Amazon has released its Q4 2022 earnings results, surprising the market and outperforming its own forecasts as net sales grew by 9% YoY amid challenging economic conditions.
The positive results were bolstered by Amazon’s introduction of a second Prime Day – dubbed the Prime Early Access Sale – in early October last year, as well as strong performances in other areas of the business.
AWS – Amazon’s cloud unit – continued to grow, albeit at a slower pace than anticipated, with revenue increasing by 20%, a drop of 7.5% when compared with the previous quarter. Advertising revenue impressed once again, generating $11.6 billion in Q4, a rise of 23% on the same period in 2021.
An upward trajectory for Amazon Ads
While Amazon bucked several predictions with its Q4 results, its profitability did take a hit and we will likely see the company shift its focus from growth to profitability in the coming months.
Historically, AWS and Advertising have been reliable growth drivers and we expect Amazon to continue down the path of innovation in these areas.
The Amazon Ads boom has been driven by its growing Retail Media Network (RMN) capabilities, which featured prominently at Amazon unBoxed in October 2022, and in part by the challenges other media giants have faced in the form of the iOS14 update and the transition to a cookie-less environment.
Amazon signaled its intent to increase advertising penetration by announcing it will open up its Sponsored Display ads to non-endemic brands, enabling brands that don’t sell on Amazon platform to access to Amazon’s faster, more cost-effective display product for the first time.
Last year, we saw several improvements to how Amazon measures the performance of its ad products, predominantly through omnichannel metrics and Amazon Brand Lift surveys, and brands should expect to see further developments on the measurement front.
This will help to demonstrate data-driven ROI and attribution via rich funnel and purchase data, and help brands justify ad-spend internally.
Changes in retail provide opportunities for brands to be better integrated
It’s critical that brands watch for an increase in automation initiatives, particularly in the retail division.
We anticipate that vendors and suppliers will see re-allocation in resources like Vendor Managers, AVS and Brand specialists, and this will require brands to lean into integration and work towards self-sufficiency in retail as well as media operations, strategy and execution.
The coming months are an opportunity for brands to prioritize breaking down silos and working more holistically. Having an integrated process that examines sales, revenue growth and the relationship between retail data and advertising data (both search and DSP) will be crucial.
Sales and marketing teams must work together to set clear, collaborative objectives that go beyond ROAS and immediate ROI.
Should brands cut spend on Amazon?
Market indicators suggest some pull back on advertising spend in 2023 – this is a natural consequence of economic turbulence, but it is often short-sighted.
In fact, brands that continue to spend on Retail Media stand to build a competitive edge on share, as well as learnings for long-term growth and efficient, tactical funnel spend. Amazon, as the leading RMN, offers precise return on investment (ROAS) data by connecting media and retail dollars, giving quantifiable data points that help brands to make better decisions.
Brands that want to preserve their market share leadership or set themselves up for long-term success will maintain their spend on Amazon or allocate wisely amongst other RMNs, appreciating that conquest is far more expensive than retention.
Where does Reprise Commerce come in?
In theory, marketing and retail teams work towards a common goal, but they are often asking different questions and they are definitely looking at different data sets. Bridging the gap between these disciplines is the key to profitability and incremental revenue growth for brands.
Marketing teams want to know the return on ad spend (ROAS), whether they’re hitting media KPIs and how their marketing dollars are performing. Retail teams want to grow the business, but they won’t necessarily be looking hard at media spend dollars.
Reprise Commerce can offer brands the expertise and tools to bring together marketing and retail teams and grow businesses by utilizing each of these datasets and touchpoints.
If you’re interested in driving returns from Retail Media strategy and operations, we have more than 350+ commerce experts around the globe who can help.
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