• by Sarah Mahoney  @mahoney_sarah, August 2, 2024

Amazon’s ad revenue grew 20% to $12.77 billion in the second quarter. And while that might seem like -- and is! -- a staggering amount, it represents the slowest growth since 2021, when the company first began breaking out ad results. Growth in its retail division is also slowing, and it issued a lower forecast than many expected.

All that is making investors nervous, sending Amazon’s stock as much as 9% lower.

Amazon points out that ads have generated more than $50 billion in revenue in the past 12 months. “It's important to realize we're at the very beginning of what's possible in our video advertising,” says Andy Jassy, president and chief executive officer, in a call webcast for investors. “In May, we made our first appearance at the upfronts, and we're encouraged by the agency and advertiser feedback on the differentiated value we offer across our content, reach, signals, and ad tech.”

Other results came in a bit below expectations. Net sales for the quarter, which included its best-ever Prime Day, increased 10% to $148 billion in the second quarter, up from $134.4 billion in the second quarter of 2023. In North America, sales climbed 9% to $90 billion. And at AWS, its fast-growing cloud computing division, sales jumped 19% to $26.3 billion.

Net income jumped to $13.5 billion, doubling the $6.7 billion reported in 2023.

For the coming quarter, sales are forecast to be between $154 billion and $158.5 billion, an increase of 8% and 11%, less than many expected.

Scott Devitt, an analyst who follows Amazon for Wedbush, thinks “the combination of sequentially lower North American segment margin, modestly weaker advertising growth vs. expectations, and commentary indicating a cautious consumer will limit near-term upside to our operating income estimates and consensus.”

Still, his view of the company as likely to outperform its peers, including Meta and Alphabet, is largely unchanged because of the strength of AWS and Amazon’s ad business.

“The underlying revenue mix shift to higher-margin AWS and advertising revenue is structural and will contribute billions of dollars of incremental profit each year,” he writes. “Advertising and AWS together will account for 31% of consolidated revenue by 2029 from 26% in 2024.”

And despite signs of consumer stress in ecommerce, Morningstar sees Amazon’s results as solid.

“Margins have been consistently stronger than anticipated over the past year, and we continue to believe there is room for expansion,” writes Dan Romanoff, who follows the company for Amazon. “Second-quarter profitability was impressive. And Amazon’s advertising growth continues to outpace its large internet peers.”