Amazon is now a $10bn advertising company

Ad revenue doubled last year as company warns of higher investment costs for 2019.

Amazon is now a $10bn advertising company

Amazon’s advertising revenue doubled last year and surpassed $10bn (£7.6bn) for the first time, continuing the online retail giant’s rise as a threat to the Google and Facebook duopoly.

Overall global revenue at Amazon grew 20% year on year to £72.38bn for the three months ending 31 December 2018. For the year, total revenue came in at $232.9bn – a 31% increase. 

While the bulk of Amazon’s business is online retail, the highest growth area is "other services", which is almost completely made up of advertising revenue, such as from brands buying paid search to achieve higher visibility on its retail platform and its Prime subscriber base of  more than 100 million users.

This "other" part of Amazon’s revenue grew 97% for the fourth quarter of 2018 to $3.39bn and 120% for the year to $10.11bn.

Google and Facebook continue to dominate the online advertising market. Google parent Alphabet made $95.4bn from advertising in 2017, while this week Facebook reported $55bn for 2018. Alphabet reports its fourth quarter earnings next week.

Amazon is also the world’s biggest provider of cloud-computing services and Amazon Web Services grew 47% to $25.66bn last year. Cloud computing is another key online advertising battleground the company is facing against Google, which last week won a five-year deal with programmatic ad exchange OpenX

The earnings report was Amazon’s third record quarterly profit in a row, although shares dropped 5% in after-hours trading after the company warned that costs would increase this year to make up for a scaling back of investments in 2018.

In North America, Amazon sales grew 18% to $141.37bn – down from 42% growth in 2017 – while international sales grew 15% to $65.87bn for 2018, down from 29% gorwth the year before.

This was also the first annual results for Amazon that included Whole Foods Market, the grocery business it bought in 2017, which is growing more slowly. 

EMarketer’s principal analyst Andrew Lipsman said of the earnings report: "Amazon’s profits continue to soar on the back of strong online holiday sales, which are simultaneously fuelling its white-hot ad business.  

"As sellers feel the need to ramp up their Amazon ad spend to drive holiday sales, the margin expansion we’ve been seeing play out over the last several quarters for Amazon only became amplified in Q4."

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