Amazon Q4 results: ad business a bright spot

Amazon, the e-commerce and cloud-computing firm, posted solid revenue growth, with the company’s advertising business a key performer, even as once fast-growing aspects of the business have slowed. 

Why it matters

Amazon’s results arrive amid a disappointing round of earnings calls among its big tech rivals, largely down to a slowdown in advertising spending as brands consider their investments in a volatile environment. Amazon’s Q4 sales grew 9% year on year, ahead of analysts’ estimates, but it has struggled – like its peers – to sustain the growth of online sales and digital services during the pandemic, topping off its slowest year of growth since it listed on the stock market.

“In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon,” said CEO Andy Jassy on a call with investors. 

What’s interesting about Amazon’s Q4 results is that the softness in the advertising market was reflected less in the ad segment and more in the performance of AWS, the company’s cloud computing division, which has seen a drop in computing from advertising companies, perhaps signaling a deeper concern in the industry.

Advertising in focus

Advertising revenues grew 19% (23% adjusted for currency fluctuations) to $11.56bn – ahead of the $11.38bn expected by analysts. The segment grew ahead of the overall company, but slower than its Q3 YOY growth of 30%. 

• Some observers noted that its Prime Day shopping holiday fell in the quarter, a factor that may have flattened its performance. On a call with investors, Amazon executives rarely mentioned advertising services as analysts probed other areas of performance, apparently satisfied.
• It’s worth noting that in Q3, Walmart – a direct rival in retail media – also saw 30% YOY growth in its ad business. Its Q4 results, to be announced later this month, will be very closely watched.
• A key announcement in the quarter that could bolster ad spending on the platform was the AWS Clean Rooms, part of an emerging group of advertising technologies that help advertisers blend their data with that of a platform in a manner that protects the users’ privacy. 
• Amazon’s strategy is always to make its customers members and then sell more services off the back of that relationship, whether to consumers or to business customers. It sees this as a key area of growth among advertisers who are also cloud users.

The flywheel

Subscription services – key among them, its Prime membership – grew 13% year on year to $9.19bn, fuelled by major investments in TV content, such as its Lord of the Rings TV series and Thursday Night Football, which both drew “record sign-ups” for membership, said CFO Brian Oslavsky. 

“We see a direct link between that type of engagement and higher purchases of everyday products on our Amazon website.”

Cloud computing and the ad slowdown

Talking about the company’s investment approach, CEO Andy Jassy pointed to the importance of AWS to what the company is today: “Think about how different a company Amazon would be today if we hadn't invested in AWS.”

It helps to contextualise the 20% year-on-year growth that the division saw in the quarter, which was down on Q3’s 27.5% growth, and down from the 40% YOY growth posted in Q4 ‘21.

“Starting back in the middle of the third quarter of 2022, we saw our year-over-year growth rates slow as enterprises of all sizes evaluated ways to optimize their cloud spending in response to the tough macroeconomic conditions,” Oslavsky explained. 

Certain industries like financial services and crypto diminished their usage, but so did many companies tied to advertising: “as there's lower advertising spend, there's less analytics and compute on advertising spend as well.”

The company, however, is confident that this reduction – which is a critical selling point of cloud computing – will help to bear fruit in the long term, and helps strengthen “a set of relationships in business that outlast all of us”, as Jassy put it. 

Sourced from Amazon, WARC