Good news for Amazon: advertisers are spending more online
IIt is perhaps a curious phenomenon which Amazon (NASDAQ: AMZN) is happy to increase ad spend, but it’s true. Over the past few years, Amazon has grown into an advertising giant. The business generates an increasing share of its revenue through advertising, and as this revenue tends to be more profitable than the entire business, it has become a staple.
For this reason, Amazon and its shareholders must be delighted with a recent the Wall Street newspaper article that highlights that advertisers are spending significantly more online this year.
Image source: Getty Images.
Advertisers Find Online Spending More Profitable
According to GroupM, global ad spend will increase 22.5% to $ 763 billion this year. This is the second upward revision of GroupM since it gave its first estimates in December 2020. After many companies had to shut their doors to customers at the start of the pandemic, this year has consisted of vast reopenings around the world. This has prompted advertisers to increase their spending: to let it be known that they are open for business again.
Interestingly, digital advertising will account for 64.4% of the total in 2021, up from 60.5% in 2020 and 52.1% in 2019. The rapid shift to online advertising is not entirely surprising . Generally, marketers can measure returns on online advertising more effectively. For example, it is difficult to calculate how many people have heard an advertisement on the radio or seen an advertisement published in a newspaper.
Indeed, you can get approximations by looking at the estimated audiences of listeners or newspaper subscribers, but they will be far from precise. Compare that with digital ad spend, where marketers can see how many people saw the ad and how many clicked on a link.
Additionally, with the proliferation of online shopping, it makes sense to increase online advertising. People who browse the Internet on their computer or phone usually have a registered payment method. If they see a compelling ad, they’re just a few clicks away from the purchase.
Amazon is already benefiting from the change
Amazon does not specify how much it earns from specific advertising. However, it states that one of its segments is primarily advertising revenue. In its most recent quarter ended September 30, the segment that contains advertising reported revenue of $ 8.1 billion. This is an increase of 49% compared to the same quarter of the previous year. Amazon is home to hundreds of millions of shoppers who are one click away from purchase, making it a top online destination for ad spend.
“We have also seen strong growth in our advertising revenue as vendors and vendors embrace their ability to grow their brands and reach customers just as they are considering their purchases,” CFO Brian Olsavsky said during of the company’s third quarter conference call.
Indeed, advertising revenue has almost doubled at Amazon since the second quarter of 2020, from $ 4.2 billion to the previously mentioned $ 8.1 billion. As people continue to turn to Amazon for their shopping needs, advertisers will be increasingly interested in getting their attention in the meantime.
10 stocks we like better than Amazon
When our award-winning team of analysts have stock advice, it can pay off to listen. After all, the newsletter they’ve been running for over a decade, Motley Fool Equity Advisor, has tripled the market. *
They just revealed what they think are the ten best stocks investors can buy right now … and Amazon was not one of them! That’s right – they think these 10 stocks are even better buys.
See the 10 actions
* The portfolio advisor returns on November 10, 2021
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Parkev Tatevosian owns Amazon. The Motley Fool owns and recommends Amazon. The Motley Fool recommends the following options: $ 1,920 long calls in January 2022 on Amazon and $ 1,940 short calls in January 2022 on Amazon. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.