Amazon grows ad business as marketing expenses surge 48%

Amazon is ramping up its marketing for AWS to stave off growing competition, while at the same time its own advertising revenue is bearing fruit.

Amazon splashed out on a 2019 Super Bowl ad starring Harrison Ford
Amazon splashed out on a 2019 Super Bowl ad starring Harrison Ford

Amazon spent $4.3bn (£3.46bn) on marketing-related expenses in the second quarter of 2019, representing a significant 48% hike from the same quarter last year.

The extra budget was mainly devoted to promoting Amazon’s cloud computing arm AWS, which included growing the unit’s sales and marketing team, Amazon’s chief financial officer Brian Olsavsky said.

"We see great opportunity there [within AWS] to help customers engage with our services and migrate to our products, so we continue to build out our sales force and our marketing programmes," Olsavsky said during the business’ Q2 earnings call.

Amazon grew its total headcount by 13% year-over-year to 653,300 in the quarter.

The ecommerce platform and online retailing giant is also increasing its advertising budget to promote the rollout of new devices as well as the library of international content on Prime Video, its subscription service, Olsavsky added.

Amazon has kicked off an agency review for Prime Now, with a brief to promote the service across Europe using experiential and social media marketing, Campaign revealed last week.

Olsavsky said that the cost of adding sales and marketing personnel in AWS had the biggest impact on the division’s operating profit, which grew by 29% year-on-year to $2.1bn in the quarter, representing a significant slowdown from the 79% increase in operating income between Q2 2017 and 2018.

The business’ revenue grew by 37% to $8.38bn from the same period a year earlier – its slowest revenue growth in at least five years – and down from a 49% growth rate in the second quarter of 2018.

But the cloud-computing business still accounts for the lion’s share (47%) of Amazon’s total operating profit, which was $3.08bn in the quarter.

Meanwhile in the ‘Other’ category, which is primarily made up of Amazon’s advertising business, revenue climbed 37% to $3bn.

Amazon’s net income of $2.6bn was the lowest since the second quarter of last year, while its operating expenses increased by 21% in the quarter. The business spent slightly more than $800m it had set aside to deliver on its ambition to make one-day delivery the standard for Prime members, which Olsavsky said had taken a hit to earnings.

Elsewhere, Amazon spent $9.07bn on technology and content in Q2, including TV rights for its streaming service, representing a 37% year-on-year increase.

It brought in $4.68bn in subscription sales in the quarter, a 39% jump excluding the effects of foreign exchange fluctuations.

The quarter began with Prime Day, Amazon’s annual shopping event, which helped drive a 16% uplift in online store sales to $31bn.

Overall, Amazon’s revenue jumped 20% to $63.4bn, a bounce back from the 16.8% growth in the first quarter, which was the slowest in four years.

A version of this article was first published by Campaign Asia-Pacific

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