Amazon: Advertising 'Strong Contributor To Profitability'

Amazon does not break out advertising sales in its quarterly financials -- but the company did report it Thursday within “other,” a category that climbed to $2.0 billion in the first quarter of 2018, which is about a 72% increase from a year earlier with some adjustments, according to the company.

"Advertising continues to be a strong contributor to profitability and had strong results this quarter," said Brian Olsavsky, chief financial officer at Amazon, during the first quarter 2018 earnings call with investors.

Research firm eMarketer forecast in October 2018 that Amazon would reach $3.19 billion in net U.S. digital ad revenue by 2019, or 3.0% of digital ad spending. The research firm also estimated that about one-quarter of Amazon’s U.S. digital ad revenue would come from search placements. 



Providing a bit of guidance, Olsavsky also said the company expects strength in consumer demand for products and services, Amazon Web Services, and advertising in the second quarter of 2018.

“We will definitely see higher investments as we move through the year,” Olsavsky said. “For example, video content spend will increase year-over-year -- and we'll continue to hire, in particular, software engineers.”

Olsavsky called Amazon’s advertising business a “multibillion program” that allows consumers to discover new brands and merchandise through platforms like sponsored products that can “show people things they had maybe wouldn't have seen otherwise in their normal search results” by being helpful and not disruptive.

Amazon has “many opportunities over time to have more advertising in our Video, but we choose not to do that right now,” he said.

Raising his stock price target to $1,800, Colin Sebastian, senior research analyst at Baird Equity Research, wrote in a note published late Thursday that “Amazon continues to demonstrate impressive execution on key growth initiatives, as demonstrated by accelerating revenue across AWS, Advertising, and 3P services, which fueled the significant profitability beat.”

Macquarie analyst Ben Schachter raised his 12-month price target on Amazon to $2,100 a share -- up from $1,750, which CNBC implies that the price target will make Amazon the first ever trillion-dollar company.

Amazon reported that revenue, including sales from its Whole Foods grocery chain, rose 43% year-over-year, with North America revenue jumping 46% to $30.7 billion. Net income more than doubled to $1.6 billion.

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