Amazon faces advertising challenges amid weak quarter outlook

While Amazon is still a powerhouse digital advertising player, there may be signs it is facing the repercussions of higher interest rates and smaller marketing budgets.

In its latest quarterly earnings report on Thursday, the company announced $12.77 billion in advertising revenue, marking a 20% year-over-year growth. However, this fell short of Wall Street’s expectations, which anticipated $13 billion for Q2 2024.

Although advertising isn’t Amazon’s primary revenue source, it enables one of the company's highest profit margins. Amazon’s advertising offerings include sponsored product listings on its retail site and video ad opportunities on live sports and other Prime Video content. In January, Prime Video began showing ads to viewers who do not pay an additional $2.99 monthly fee. At the Variety Entertainment Summit during CES 2024, Amazon predicted reaching 115 million US viewers through its Prime Video ad offering.

For comparison, Meta surpassed analyst expectations with a 22% growth in advertising revenue year-over-year this past quarter. In contrast, Alphabet, Google’s parent company, missed expectations with only a 10% increase in advertising revenue over the last year.

Overall, Amazon said it earned $1.26 per share Q2 2024, ahead of the $1.03 expected by LSEG analysts. However, revenue came in lighter than expected at $147.98 billion versus the $148.56 billion LSEG estimate. 

Amazon's primary revenue driver remains online sales, earning $148 billion in the past quarter, up 10% from the same period last year. Amazon Web Services (AWS) also exceeded analyst expectations, reporting $26.3 billion in revenue, a 19% increase year-over-year.

“We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth,” Amazon president and CEO Andy Jassy said in a statement. “As companies continue to modernize their infrastructure and move to the cloud, while also leveraging new Generative AI opportunities, AWS continues to be customers’ top choice.” 

Despite these positive results, Amazon’s weak guidance of $156.25 billion in revenue for the upcoming third quarter disappointed Wall Street. The company cited consumer wariness due to global economic uncertainty, noting that people are cautious about purchasing big-ticket items. Additionally, events such as the Olympics and the upcoming Presidential election are drawing attention away from shopping.

“Customers only have so much attention,” Amazon CFO Drew Olsavsky said during a call discussing the latest report. “When high-profile events occur, like the assassination attempt a couple of weeks ago, people shift their focus to the news. It's more about distractions.”