Amazon (NASDAQ: AMZN) is best known to consumers for its world-leading e-commerce business, but to investors, it garners equal attention for its cloud computing platform, Amazon Web Services.
Yet in true Amazon style, the company is rapidly advancing in newer segments like electric vehicles (EVs) and advertising. In fact, its stake in EV manufacturer Rivian Automotive carried Amazon's profitability in the fourth quarter of 2021.
But the company's advertising business is arguably its most interesting right now, not only because it's growing rapidly, but also because its sheer size in comparison to other players in the industry.
Image source: Getty Images.
The business of advertising
Digital advertising is in hot demand among businesses because the consumers they want to reach are spending more time than ever online. Companies like Meta Platforms (NASDAQ: FB) generate over $100 billion in revenue per year thanks to the ability to leverage mountains of user data to sell highly targeted advertising.
Since Amazon's website attracts over 2 billion visitors per month worldwide, it's an incredibly valuable piece of digital real estate for advertisers. Merchants can unlock a significant amount of value by using it as an advertising platform, with the ability to have their products featured in search results and on relevant pages. Businesses can also elevate their brand with dedicated pages within Amazon's online store.
And since Amazon also owns content platforms like Twitch, Fire TV, and Amazon Music, it can sell both video and audio advertising to businesses looking to target customers with other forms of media.
In the past, the company had never revealed how valuable its advertising segment was, but in 2021 it finally shed some light on that. For the full year, Amazon generated $31 billion in ad revenue, and the segment's recent quarterly growth was second only to the company's cloud services business. In just the fourth quarter of 2021, ad revenue was $9.7 billion, up 32% year over year.
How Amazon stacks up
Advertising isn't Amazon's core business, so it's not generating quite as much annual revenue from the practice as the likes of Meta Platforms, for example. But it's crushing its key competitor in the e-commerce space, Walmart (NYSE: WMT), which launched an advertising segment of its own in 2021, dubbed Walmart Connect. The company seeks to profit from both its online presence and its staggering physical footprint across 10,500 stores globally.
But Amazon's advertising business is currently more than 14 times the size of Walmart Connect based on 2021 revenue.
To add further context to Amazon's power in this segment, it also generated more revenue than Alphabet's YouTube video platform last year. YouTube is estimated to have over 1.7 billion unique visitors every month, and relies on advertising for the majority of its revenue.
Unfortunately for investors, Amazon hasn't disclosed any further detail beyond revenue numbers for its advertising business. It might take some time before we learn how profitable the segment is, and how lucrative its specific assets could be at attracting advertising dollars. Amazon owns the rights to the NFL's Thursday Night Football, for example, in addition to over 500 Whole Foods locations, which could bolster its physical advertising presence.
But with Amazon's total revenue topping $469 billion in 2021, there are certainly plenty of other reasons to own the stock in the meantime.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool owns and recommends Alphabet (A shares), Amazon, and Meta Platforms, Inc. The Motley Fool recommends Alphabet (C shares). The Motley Fool has a disclosure policy.
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