October 25, 2018 / 9:49 PM / 22 days ago

Breakingviews - Amazon’s ad initiative is a useful add-on item

Attendees at Amazon.com Inc annual cloud computing conference walk past the Amazon Web Services logo in Las Vegas, Nevada, U.S., November 30, 2017. REUTERS/Salvador Rodriguez

NEW YORK (Reuters Breakingviews) - Amazon’s ad initiative is proving useful. The company’s third-quarter sales mainly pertaining to advertising – the “other” category, officially – soared. As a challenger to Facebook and Alphabet, both mired in data scandals, Jeff Bezos’ firm risks negative attention by plunging into the advertising business and targeting users. But the extra dough helps, and thanks to other revenue streams, Amazon has less to lose.

The company’s overall top line for the third quarter rose 29 percent year-over-year to $56.6 billion, it said on Thursday. That missed analysts’ targets. Amazon’s forecast for fourth-quarter revenue flubbed Wall Street’s expectations too. Shares of the company fell 6 percent in after-hours trading.

But the $870 billion firm is flipping the switch on advertising. Sales mainly from search ads and the like more than doubled to $2.5 billion.  That’s a faster growth rate than Amazon Web Services, the blockbuster cloud business. Revenue increased 46 percent, topping some $6.7 billion.

Together, Facebook and Alphabet’s Google are expected to nab nearly 60 percent of U.S. digital advertising share this year, according to eMarketer. While Amazon’s slice is small at a hair over 4 percent, it’s increasing more than anticipated and is now No. 3 in the rankings.

Wading deeper into digital advertising that relies on people’s data brings risks, though. Mark Zuckerberg’s social network is under scrutiny from lawmakers in the United States and Europe for misusing and treating customer information with little care. Earlier this month, Google shuttered its struggling imitator after a security glitch was found to expose data. U.S. antitrust cop Makan Delrahim has expressed concerns about the concentration of information collected by the tech companies.

Looked at another way, though, Amazon is not as exposed to advertising as Google and Facebook. The other strong revenue streams make it mostly icing on the cake. Enticing Madison Avenue and retailers to spend with the e-commerce company will come in handy.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below