Andy Jassy, Chairman and 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 Casser tell investors that the online advertising market is experiencing turbulence due to the economic downturn. Amazon sends a very different message.
Advertising
While most of its business comes from e-commerce and cloud computing, Amazon has built a robust online advertising division by getting brands to pay big bucks to promote their products on the website and app. of the company.
At the end of last year, Amazon controlled 14.6% of the U.S. digital advertising market, third after Google at 26.4% and Facebook at 24.1%, according to Insider Intelligence.
In the second quarter, Amazon grew faster than any of its larger peers in the market and beat out the rest of the major players as well. 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 advertising fell for the first time ever, missing analyst estimates, and the company expects a second straight decline in revenue in the current period.
Here are the growth rates in descending order for the top online advertising platforms.
- Amazon—18%
- Snap—13%
- Google—12%
- Pinterest — 9%
- Twitter—2%
- Facebook—(1.5%)
It wasn’t just social media companies denouncing the harsh 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 onset of the Covid-19 pandemic, “when marketers prepared for macroeconomic uncertainties by reducing ad spend quickly across all platforms.”
Meanwhile, Amazon reassured Wall Street by giving third-quarter revenue growth forecasts of 13% to 17%. This is going to be a boon for the advertising division, as “the advertising business is going like commerce,” 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 distinct 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 build campaigns.
Lipsman said companies worried about a potential recession are allocating more of their ad budgets to places like Amazon, where they can more likely see a return on investment.
“It’s a 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 landed former Google commerce chief Bill Ready as its new CEO, succeeding co-founder Ben Silbermann.
Justin Patterson, an analyst at KeyBanc Capital Markets, said there are signs that Pinterest is having some success in e-commerce and that its “algorithms help people discover contacts or discover items on Pinterest to make their purchases also continue to improve.
Pinterest’s revenue slightly missed analysts’ estimates and the company also released a disappointing 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 sluggishness in the broader online advertising market, Kate Scott-Dawkins, global director of business intelligence for media investment firm GroupM, sees plenty of reason for optimism. Facebook’s parent company Meta is still making big money, and while social media platforms aren’t seeing the kind of booming growth they’ve seen during the pandemic, they still have the attention of the best. advertisers, she said.
Brand awareness is important for companies in the consumer packaged goods industry and beyond, regardless of the current economic environment, Scott-Dawkins said.
“We’ve heard from FMCG brands in the past about the importance they place on advertising and brand advertising during a recession, just to continue to ensure consumers choose their brand. rather than a generic brand,” she said.
The big question will be whether consumers reduce spending as the year progresses, which could have a deeper impact on companies’ advertising budgets. If so, Amazon could still take some share, but in a market with fewer dollars to spend.
SHOW: Big tech companies paint a hideous picture of the US economy.