Amazon’s Profit Takes A Hit Due To Investments, Including Its Ad Platform

Amazon earned $63.9 billion across its retail, cloud computing, subscription and ad sales businesses in Q2 2019, a 20% increase from the same period last year, the company reported on Thursday.

Those are eye-popping totals, but the ecommerce giant’s profitability is actually down from the three previous quarters, bringing an end to a profit growth streak that started a year ago and topped out at $4.4 billion in Q1.

On a call with investors, Amazon execs characterized the slowdown as another example of the company prioritizing long-term opportunities over short-term gains.

Amazon CFO Brian Olsavsky said the company has added significant costs this year. Head count is up 13%, and up more than twice that rate for high-salary technical positions to expand the AWS cloud platform and the Amazon Advertising Platform (AAP).

And on top of those inflated costs, marketing budgets were up by almost 50% last quarter compared to the same period last year, as the company spends to promote its voice-activated devices and Amazon Prime shows, as well as getting customers to adopt tech services like AWS and AAP.

Those cost pressures won’t ease soon, either. For instance, Olsavsky said the company is “invested in the long-term success of Sizmek,” the ad server it acquired this quarter, which will require significant investments before the business is profitable (thus Sizmek’s bankruptcy and sell-off by former private equity owners).

Even before the Sizmek acquisition, Amazon was investing heavily in its ad platform functionality. In the company’s previous earnings report, Olsavsky acknowledged that the platform features require upgrades to compete more effectively with established DSPs and exchanges.

During the Q2 call, he conceded that the company’s internal organization, with separate teams from across seller services, vendor services, advertising and other parts of the business, can get “out of hand” for customers.

“We need good coordination across our teams,” he said. “We grow fast and there are new learnings.”

Another priority for the coming year is to boost video inventory, he said. Amazon has added video impressions with IMDb TV, an ad-supported streaming service, and live sports deals like with the NFL and English Premier League. The company’s Fire TV OTT platform and publisher tech integrations should also increase video supply in the coming year.

 

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