Amazon grows ad business; ramps up marketing expenses by 48% in Q2

Amazon spent US$4.3 billion on marketing-related expenses in the second quarter of 2019, representing a significant 48% hike from the same quarter last year.

The extra budget was mainly devoted to promoting Amazon’s cloud computing arm AWS, which included growing the unit’s sales and marketing team, Amazon’s chief financial officer Brian Olsavsky said.

“We see great opportunity there [within AWS] to help customers engage with our services and migrate to our products, so we continue to build out our sales force and our marketing programs,” Olsavsky said during the business’ Q2 earnings call.

Amazon grew its total headcount by 13% year-over-year to 653,300 in the quarter.

Amazon is also increasing its advertising budget to promote the rollout of new devices as well as the library of international content on Prime Video, its subscription service, Olsavsky added.

The chief financial officer said that the cost of adding sales and marketing personnel in AWS had the biggest impact to the division’s operating profit, which grew by 29% year-on-year to $2.1 billion in the quarter, representing a significant slowdown from the 79% increase in operating income between Q2 2017 to 2018.

The business’ revenue grew by 37% to $8.38 billion from the same period a year earlier—its slowest revenue growth in at least five years—and down from a 49% growth rate in the second quarter of 2018.

But the cloud-computing business still accounts for the lion’s share (47%) of Amazon’s total operating profit, which was $3.08 billion in the quarter.

Meanwhile in the ‘Other’ category, which is primarily made up of Amazon’s advertising business, revenue climbed 37% to $3 billion.

Amazon’s net income of $2.6 billion was the lowest since the second quarter of last year, while its operating expenses increased by 21% in the quarter. The business spent slightly more than $800 million it had set aside to deliver on its ambition to make one-day delivery the standard for Prime members, which Olsavsky said has taken a hit to earnings.

Elsewhere, Amazon spent $9.07 billion on technology and content in Q2, including TV rights for its streaming service, representing a 37% year-on-year increase.

It brought in $4.68 billion in subscription sales in the quarter, a 39% jump excluding the effects of foreign exchange fluctuations.

The quarter began with Prime Day, Amazon’s annual shopping event, which helped drive a 16% uplift in online store sales to $31 billion.

Overall, Amazon’s revenue jumped 20% to $63.4 billion, a bounce back from the 16.8% growth in the first quarter, which was the slowest in four years.