broader online advertising market, Kate Scott-Dawkins, global director of business intelligence for media investment firm GroupM, sees plenty of reason to be optimistic. Facebook’s parent company, Meta, is still making big money, and while social media platforms aren’t seeing the kind of meteoric growth they’ve seen during the pandemic, they’re still attracting the attention of top advertisers, she said.
Brand awareness is important for companies in the consumer packaged goods industry and elsewhere, regardless of the current economic environment, Scott-Dawkins said.
“We’ve heard from CPG brands in the past about the importance they place on advertising and brand advertising during a recession, just to continue to ensure that consumers choose their brand over a generic brand,” she said.
The big question will be whether consumers will cut spending as the year progresses, which could have a deeper impact on companies’ advertising budgets. If so, Amazon could still take market share, but in a market with fewer dollars to spend.
LOOK: Big tech companies paint a bleak picture of the US economy.