[Amazon Q2 2022 Earnings] Advertising Is Now Amazon’s 4th Largest Revenue Category
Amazon has just come out with its Q2 2022 earnings report, posting a $2B net profit loss, but still showing a hopeful outlook for the rest of the year as overall revenue growth and advertising sales beat Wall Street expectations.
$2B Loss, But Revenue Growth Rate Beat Expectations
The ecommerce giant posted a revenue growth of 7% for Q2 2022 at $121.2 billion compared with $113.1 billion in the second quarter of 2021, consequently beating out Wall Street projections of only $119 billion.
That being said, the company posted a $2 billion net loss for the quarter, largely attributed to a $3.9 valuation loss in its investment in electric automaker Rivian, which it acquired last year as part of its push to strengthen its growing logistics operations.
- Net sales: $121.1 billion in Q2 2022, compared with $113.1 billion in Q2 2021 (up 7% Y/Y)
- Net loss: $2.0 billion in Q2 2022, compared with $7.8 billion net income in Q2 2021
Drilling down into its Net retail sales, the North America Segment grew favorably 10% year-over-year, however, International sales continue to dwindle, declining 12% from the same quarter of the preceding year.
| Q2 2021 | Q3 2021 | Q4 2021 | Q1 2022 | Q2 2022 | |
|---|---|---|---|---|---|
| Net Retail Sales (North America) | $67.55B | $65.557B | $82.36B | $69.244B | $74.43B |
| Year-Over-Year Growth (excluding F/X) | 21% | 10% | 9% | 8% | 10% |
| Net Retail Sales (International) | $30.7B | $29.15B | $37.27 | $28.759B | $26.06B |
| Year-Over-Year Growth (excluding F/X) | 26% | 15% | 3% | (6)% | (12)% |
Advertising Becomes 4th Biggest Revenue Stream
Advertising sales is up 18% year-over-year at $8.76 billion, beating the consensus estimate of $8.65 billion. Advertising revenue is now the fourth largest revenue category for Amazon next to its main ecommerce business (which continues its sluggish growth trajectory), third-party seller services (including Amazon FBA), and its AWS cloud computing services arm.
In comparison, Facebook posted its first ever drop in ad revenue, while Alphabet’s (Google) and YouTube’s (also owned by Google) advertising growth rates slowed down as well.
Analysts say advertising services will continue to be a strong driver for Amazon moving forward, as the company pushes towards live sports and non-subscription streaming.
| Source | Q1 2022 Revenue | Q2 2022 Revenue |
|---|---|---|
| Online Stores (ecommerce) | $51.129B | $50.855B (down 4% Y/Y) |
| Physical stores | $4.59B | $4.72B (up 12% Y/Y) |
| Third-party seller services | $25.335B | $27.376B (up 9% Y/Y) |
| Subscription services | $8.4B | $8.7B (up 10% Y/Y) |
| Advertising Services | $7.87B | $8.757B (up 18% Y/Y) |
| AWS | $18.44B | $19.739B (up 33% Y/Y) |
| Other | $661M | $1.07B (up 131% Y/Y) |
Speaking of advertising, Amazon Ads launched Amazon Marketing Stream (currently being beta tested as of writing), which automatically delivers hourly Sponsored Products campaign metrics to advertisers or agencies through the Amazon Ads API. It aims to provide real time performance insights to enable sellers and marketers to optimize their campaign strategies and drive business growth.
Related Reading: The Ultimate Guide to Amazon Advertising
Amazon's Ecommerce Decline Continues
Still feeling the effects of a normalizing market after the pandemic, Amazon’s main ecommerce business slowed down by 4% year-over-year to $50.855B for Q2 (shown above). On the flip side, its ongoing venture into physical stores and establishing a physical footprint grew 12%.
Some key factors cited are a slowdown in online shopping activities, inflationary pressures, rising labor costs, and major supply chain disruptions throughout the quarter.
Another factor is the company’s decision to hold Prime Day 2022 in July (Q3), which means numbers for Amazon’s shopping holiday will remain to be seen until after the third quarter of this year. That said, the report states that this year’s Prime Day, which took place on July 12-13, was the biggest one yet, where shoppers bought more than 300 million items and saved more than $1.7 billion over the company’s premier shopping event, of which a second iteration is currently planned for Q4 of this year. Some of the best selling products are under the Consumer Electronics and Home categories.
The Ongoing Battle Against Fraudsters
In its second Brand Protection Report, Amazon claims to have disposed of more than 3 million counterfeit products to prevent them from being circulated or resold elsewhere in the retail supply chain.
It also recently filed a case against the administrators of over 10,000 Facebook groups that were being used to broker fake reviews for products sold on Amazon. It claims that this legal action aims to identify bad actors and prevent incentivized reviews that slip through the cracks of its current detection technology, investigators, and continuous monitoring.
Small Business Badge and Drone Deliveries
Amazon has added the Small Business Badge, which aims to help Amazon shoppers find and shop for products from small brands and artisans selling on the platform. The company says the customers spent over $3 billion on over 100 million items included in the Support Small Business to Win Big sweepstakes, a promotion event leading up to Prime Day. It also confirms that third-party marketplace sellers continue to outpace Amazon’s own first-party sales—3P sellers account for 57% of worldwide paid units, excluding the impact of the Whole Foods Market.
In a separate item in the report, Amazon confirms previously reported plans to launch Prime Air drone deliveries later this year. Customers in Lockeford, California, and College Station, Texas, will be among the first to avail of this service.
A Hopeful Q3
Despite some bumps and bruises, Amazon CEO Andy Jassy remains optimistic for the next quarter. The overall favorable results helped its stock rise by 11% when the market closed on Thursday. The company is projecting a net sales between $125-130 billion for Q3, growing between 13-17% compared to Q3 of 2021.
The full report, including webcast slides from the live conference call is accessible on Amazon.
