Amazon just reported its quarterly earnings , and things were good for the e-commerce giant.The company’s sales were up 11 percent for the second quarter, hitting $134.4 billion.Profit was up as well, with Amazon reporting $6.7 billion in income, compared with a $2 billion loss a year ago.
The thing is, while those numbers seem like good news, the most interesting thing is where the money actually came from.Or, more important, where it didn’t.
Amazon is one of the most valuable companies on earth because it’s the largest online retailer in the world.
It built the most efficient system of selling goods online and delivering them in the real world, investing hundreds of billions of dollars in building out its own delivery network to get orders to customers’ doorsteps.
But that business doesn’t actually make much profit–all of those logistics are expensive.In fact, in the most recent quarter, its core business generated a little over $110 billion in revenue, but only $2.4 billion in profit.
Amazon’s digital advertising business brought in $10.68 billion last quarter, which represents growth of 22 percent compared with last year.That puts it well ahead of the two top advertising platforms, Google and Meta, in terms of growth.
Those two companies still maintain a stronghold over the industry, with 29 percent and 21 percent of the global market, but both have experienced slowing growth over the past few quarters.That hold is weakening over that time.
The fact that Amazon has defied that trend is a sign the company is making a move to stake a much larger claim.
“We’re also continuing to see strong demand for our advertising services as the team keeps innovating for brands, including the ramp up for Thursday Night Football with the ability for advertisers to tailor their spots by audience and create interactive experiences for consumers,” said Amazon CEO Andy Jassy.”We remain excited about what lies ahead for customers and the company.”
It’s not hard to see why.Digital advertising represents a $600 billion industry today and is expected to grow to more than $1.5 trillion by 2030 .Amazon gets into a lot of strange businesses, but selling ads on its website seems like a no-brainer.It also seems like one the company is perfectly suited to dominate.Here’s why:
If I’m a small business that sells belts, I might buy a Google search ad so that my website appears when people are searching for belts.
Or, I might buy an ad on Instagram and try to target people who might be likely to buy a belt–perhaps because they’ve been spending time on other belt websites.On the other hand, I could simply put an ad on Amazon, where people are already actively shopping for belts.
All of those businesses advertising belts and iPhone chargers and swimsuits add up to a real business for Amazon.
Analysts estimate it will bring in more than $40 billion in revenue this year.More important, it may generate as much profit as AWS, the company’s traditional cash cow, despite generating only half the revenue.
That’s because the cost of showing ads on its website is almost nothing.Amazon doesn’t break out its margin on its advertising business, but it’s almost certainly higher than AWS, and definitely better than its retail store.
Not only that, Amazon benefits from making money on both sides of the equation.It makes money when an advertiser pays for an ad to market their product, and it makes money when that product sells on Amazon.com.
And, Amazon isn’t limited to selling search ads on its website.The company also operates a streaming video service, which happens to have the rights to Thursday Night Football .
For a company the size of Amazon, it takes a lot to move the needle.It’s hard to enter new businesses that have enough upside to make a material difference.Advertising is one of them.With its recent change to break out results for its advertising business, Amazon is signaling it’s all in on staking its claim to as much of the market as it can.
That market is growing, but Amazon’s business is growing much faster.
That means it’s taking share away from its competitors.
Amazon is already the third-largest advertising platform.I wouldn’t bet against it someday soon becoming the biggest..