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Amazon says its advertising business has been recovering following COVID-19 impact

Amazon package in a flower pot
Credit: Aditi Agrawal

Amazon’s advertising business has been recovering, as the company saw a 64% YoY jump in its “other” business segment, which primarily accounts for advertising. This growth, per Brian Olsavsky the company’s CFO, was aided by moving its Prime Day shopping event into the December quarter, as it comes with a “lot of clicks and eyeballs,” he said during a call with investors.

But, it was not just moving Prime Day into Q4 that did the trick. Olsavsky said that there were other things adding to the efficiency of advertising: the company is seeing success using a deep learning model to show more relevant sponsored products, and is improving the relevancy of ads shown on the product detail pages all the time. It has also seen a rapid adoption of the video format for sponsored ads.

At the end of the first quarter of 2020, the company had seen pullback from advertisers and some downward pressure on price in March.

The company’s Q4 earnings release was also accompanied with the news that CEO Jeff Bezos would be stepping down from his position to transition to Executive Chair of the Amazon Board. The company also posted a revenue of $125.56 billion, setting a quarterly revenue record.

Notes from the earnings call

  • How shifting Prime Day to mid-October helped: The company saw strong seasonal holiday demand through Q4, which also largely reflect the continuation of demand trends it had been seeing since the early months of the pandemic, Olsavsky said. Amazon saw sales growth across all its major product categories, led by strong Prime member engagement. “Prime members continue to shop with greater frequency and across more categories than before the pandemic began,” he added.
  • Reason behind international sales growth: There was a sequential growth jump from 33% in Q3 to 50% in Q4 for Amazon in its international sales. “Part of that is the timing of Prime Day,” per Olsavsky, adding, “ it’s a little more nascent there, it’s still ramping up, but very strong performance”. However, apart from that, the increase could have been due to government actions and lockdowns, especially in the UK and the European Union.
  • AWS could cost the company some money going forward: AWS added more revenue quarter-over-quarter and year-over-year in any quarter in its history and is now a $51 billion annualised run-rate business, Olsavsky said.
    • “We are supporting an AWS business that is growing at a rapid clip both in usage and in revenue,” said Olsavsky. “We are expanding regions globally and have a lot of upside in that area talking with customers on their transition plans to the cloud. So, we definitely do not want to run out of capacity and we work to not do that. So, there could be a risk of forward spend in 2021 as due to the uncertainty, but we will see as we move through the year.”
  • Amazon invested heavily in expanding warehouse base to account for uncertainty: Olsavsky said that there were a number of people who engaged strongly with Prime benefits in 2020, and thinks that this will have a lasting impact on some purchase frequency, or on the amount of purchases some of these people make. “And in this FC [fulfilment centre] world, it’s hard to turn that capacity on quickly. So, it generally means you may have to overbuild to protect the customer experience,” he added.

Financial snapshot

  • Revenue: $125.6 billion, up 44% YoY
  • Operating income: $6.9 billion, up 77% YoY
  • Other revenue: $7.95 billion, up 64% YoY

Downloads: Financials and Press Release | Transcript 

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