Amazon Revealed How Big its Advertising Business Has Become
Last Thursday, Amazon disclosed how much its advertising business has grown.
As per the retailer's fourth-quarter earnings announcement, in 2021 it made $31.2 billion in revenue, with fourth-quarter sales up by 32%. The announcement comes after years of Amazon investing in the advertising sector while keeping the specifics under wraps.
It's bigger than most of the other online ad companies, such as cloud rival Microsoft, of which its CEO, Satya Nadella, revealed last week that the company's advertising income in 2021 will top $10 billion. Snap's overall revenue in 2021 was $4.12 billion, as opposed to Pinterest's $2.58 billion.
As per Amazon's financial statement, advertising still accounts for a tiny percentage of total revenue, contributing for 7% of total income in the fourth quarter. Amazon makes twice as much money from advertising as it does from physical stores, and it's bigger than the company's subscription services, particularly its Prime memberships.
“I’m excited to continue innovating in areas like sponsored ads, streaming video, and measurement,” Brian Olsavsky, Amazon’s finance chief, said during a conference call with analysts. “Of course advertising only works if we make it useful for customers. When we create great customer experiences, we build better outcomes for brands.”
The extent of Amazon's advertising operation, which places ads in product listings, search results, and the wake screens of Amazon Fire tablets, has not been disclosed to investors. That makes the announcement even more remarkable than when Amazon began reporting sales and operating profits from its cloud segment, Amazon Web Services, in 2015, which currently accounts for approximately 13% of total revenue.
"We expect to change our reportable segments to report North America, International, and Amazon Web Services beginning with first quarter 2015," then-Amazon finance chief Thomas Szkutak told analysts in January 2015. AWS results were then released three months later, together with the previous four quarters results to aid analysts in comprehending how the unit has grown over the years.
The act put an end to a period in which observers tried to estimate the scale of the cloud business, only to be shocked by its positive operating margin of 17%. Meanwhile, the operational income for Amazon's advertising services business has not been reported. When foreign exchange rates were taken out of the equation, the unit grew at a pace of 33 percent in the fourth quarter, but it grew at an 88 percent rate in the second quarter. Amazon's Prime Day event, which offers several discounts to customers, took place in the second quarter.
"I can't scale it for you," Olsavsky added, "but there's a lot of advertising related to Prime Day, obviously."
According to CNBC, Amazon's founder and former CEO, Jeff Bezos, informed staff in 2018 that he had reconsidered his opinion about getting Amazon advertise its own goods as the company grew.