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Wednesday, November 30, 2022

Amazon finally reveals the size of its massive ad business

Amazon on Thursday said it made more than $31 billion in advertising last year, a huge feat for the tech giant, which for years kept the size of its budding ad empire under wraps.

Why it matters: Amazon has one of the fastest-growing advertising businesses in the world. It now makes more money than Microsoft, Snapchat and Twitter combined on advertising annually.

Catch up quick: Amazon first began taking its ad business seriously around 10 years ago when it launched its first ad exchange. Its business has grown significantly in the past four years, amid renewed investments in its strategy.

Be smart: While analysts have long suspected Amazon’s ad business was massive, they haven’t been able to say with certainty exactly how big it was, until now.

  • Amazon broke out its advertising revenue for the first time in its quarterly earnings report Thursday. It previously reported its ad revenue as a part of a wider segment labeled “other.”

By the numbers: Amazon made nearly $9.7 billion in advertising in the fourth quarter of 2021, likely boosted by the holiday shopping rush. The company said it had its biggest-ever Black Friday to Cyber Monday holiday shopping weekend ever last year.

Yes, but: While Amazon’s ad business is huge, it’s only a tiny fraction of its overall business, which includes e-commerce and cloud. Its ad business made up around 7% of its $137.4 billion in revenue last quarter.

How it works: Amazon sells many different ad units, including video ads and banner ads. But the bulk of its ad revenue comes from sponsored product ads that appear at the top of search results.

  • Because Amazon’s ad business is tied to search and not social media, it’s not as vulnerable to Apple’s privacy changes that are having a big impact on Facebook’s ad business.
  • Amazon’s biggest risk to its ad business is the economy and its own e-commerce growth. Because its ads are mostly sold to its own retailers, looking to better boost their products in Amazon’s search results, its ad business is directly tied to the health of those businesses and its e-commerce platform.

Go deeper: Jeff Bezos hated ads — now Amazon is America’s top advertiser

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