Growing ad revenue is making Amazon more profitable

Amazon is expanding its Sponsored Product Ads offering
Amazon is expanding its Sponsored Product Ads offering

Amazon has reported its largest ever quarterly profit, at $2.5bn (£1.91bn), on the back of a growing contribution from ad sales, which are higher margin than its core retail business.

Spending from "hundreds of thousands" of advertisers was a "big contributor" to the quarter, Amazon chief financial officer Brian Olsavsky told the media on its earnings call last night.

Olsavsky said the company was seeing strong adoption not just from merchants who sell via Amazon and authors, but also from third-party advertisers who want to reach Amazon customers.

The way Amazon reports its results makes it difficult to be precise about its ad revenues. It includes the stream in a category called "other", which "primarily" consists of ad revenues but also includes non-advertising sales related to Amazon’s other service offerings.

In the latest quarter, Q2 2018, this "other" category generated $2.19bn of revenue, compared with $945m in Q2 last year. However, the picture is further muddied by a change of accounting in between those periods. The Q2 2018 figure is gross and the Q2 2017 figure is net.

Olsavsky described ad sales as now a "multibillion dollar business" for the online retailer, and added that it is focusing its efforts on improving the service for advertisers with greater process automation and more measurement capabilities.

Other than advertising, one area where Amazon was more circumspect than in recent years was the growth of its annual Prime Day. This year it did not disclose how much bigger Prime Day sales were than previous years, but did claim the day was its biggest global shopping event ever.

Its Alexa voice assistant remains an area it is keen to highlight, with founder and chief executive Jeff Bezos claiming: "There are now tens of thousands of developers across more than 150 countries building new devices using the Alexa Voice Service, and the number of Alexa-enabled devices [on the market] has more than tripled in the past year."

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