3 things we need to know about Amazon’s Advertising Business

Amazon (AMZN 1.79%) It recently reported its second quarter financial results, and Amazon Web Services (AWS) and the company’s e-commerce business again received the most attention.

But savvy investors know that Amazon has a growing advertising business that shouldn’t be overlooked. It’s important to note three significant things that have happened to Amazon’s advertising business:

1. Advertising sales are growing faster than competitors.
2. Privacy changes will not affect Amazon ad sales.
3. The company’s ad market share is increasing.

Let’s take a closer look at each of them.

1. Amazon’s ad sales outpaced its competitors’ growth.

Let’s start with what I think is the most important storyline for Amazon’s ad business: It’s growing while bigger competitors are pulling back.

In the second quarter, Amazon’s ad sales rose 18 percent year over year to $8.8 billion. Now, that’s not a huge sum for a company that generates $121 billion in total sales, but since they’re advertising rivals, the percentage increase is significant. Meta forums, Twitter, And Snap All grew at a slower rate.

For example, Snap’s ad revenue increased by 13 percent, Twitter’s grew by just 2 percent, and Meta’s revenue decreased by 1.5 percent.

Some of these companies have highlighted the difficult advertising environment, Meta CEO Mark Zuckerberg said in his company’s latest earnings call.[W]It appears to be in the midst of an economic downturn that will have a far-reaching impact on the digital advertising business.

Now, Amazon Chief Financial Officer Brian Olsavsky contradicted his comments to analysts on the earnings call.

“I’m going to add a little bit on advertising because you’re probably thinking about softness again — the potential for softness in that or macroeconomic conditions. Right now, we’re still seeing strong advertising growth. . . . I think that’s our advantage. We have high-performing advertising.”

In short: gradual? What slow down? Of course, since Amazon doesn’t make as much money as some of its advertising peers, it’s easy for the company to post strong percentage growth. But that doesn’t take away from the fact that Amazon’s ad business is looking very strong right now, while some of its competitors are experiencing headwinds.

2. Amazon Unfazed by Major Ad Privacy Changes

You may have heard that the death of web tracking cookies is upon us. The internet industry is moving away from cookies because, well, online users don’t like them tracking their every online activity.

Apple Safari has made major changes to browsers in 2020, significantly reducing the amount of tracking companies can do within the app. Companies that rely on third-party tracking for their entire operations (think Meta) are already suffering from these changes. Meanwhile, Amazon is shrugging its shoulders.

Amazon needn’t worry too much about the death of cookies because it runs its own massive e-commerce platform so advertisers can knock on Amazon’s door and enter its website.

And since Amazon doesn’t have to worry about changing its advertising strategy because of these user tracking changes, some advertisers may be interested in spending their money on Amazon’s platform instead of elsewhere.

3. The company’s advertising market share is increasing.

And finally, Amazon’s continued growth in advertising is starting to rub off on the big market share leaders. In the year In 2019, Amazon accounted for only 7.8% of the US digital advertising market, according to Insider Intelligence. AlphabetGoogle took the top spot with 32 percent, while Meta’s Facebook had about 24 percent.

But next year, Amazon will take an estimated 14.6% of the digital ad market — up from 13.3% this year — while Google’s share drops to 26.4% and Facebook’s market share remains flat.

So why does all this advertising growth matter to Amazon investors? Because the digital advertising market is expected to grow from $239 billion this year to $315 billion by 2025. And if Amazon can take a little more of the pie as its competitors struggle to keep up, Amazon should be able to grow its advertising significantly. Income in the next few years.

John McKee, CEO of Whole Foods Market, a subsidiary of Amazon, is a member of the Motley Fool’s board of directors. Alphabet CEO Susan Frey is a member of The Motley Fool’s board of directors. Randy Zuckerberg, former director of market development and Facebook spokesperson and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Chris Neiger has positions in Apple. The Motley Fool has positions and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Meta Platforms, Inc. And Twitter. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 calls on $130 on Apple. The Motley Fool has a disclosure policy.