Jeff Bezos, founder and CEO of Amazon, pictured on September 13, 2018.
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Amazon’s Google and Alphabet, which posted a fourth quarter profit on Tuesday, saw the benefits of a rebound in advertising following a 2020 pandemic decline.
Amazon stock fell slightly as the market opened after reporting its first $ 100 billion quarter due to a strong holiday season and a shopping pandemic. Amazon’s “other” category, which is mostly advertising, had revenue of $ 7.9 billion for the quarter. That is an increase of 64% compared to the previous year.
Meanwhile, after the market opened, Alphabet saw its stocks rise more than 6%. The company’s revenue increased 23% for the quarter on an annualized basis. This shows that Google’s advertising business is recovering well after a sharp slowdown in the second quarter of last year.
Brian Olsavsky, Amazon’s chief financial officer, said the company saw a rebound in ad spending over the year. He also said the decision to move Prime Day into the final quarter brought “lots of clicks and eyeballs into the fourth quarter”.
He added that Amazon has had success with a “deep learning model to showcase more relevant sponsored products.”
“We’re constantly improving the relevance of ads that appear on the product detail pages, and we’ve seen a rapid adoption of the creative video format for sponsored brands,” he said.
Analysts have said the following about Amazon’s advertising business:
- JPMorgan analysts said that Amazon’s advertising and AWS businesses are rapidly growing revenue streams and profitable segments.
- According to analysts at Barclays, Amazon continues to steal market share from the advertising industry, an issue that is expected to continue this year. A survey of ad buyers by Cowen last month also found that Amazon will be the leading market share winner among the big digital ad companies in 2021 and 2022. The survey was based on responses from 52 leading US ad buyers in December who represent $ 15 billion in US ads.
- Pivotal Research analysts said that Amazon’s sponsored search ad load may be limited and said they were concerned about the slowdown in retailing.
- According to analysts at Baird, Google could help Amazon’s competitors penetrate Amazon’s territory with new offers. “Google is the premier paid search advertising broker which is the primary sales channel for many of Amazon’s competitors,” they write. “While Amazon is also one of Google’s largest customers, Google also enables its competitors. More recently, Google has also developed advertising products that allow physical retailers to leverage their proximity to customers and the availability of their products.”
Google’s fourth quarter ad revenue was $ 46.20 billion, up 22% from $ 37.93 billion in the year-ago quarter. This was evidence of a recovery since the outbreak of the Covid pandemic when advertisers pulled back on their spending, causing an 8% annual decline in advertising revenue and Google’s first year-over-year decline in revenue.
YouTube ads, which delivered $ 6.89 billion in the fourth quarter, showed a 46% increase over the prior-year period of $ 4.72 billion. There was also a jump in viewers and extended time watching videos, executives said.
Analysts had this to say about Google’s advertising business:
- Bernstein said Google’s result was “a print for the ages”. They wrote that YouTube “appears to have broken through” as it has grown faster in the past three years than it did in the last quarter, and certainly faster. According to Bernstein analysts, the Google network has also “destroyed Street and our expectations”, led by mobile advertisers on AdMob. They suspect this was an attempt to remove spending from Apple, where privacy changes are coming soon. While Travel “showed some signs of recovery,” they argued that it would remain a catalyst for Google if it comes to an eventual reopening.
YouTube also saw sustained strength in direct-response advertising dollars, while branding advertising saw a strong surge in the quarter, executives said. Google has developed direct response products on YouTube, including “buyable” ads with product images.
- According to Morgan Stanley analysts, YouTube is “arguably the most undervalued advertising platform in our field”. “The continued strength of direct response (DR) and the rebound in the branded advertising market have fueled growth,” they write. “This makes us optimistic about YouTube in ’21, as we believe that its DR product has improved significantly over the course of ’20. Combined with a stronger branding environment, it is positioned for over 40% revenue growth.”
CNBC’s Michael Bloom contributed to the coverage.
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