- Amazon's "other" category that predominantly consists of advertising sales grew 49% year-on-year to $8.09 billion in the third quarter, according to an earnings statement released Thursday.
- While the rate of YoY growth for the category was lower than in recent quarters, it remained a bright spot in a report that otherwise whiffed on earnings and revenue expectations. Amazon's guidance for the fourth quarter and holiday period also missed Wall Street's estimates, sending shares down after the bell.
- Amazon is grappling with a resurgence of in-store shopping and intense supply chain and labor-related pressures. But those haven't substantially impacted advertiser demand, executives suggested, as brands and sellers remain eager to shift their media dollars to performance-driven channels and the types of streaming offerings Amazon supports.
Amazon dropped poor Q3 results Thursday, while its outlook for Q4 and the critical holiday rush was not particularly rosy. Despite clear disruptions tripping up the e-commerce giant's core business, advertising — a comparatively small but increasingly important category — has remained resilient amid a larger market rebound that's largely been driven by a returning appetite for digital media. Perhaps tellingly, Q3 marked the first time in Amazon's history that revenue derived from services outpaced that of retail sales, per CNBC.
Total U.S. digital ad revenues were up almost 50% year-on-year to $81.5 billion in the first half of 2021, according to recent estimates shared by Magna, and are expected to continue to show strength through the end of the year. That's not to say Q4 won't be volatile; some marketers are reportedly pulling back on their spending plans as they contend with similar challenges to Amazon, including clogged ports and material shortages that could leave shelves bare. But executives on an earnings call discussing the Q3 results didn't seem to be sweating the situation on the advertising front, specifically.
"We're seeing strong growth," Amazon Chief Financial Officer Brian Olsavsky said when questioned by an analyst about whether there's been an advertiser pullback in response to the supply chain.
"There might be comparable issues, but as far as the strength of the offering and the differential between the growth of the advertising business versus the unit growth, we think we're really resonating with advertisers," Olsavsky added. "We're giving new products, new ways to advertise, new ways to highlight their brands. It's resonating with sellers as well for the same reasons."
As part of its annual UnBoxed event for advertisers this week, Amazon expanded its suite of marketing tools, adding eight new measurement and advertising products. Those included the addition of display ads in Twitch livestreams and a brand lift solution that tracks marketing campaign objectives such as awareness, purchase intent and ad recall.
Even as some of the pandemic's e-commerce frenzy cools, marketers are shifting more of their budgets to performance channels that are tied closer to driving actions like a purchase. Amazon rivals such as Facebook and Google are also eyeing shopping — and the ability to better link ads to commerce — among their next long-term growth opportunities, meaning Amazon will need to continue to invest in solutions that can keep up its lead in the space. Traditional retailers like Walmart, Target and Kroger at the same time are ramping up their own retail media bets, making the category even more crowded.
But beyond its commerce bona fides, Amazon wields distinct strengths on streaming media channels that have exploded in popularity due to COVID-19. Twitch, which is mostly known for hosting creator-driven gaming and esports content, now draws 30 million average daily visitors. And IMDb TV, its ad-supported streamer, recently expanded to the U.K. in its first launch outside of the U.S.
Elsewhere, Amazon has secured the rights to desirable content packages, including exclusive rights to broadcast Thursday Night Football starting with the 2022 season. The deal is the NFL's most significant bet on streaming to date.
"There's a lot of excitement in the video advertising area," Dave Fildes, Amazon's director of investor relations, said on the call with analysts, while qualifying that video is not the biggest bucket of the company's advertising run rate.