Make more, spend less: How Amazon, Alphabet and Netflix cut ad spending and grew revenue

Amazon, Alphabet and Netflix in 2020 figured out how to generate more revenue while spending less on advertising. Facebook, meanwhile, doubled down on its ad spending. Amazon Amazon has prospered in the pandemic, with worldwide net sales rocketing 38% last year to $386 billion. But Amazon trimmed ad and promotion spending by 1% to $10.9 billion (see chart, below). With strong demand for online shopping from homebound consumers, Amazon delivered the goods with “lower spending on marketing channels as a result of COVID-19,” according to the company’s annual regulatory filing. Last year marked only the fourth time Amazon cut spending, according to Ad Age Datacenter’s analysis. The retailer previously reduced spending in 2001, 2002 and 2003 in the wake of the dot-com bubble. Amazon had double-digit percentage increases in ad and promotion spending every year from 2004 through 2019. Amazon’s spending as a percent of sales dropped to 2.8% in 2020, the lowest spending rate since 2010. FANG's ad spending Dollars in billions. Facebook Amazon Netflix Alphabet (Google) Sum: FANG Worldwide ad spending 2020 $2.3 $10.9 $1.4 $5.4 $20.0 2019 1.6 11.0 1.9 6.8 21.2 Percent change 44% -1% -23% -21% -6% Worldwide revenue 2020 $86 $386 $25 $183 $680 2019 71 281 20 162 533 Percent change 22% 38% 24% 13% 27% Ad spending as percent of revenue 2020 2.6% 2.8% 5.8% 2.9% 2.9% 2019 2.2 3.9 9.3 4.2 4.0 Source: Ad Age Datacenter analysis of company filings. Numbers rounded. For Alphabet and Amazon, ad spending shown is ad and promotion spending. For Amazon, revenue shown is net sales. At Google parent Alphabet, revenue rose 13% to $183 billion. But Alphabet slashed ad and promotion spending by 21% to $5.4 billion in 2020, marking the first year that the company cut spending. Alphabet’s spending as a percent of revenue fell to 2.9% in 2020, its lowest spending rate since 2010. Alphabet last year shrunk its ad and promotion outlay by $1.4 billion “as we reduced spending and paused or rescheduled campaigns and changed some events to digital-only formats as a result of COVID-19,” the company said in its annual filing. Netflix revenue increased 24% to $25 billion in 2020 amid heightened demand for online streaming content during the pandemic, even as the company’s ad spending plunged 23% to $1.4 billion. That was its first cut in ad spending since 2008, when Netflix was in the early stages of a shift from a DVD-by-mail service to online streaming. Ad spending as share of revenue last year—5.8%—was the lowest on record for Netflix. One area where Netflix reduced spending: Billboards, a medium that took a hit in 2020 as work-from-home and just staying home translated into less street traffic and lower potential audiences. Netflix halved its spending on short-term operating leases, which are primarily for marketing billboards, to $117 million in 2020 from $230 million in 2019, according to its annual filing. It’s a different story for ad spending at Facebook, the fourth member of Wall Street’s FANG gang (alongside Amazon, Netflix and Google). Facebook’s revenue last year jumped 22% to $86 billion—and the company’s ad spending surged 44% to $2.3 billion. Ad spending as a percent of revenue came in at 2.6%, the highest ever for Facebook, which has increased ad spending every year since 2010. Facebook didn’t elaborate on ad spending in its annual filing or on its fourth-quarter earnings call. In its filing, Facebook said: “We have invested and will continue to invest in marketing our products and services to grow our brand and help build community around the world.”

Make more, spend less: How Amazon, Alphabet and Netflix cut ad spending and grew revenue

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