Both Amazon and Google see advertising revenue rise – Amazon net falls short

Quarterly results for both Amazon and Google saw meaningful rises in advertising revenue, though the former still failed to meet earnings expectations.

TL;DR

  • Google’s Q2 ad revenue saw a 16% increase against Q1 – the total of AU$46.91 barely beating US$32.58 expectations.
  • Amazon’s relatively younger ad business saw a revenue jump of 37% in Q2, however the company’s net income didn’t meet analyst expectations.
  • Apple is due to release its quarterly earnings report on Tuesday next week; today it announced its “majority share” purchase of Intel’s mobile modem business.

Google

Google’s advertising sales, the core product for parent company Alphabet, saw a 16% increase last quarter totaling at US$32.6 (AU$46.91) billion – barely beating the consensus expectations of US$32.58 (AU$46.88) billion.

Prior to the release of Google’s quarterly report on Thursday, the search giant’s ad revenue had been decelerating year-on-year each quarter since mid-2018. Google attributes the slowdown to changes in its ad products – including its shift in auction model from second- to first-price.

“From improvements in core information products such as Search, Maps, and the Google Assistant, to new breakthroughs in AI and our growing Cloud and Hardware offerings, I’m incredibly excited by the momentum across Google’s businesses and the innovation that is fueling our growth,” CEO Sundar Pichai said in a statement.

According to Google’s earnings report, total revenue was up 19% against the second quarter of 2018 at $38.9 (AU$55.97) billion.

“Our ongoing investments in compute capabilities and engineering talent reflect the compelling opportunities we see across the company,” comments Ruth Porat, Alphabet and Google chief financial officer.

According to eMarketer senior forecasting director Monica Peart, Google’s Q2 results fall within the trajectory set in Q1. “Strength in mobile advertising is holding search ad growth steady and in a positive turn of events, global currency positions are beginning to stabilise against the US dollar, giving Google ad revenues minor relief versus Q1.”

Amazon

Amazon’s relatively younger ad business saw a revenue jump of 37% in Q2, however the company’s net income didn’t meet analyst expectations at US$2.6 (AU$3.74) billion – the lowest since Q2 of last year. 

This puts an end to the company’s record profit streak over the past four straight quarters, with Amazon forecasting a Q3 operating income within the range of US$2.1 (AU$3.02) billion and US$3.1 (AU$4.46) billion.

According to CNBC reporter Eugene Kim, the results show Amazon’s renewed internal investments are paying off, sacrificing lower profit margins to drive sales growth.

Amazon’s chief financial officer, Brian Olsavsky, told analysts on Thursday’s earnings call that the company spent slightly more than US$800 (AU$1151.15) million on expansion efforts this past quarter.

“Free one-day delivery is now available to Prime members on more than ten million items, and we’re just getting started,” says Amazon CEO Jeff Bezos in a statement.

According to Bezos, investments into next-day Prime delivery have resulted in “a lot of positive feedback” for Amazon and contributed to “accelerating sales growth”; something Amazon Analyst for Moody, Charlie O’Shea, believes to be “an example of short-term pain for long-term gain.”

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Amazon warehouse shipping

eMarketer calculations predict that Amazon’s US ad business will grow by 53% in 2019 to $US2.6 (AU$3.74) billion. This year, 40% of Amazon’s domestic (US) advertising business is set to come from mobile traffic, a 5% increase from 2018.

Advertising has historically been a smaller contributor to Amazon’s top line, taking up a large portion of the company’s ‘other’ revenue category. In June, Amazon finalised its acquisition of Sizmek’s Ad Server and Dynamic Content Optimisation businesses, further shoring up its ad offering.

Apple

In other technology giant news, Apple is due to release its quarterly earnings report on Tuesday next week. Today, Apple announced that it has finalised agreements with Intel to acquire “majority shares” in its smartphone modem business for US$1 (AU$1.44) billion.

The purchase means Apple will now own the ability to manufacture its own in-house modems, as opposed to relying on Qualcomm for hardware – intersting given the two companies’ qualms in the past. 

According to analyst quoted in Bloomberg, Apple’s in-house modems could be ready for shipping within three years – including modems for 5G handsets.

Apple is notably not releasing a 5G iPhone in its 2019 offering, the announcement for which will come later this year. The smartphone giant is reportedly waiting until 2020 to unveil major changes to the iPhone line, where a 5G device is more likely to feature.

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Josh Loh
BY Josh Loh ON 26 July 2019
Josh Loh is assistant editor at MarketingMag.com.au