Andy Jassy, CEO of Amazon.Com Inc., during 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 some turbulence due to the economic slowdown. Amazon is sending a very different message.
While most of its business comes from e-commerce and cloud computing, Amazon has built a powerful online advertising division by forcing brands to pay big bucks to promote their products on its website and app. the company.
At the end of last year, Amazon commanded 14.6% of the US digital ad market, third behind 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 also beat the rest of the major players. Amazon’s ad revenue rose 18% from a year earlier to $8.76 billion, topping analysts’ expectations and underscoring the unit’s rapid rise and growing importance to brands.
In contrast, Facebook’s advertising business shrank for the first time ever, missing analysts’ estimates, and the company forecast a second straight revenue decline in the current period.
Here are the growth rates in descending order for the major online advertising platforms.
- Amazon – 18%
- Snap – 13%
- Google – 12%
- Pinterest – 9%
- Twitter – 2%
- Facebook – (1.5%)
It wasn’t just social media companies calling out the challenging advertising environment. Streaming service Roku reported disappointing second-quarter results and said in a shareholder letter that the current ad market is reminiscent of the start of the Covid-19 pandemic, “when marketers prepared for macro uncertainty by rapidly cutting ad spending across platforms”.
Meanwhile, Amazon gave Wall Street a level of certainty in its third-quarter revenue growth guidance of 13% to 17%. That will be a boon for ad sharing because “the ad business goes the way the commerce business goes,” said Andrew Lipsman, an analyst at Insider Intelligence.
“For a long time, I think Amazon is building an absolute ad juggernaut,” Lipsman said. “That engine is going to be transformative to advertising.”
Amazon has a distinct advantage over some of the social media platforms that have struggled recently. In 2021, Apple’s iOS privacy change made it harder for ad-supported sites to track users, a move that has had a big 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 possible recession are allocating more of their advertising budgets to places like Amazon, where they are more likely to see a return on their 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 is driving much of Pinterest’s current strategy. The company is investing heavily in e-commerce and recently landed former Google commerce head 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 seeing some success in e-commerce and that “its algorithms that help people discover contacts or discover items on Pinterest to buy also continue to improve.”
Pinterest’s revenue slightly missed analysts’ estimates, and the company also issued a disappointing forecast for mid-single-digit growth. But the stock rose 12% after activist investor Elliott Management revealed it was the largest shareholder in the company and said, “Pinterest occupies a unique position in the advertising and shopping ecosystems.”
Despite all the doom and gloom for the wider online advertising market, Kate Scott-Dawkins, global director of business intelligence for media investment firm GroupM, sees plenty of reason for optimism. Facebook parent Meta is still bringing in a lot of money, and while social media platforms aren’t experiencing the kind of growth they did during the pandemic, they still have the attention of major 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 in times of recession, just in terms of continuing to make sure consumers choose their brand over a generic brand,” she said.
The big question will be whether consumers cut back on spending as the year progresses, which could have a deeper impact on company advertising budgets. If that’s the case, Amazon could still pick up stock, but in a market with fewer dollars to go around.
WATCH: Big tech companies paint an ugly picture of the American economy.
