Amazon back on growth path but faces strong headwinds ahead

Tech giant Amazon’s third quarter results reflect a mixed picture for the online retailer. Its all-important advertising business gained 25% to $9.5 billion but this slowed down over the quarter as advertisers began to pull back spend.  

The company returned to overall profitability yet its operating profit decreased to $2.5 billion. Prime Day online sales helped the profit picture as Q3 revenue came in at $127.1 billion.  Yet this was behind expectations of $127.4 billion.

Meanwhile, Amazon’s subscription business, primarily Prime membership, grew 9% to $8.9 billion. 

“People’s budgets are tight, inflation is still high, and energy costs are additional layer on top of that. We are preparing for what could be a slower growth period,” said Brian Olsavsky, Amazon’s chief financial officer. 

“We are taking steps to tighten our belt, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere.” 

The belt tightening will include freezing projects, such as Amazon Care and the online store fabric.com, as well as implementing a hiring freeze on the corporate side of its retail business.

Other online giants, such as Meta, are also struggling as revenue decline worsened in the third quarter of 2022 and profits plummeted 52% to $4.4 billion as it faced a challenging reality of rising costs, mounting economic pressures and slow monetisation of its newer products

New advertising products

With online sales expected to grow just 2.5% ahead of the holiday season, Amazon introduced new ad features and capabilities at its unBoxed 2022 conference on Monday.  

These features include Rewarded Sponsored Display ads, which let brands offer Amazon credit to shoppers who purchase the featured product, Sponsored Display ads for companies that don’t sell on Amazon’s platform, such as restaurants or gyms, and Digital Signage ads, which allow brands to buy out-of-home placements in Amazon Fresh stores programmatically via Amazon’s demand side platform. 

Therre is also a Sponsored Display video creative feature to make it easier for small- and medium-sized brands to create and measure video campaigns. 

Amazon expects its revenue for the fourth quarter to be between $140 billion and $148 billion, growth of between 2% and 8% compared with the same time in 2021.