Amazon ad growth slows to 36 percent but still brings the profits

Amazon’s advertising business came down to earth, with growth of only 36 percent, a decrease from past periods, but still helping the company post robust profits.

On Thursday, Amazon announced first-quarter results with $2.7 billion in the advertising section of the report, up from $2 billion in the first quarter of 2018. Amazon’s advertising business falls under the “other” category on its balance sheet, which the company says is mostly comprised of revenue from ad sales. The advertising part of the business grew nearly 100 percent in the fourth quarter on revenue of $3.4 billion. The fourth quarter is typically the strongest for sales and advertising because of the holidays.

Amazon’s main business blew away expectations and the stock was up in after-hours trading. Amazon posted a profit of $3.5 billion for the quarter, beating Wall Street analysts expectations. Total sales revenue from the e-commerce business reached $59.7 billion.

Amazon executives discussed the “slowdown” in advertising growth during the earnings call with Wall Street analysts. Brian Oslavsky, Amazon’s chief financial officer, says that the “other” category is primarily ad sales but includes more parts of the business, and that in fact advertising growth was higher than 36 percent. Although, Oslavsky would not disclose the exact growth rate.

Also, an accounting change last year, makes it difficult to compare 2018 to 2019, according to Brian Wieser, GroupM’s global president business intelligence. Last year, Amazon changed its method of calculating costs associated with advertising, which partly contributed to the difference in growth rates in the advertising business.

Still, even with the added context, the skyrocketing pace of growth clearly cooled, according to Wall Street analysts on the earnings call. “I wouldn’t comment on deceleration or acceleration,” Oslavsky said on the call. “We’re early on in this venture. It’s having a lot of pickup.”

Amazon executives did call out the growth of Amazon Web Services, as another successful component of the quarter, as the cloud business continues to grow. Last quarter, Volkswagen became a major customer of Amazon Web Services, for instance, and that part of the business grew 41 percent year over , generating $7.7 billion.

Advertising is still a bright spot for Amazon, and a core focus for the company as it builds the marketing technology infrastructure so brands can sell their goods on its platform.

Last year, Amazon showed it was committed to building an advertising platform to compete with Facebook and Google. It overhauled the ad business to make it easier for brands and ad agencies to manage marketing campaigns that include search ads on Amazon.com, display ads on websites across the internet, and video ads on properties like IMDB Freedive, a new ad-supported streaming service from Amazon.