Amazon reported a record Q3 that was driven in part by a 51% increase in advertising revenue and buoyed by a surge in ecommerce due to the COVID-19 pandemic.
The online retail giant’s accelerated push into advertising netted $5.4 billion in revenue – up from $3.6 million a year ago – with the company telling investors on its earnings call Thursday that it remains focused on making its tools easier to use and developing new products to serve brands. These developments will impact livestreaming gaming platform Twitch and entail a greater push into video.
The strong earnings were released shortly after its Prime Day event earlier this month to kick off the holiday shopping season.
Amazon doesn’t specifically break out advertising revenue figures, though most of the $5.4 billion Amazon earned in its “Other” business category is tied to advertising.CFO Brian Olsavsky told investors that the Q3 ad growth rate was a continuation of Q2 trends.
“We start to see advertising budgets increase from some of the contraction that has occurred earlier in Q2,” he said. “We just had a lot more traffic, and we do a good job of turning that traffic into valuable real estate for our advertisers and for our customers to find out more about selection and brand discovery. It was a strong quarter in advertising, and that's what you're seeing in the other revenue line.”
Head of investor relations David Fildes said that when it comes to sponsored ads – on the sponsored brand side and updating sponsored product targeting – Amazon is working to simplify registration for agencies and marketers, and getting them set up.
“But we're also very focused on being smarter about servicing more relevant ads to customers, making display ads easier and then increasing usability of the Amazon demand-type platform,” he said. “So, we've been working on a number of those areas. And then developing new products. And a lot of that is focused around how are we serving brands from various areas, Twitch, sponsor brands, the stores, of course.”
Fildes said the company is uniquely positioned to provide measurement services that help brands understand the impact of other advertising “in ways that are going to help them grow their business.” He added that Amazon offers inventory in the IMDb TV ad-supported space and on some third-party apps, both on and off Fire TV.
“I think video is one that we're working hard on with some of the OTT video advertising opportunities there,” he said. “I'm seeing some good momentum with that.”
He added: “I probably won't say too much about what [that] will look like next year in the future, but that gives you kind of a sense of priorities where we're spending our time and focus on.”
When it comes to video, Olsavsky said the goal is to deliver “high quality and fresh content” to Amazon’s global Prime member base.
“If we do that job well, we've seen it as a very significant acquisition channel for new Prime members, especially in many smaller countries around the world,” he said. “You see higher free trial conversion rates, higher membership renewal rates and then higher overall engagement, as I mentioned, in Q3 specifically. And when they do that, the more engaged they are, we know that that turns into more sales on Amazon. And that's – it's a self-reinforcing loop.”
Amazon’s earnings blew away estimates – reporting $12.37 earnings per share compared to $7.41 this time last year –with net income increasing to $6.3 billion compared to $2.1 billion in Q3 2019, while sales activity on the platform increased 37% to $96.1 billion.
Amazon’s stock dipped, however, in after-hours trading, Business Insider reported, after the company said that Q4 operating profits would fall between $1 billion and $4.5 billion – below the $5.81 billion street estimate – due to costs associated with the pandemic.