Sure, sure, sure: Amazon generally performed brilliantly in the first quarter. All numbers are up, up, up.
But the most interesting aspect of Amazon’s first quarter earnings is not its overall performance. It is just how well Amazon Advertising is doing compared to Amazon’s store net sales and its AWS cloud service. Yes, all numbers are up, but nothing grew as quickly as advertising did, at 23% year-on-year, ending the quarter with $9.5 billion in sales. At the same time, AWS’ growth slowed from 20% to just 16% in the first quarter ($21.3 billion). Not to mention the store, where net sales rose by only 9% to $127.7 billion.
Not only did advertising sales grow more quickly than anything else, but the advertising business is also now nearly half the size of the cloud service, which is often lauded as Amazon’s future, or at least something that keeps the lights on when things go bad in the core store business.
Amazon’s ad business is not just a nice little side-business anymore, contributing a small trickle of incremental revenue to the top line. It is now a major contributor with significant potential for growth and will certainly attract even more attention from top management.
CEO Andy Jassy attributed this growth to the development of new AI and ML tools that helped target ads better and delivered higher-than-expected effectiveness to advertisers. It is a testament to just how powerful retail media advertising is. Nothing beats the predictive power of shopping data combined with ML. And since Amazon has the most data and a lot of money for AI software development, brands will (and should) look at Amazon’s retail media offer first.
The market liked Amazon’s results, and the stock spiked by over 10% in after-hours trading – until traders learned that AWS’ April numbers were just as bad as the Q1 ones, after which the stock price fell back to earth, ending up slightly below the previous day’s close.
By the way, isn’t it funny when Google, Meta, and Amazon all spike after earnings, even when the fundamentals are lukewarm? It seems like people are yearning for good news. Can’t blame them. But it will be a rough 2023-2024 for everyone.
(Cartoon first posted by Criteo’s Roger Dunn on Linkedin.)
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