Amazon misses ad sales forecast, capping off rough run of tech earnings

    • Amazon’s advertising services segment grew revenue 23% year-on-year to $7.87 billion in the first quarter, according to an earnings statement. That pace was slower than some analyst projections of $8.17 billion in ad revenue, per CNBC.
    • Revenue derived from ad sales, which Amazon started breaking out for the first time last quarter, has been a bright spot as some of the company’s e-commerce growth cools following an earlier pandemic frenzy. Amazon’s total revenue in Q1 increased 7% YoY to $116.4 billion, in line with analyst estimates.
    • The company forecast revenue in the range of $116 billion and $121 billion, or growth between 3% and 7%, for the second quarter. Like other tech firms, Amazon faces challenging macroeconomic factors, including the war in Ukraine and rising inflation, that are unlikely to abate near-term.

    Amazon’s results cap off a patchy run of tech earnings that have seen the category wrestle with a slowdown in growth, including for digital advertising. Cooling momentum creates a sharp contrast with the year-ago period, when the ad market rebounded from a fallow 2020 and e-commerce acceleration driven by the pandemic held at a steady clip.

    While Amazon hit its overall revenue targets for Q1, it missed analyst projections on advertising and gave a tepid forecast for Q2. A number of factors could have contributed to the results.

    Sharp inflationary pressures might be causing some marketers to reassess their ad spending and consumers to be choosier about what they buy. Packaged goods marketers like Procter & Gamble, which have held steady despite the volatility, have recently warned that tolerance for price hikes might be nearing its limit. The invasion of Ukraine has further disrupted the global supply chain, while leading many brands and agencies to pull out of Russia, hampering marketing activity in the region.

    “The pandemic and subsequent war in Ukraine have brought unusual growth and challenges,” said Amazon CEO Andy Jassy in a press statement.

    Amazon only started breaking out the financials of its ad sales last quarter after years of folding the segment into an “other” category. The fourth quarter, which contains the busy holiday period, saw ad sales up 32% YoY to $9.7 billion. Amazon generated about $31.15 billion in ad revenue in 2021, making it one of the most formidable digital platforms.

    But Amazon is dealing with increased competition on the advertising front which could pose a longer-term problem. Legacy retailers with more substantial store footprints, including Walmart, Target and Kroger, are moving quickly to build out their own media networks, modeling many of their moves on Amazon’s playbook. Research indicates e-commerce broadly could be slowing down while brick-and-mortar is experiencing a bounceback with loosened pandemic restrictions.

    Amazon has some physical retail presence thanks to its Whole Foods, Amazon Go and Amazon Fresh stores. The company opened eight new Fresh locations and introduced a larger Go concept in Q1. Still, its brick-and-mortar coverage is dwarfed by rivals like Walmart.

    Amazon has other bets that could firm up its ad business. Earlier this month, it rebranded its ad-supported video platform IMDb TV to Freevee, a name change intended to better reflect the service’s focus on free, premium content. Since Prime Video doesn’t run traditional advertisements, Freevee has become a central part of Amazon’s pitch around streaming at venues like the NewFronts. Amazon will make its second appearance at the annual showcase for advertisers and media buyers next week.

    Twitch, the Amazon-owned livestreaming platform, remains incredibly popular and is weighing whether to switch up its monetization strategy as well. Bloomberg reported earlier this week that Twitch is mulling implementing policies that would incentivize creators to run more ads during streams and reassess how much revenue top profiles get from subscriptions.


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