Amazon’s Ad Revenue Grows More Than 45%, But Company Profitability Dips

Amazon stock dropped after the company reported a profitability decline in its quarterly earnings report on Thursday, with net income dropping from $2.9 billion in Q3 2018 to $2.1 billion this year.

Amazon’s profitability slowed in the previous quarter as well, following a strong growth streak going back almost two years. And again Amazon executives defended the decision to sacrifice profit in favor of spending on high-priority businesses.

Amazon’s fastest-growing segment was its “other” business, principally ad revenue, which grew 45% from last year. And even within that category, advertising led the way with more than 45% growth, said Amazon CFO Brian Olsavsky.

Percent growth rates can be misleading – Amazon’s ad revenue is only growing at higher rates because the retail and cloud services businesses are so much bigger.

But the advertising investments also improve shopper product variety and recommendations, Olsavsky said. And it’s a bigger boon for the merchant side of the business, where the ad platform “is increasingly popular with vendor sellers and third-party advertisers.”

Amazon’s consumer business is also directly tied to its advertising opportunity in the form of Fire TV sticks. The company reported 37 million active Fire TV users worldwide, up from 25 million October 2018.

“One of our areas of focus is expanding our video and OTT offerings for brands,” said Dave Fildes, Amazon’s director of investor relations.

Amazon takes a 30% cut of inventory from OTT apps on the Fire TV platform, so growth of its user base is critical. Fildes said Amazon also gets video supply from the IMDb TV ad-supported streaming network and publisher integrations with Amazon Publisher Services, its sell-side ad tech group.

It’s “early days” for Amazon OTT and video advertising, Fildes added. And the priority is still basic platform improvements.

Amazon bought the Sizmek ad server business in June, inheriting one of the more familiar programmatic UIs. But even with Sizmek’s ad server and Amazon’s rocketing gains in DSP market share, its platform has a long way to go before digital advertisers are as comfortable as they are with DSPs like Google and The Trade Desk.

Aside from increasing video supply, Fildes said Amazon’s focus has been on “streamlining access for third party apps and making it easier for advertisers to manage their campaigns and provide better results.”

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