May 1, 2023

 

Amazon and its digital ad platform peers Google, Meta, Pinterest, Snap and Roku all reported earnings last week, providing data and color on the ad landscape.

 

Here’s what we found most interesting for retail leaders.

 

On average, Amazon’s peers grew their ad business by 1.7% compared to Amazon's 21% Y/Y growth.

 

This outperformance is not a large (Google & Meta) vs. small numbers phenomenon either, as Snap, Pinterest, and Roku are all significantly smaller than Amazon, yet grew slower. As the chart below illustrates, Amazon’s incremental dollar growth (1Q23 Ad Revenue less 1Q22 Ad Revenue) was more than Google Search and Meta growth, combined.

 

Google Search, YouTube, Meta and Pinterest all accelerated in the quarter. So too did Amazon, which is notable given it did not have as easy of comparisons as Meta did, which saw poor results a year ago as it dealt with the TikTok shortform threat and measurement degradation.

Speaking of existential, Meta’s share price rebound illustrates what happens when the company stops the bleeding from the TikTok threat, progressively improves measurement within a new reality of privacy, significantly cuts costs and (although it doesn’t agree with this) pulls back on metaverse ambitions.

 

There’s also the important point that consumer demand hasn’t tanked, which was the consensus expectation entering the year. Many expected to see that begin in 1Q23 as inflation wore down shoppers. However, consumers didn’t follow that script.

 

While there is caution amongst consumers, discretionary categories continue to lag, and a great deal of uncertainty persists, 2023 could be characterized as more of a soft landing than a sharp decline.

 

Advertisers responded positively through the quarter.

 

In reviewing CPG results over the last week, brands were more likely to have raised advertising investment in response to better-than-expected sales (and elasticities). Further, both Google and Meta management teams highlighted retail and eCommerce verticals as bright spots.

 

Management teams have taken a relatively conservative position on their guidance, preferring to surprise to the upside. Here’s what management teams had to say about their outlook:

 

  • Meta: “…we feel it remains a volatile macro environment. The market has absorbed a lot of new developments over the last year with inflation, higher interest rates, banking instability, et cetera. And it’s hard to have perfect visibility on how those dynamics will impact the broader economy and specifically the advertising markets for Q2 and for the rest of the year.”

 

  • Google: “Many companies are very focused on shorter term profitability amidst this uncertainty and some (have pulled) back ads budgets as well.”

 

  • Pinterest: “...while Q1 growth was marginally better than Q4, we still do not have visibility into an acceleration in demand. As a result, we expect our second quarter year-over-year revenue growth to be roughly consistent with the growth we saw over the last two quarters in the fourth quarter of 2022 and the first quarter of 2023.”

 

  • Roku: “…we expect macro uncertainties to persist throughout 2023. Consumers remain pressured by inflation and recessionary fears, and thus discretionary spend is likely to remain muted. Accordingly, we expect the advertising market in Q2 to look much the same as it did in Q1, with ad spend from certain verticals improving (travel and health and wellness), while others remain pressured (M&E and financial services).”

 

  • Amazon: “…even in difficult economies, most people still shop, and with the largest e-commerce shopping venue, we have a lot of customers that companies seek to reach. That, coupled with our very substantial investment in machine learning to make sure customers see relevant ads when they’re looking for various items, has meant that these advertisements have performed unusually well for brands, which makes them want to advertise on Amazon.”

 

We project Amazon’s outperformance in 1Q23 to continue throughout the year, with full year growth reaching 18.1%. Keep in mind, Amazon has the vast majority of market share of the retail media market and is the most mature platform. It’s outperformance of these digital ad peers studied implies other retail media offerings like Walmart Connect, Target Roundel, Kroger Precision Marketing, and others are expected to grow as fast or faster, making retail media a stand-out in the digital ad ecosystem.

 

Amazon’s 18.1% growth estimates translates to its ad business reaching nearly $45B, up from $38B in 2022, and accounting for 11.6% of the market (as defined for these purposes by the seven digital ad platforms studied here). This amounts to 105 basis points of share gain for the year amongst these seven platforms.