Amazon and Google earnings showed major rewards in Q4 advertising spend

Amazon and Google’s Alphabet, which posted earnings in the fourth quarter on Tuesday, saw the benefits of a rebound in advertising following a pandemic downturn in 2020.

Amazon shares were down slightly at market opening after reporting their first $ 100 billion quarter on the back of a strong holiday season and rising retail growth. Amazon’s “other” division, which specializes in advertising, generated $ 7.9 billion in revenue for the quarter. That’s a 64% increase from a year ago.

Meanwhile, Alphabet saw shares rise more than 6% after the market opened. The company’s revenue grew 23% year-over-year in the quarter, indicating that Google’s advertising business is recovering well after a sharp slowdown in the second quarter of last year.

Amazon chief financial officer Brian Olsavsky said the company saw an improvement in advertising spend as the year progressed. He added that the decision to move Prime Day into the quarterfinals carried “a lot of clicks and eyeballs into Q4.”

He said Amazon has seen success with “an in-depth learning model to showcase more relevant supported products.”

“We’re constantly improving the relevancy of ads that appear on product detail pages, and we’ve quickly adopted a creative video format for sponsored logos,” he said.

Here’s what analysts have to say about Amazon’s advertising industry:

• JPMorgan analysts said Amazon’s advertising and AWS businesses are fast-growing revenue streams and profit-sharing sectors.

• Barclays analysts said Amazon continues to take market share away from the advertising industry, a topic that is likely to continue this year. An ad buyer survey from Cowen last month said that Amazon will be a major market segment winner among major digital advertising businesses in 2021 and 2022. The study was based on responses from 52 major U.S. ad buyers in December representing $ 15B in U.S. ad. wear.

• Deutsche Bank analysts believe ad strength will continue, especially as some Amazon advertising peers are pushing for upcoming Apple privacy changes that will affect their businesses. “We expect the trend in advertising to continue, and in the medium term we also see an upside potential coming from IDFA changes, as we believe AMZN is well placed to be tearing out the changes thanks to the transparency of its virtues and the overall high resolution of a buying platform, ”they said in a note to investors.

• Pivotal Research analysts said there could be limits on Amazon ad loading within a sponsored survey, and said they are concerned about sales fraud.

• Baird analysts said Google could be helping Amazon competitors compete on Amazon territory with new offers. “Google is the main contributor to paid search advertising, which is a major sales channel for many of Amazon’s competitors,” they wrote. “While Amazon is also one of Google’s biggest messengers, Google is also empowering its competitors. Recently Google has also created advertising products that help corporate sellers stay close to them. customers and the availability of their products. ”

Google’s ad revenue for the fourth quarter was $ 46.20 billion, up 22% from $ 37.93 billion in the same quarter last year. That was evidence of a reversal since the onset of Covid’s pandemic, when advertisers withdrew spending and caused an 8% annual drop in advertising revenue and the first revenue decline. -in Google every year.

YouTube ads, which delivered $ 6.89 billion in Q4, showed a 46% jump from this time last year when it earned $ 4.72 billion. It also saw a jump in viewership and more time spent watching videos, executives said.

Here’s what analysts say about Google’s advertising industry:

• Bernstein said that Google ‘s result is “printing for centuries.” They wrote that YouTube seems to have “broken through” as it has grown faster than the last quarter and faster than any rate over the last three years. Google Network also said “Admob-driven mobile street and our expectations” on adMob, said Bernstein analysts, who they suspect were an attempt to divert spending away from Apple, where changes privacy coming soon. While travel “showed some signs of overcoming it,” they argued that it remains an attractive tool for Google when it finally reopens.

YouTube also saw a continued strength of direct-response ad dollars, while brand advertising saw a strong rebound in the quarter, executives said. Google has been building direct response products on YouTube, including “shoppable” ads that include product images.

• Morgan Stanley analysts said YouTube is “probably the rarest advertising platform in our space.” “Continued strength in direct response (DR) and the resurgence of the named advertising market have boosted,” they wrote. “This leaves us bullish about YouTube entering ’21 because we believe the its DR output throughout ’20 … which coupled with a stronger advertising environment sets it up for 40% + revenue growth. ”

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