← Behind the Numbers: an EMARKETER Podcast
Behind the Numbers: an EMARKETER Podcast
Can Amazon Maintain Its Ad Revenue Momentum? Is AI Spending a Problem? And More — The 3 Big Questions for Amazon | Behind the Numbers
00:24:39
Loading summary
Transcript52 lines
- [00:04]
A
Hey gang. It's Friday, February 20th. Rachel, Marissa and listeners, welcome in to behind the Numbers new marketer video podcast. I'm Marcus and joining me for today's conversation we have two New York based folks. The first is one of our retail analysts. We call her Rachel Wolf.
- [00:20]
B
That is my name. Thanks for having me, Marcus.
- [00:23]
A
We're also joined by newsletter analyst Marissa Jones.
- [00:26]
C
Hi Marcus. Thank you for having me.
- [00:28]
A
Hello. Of course, today's fact. So this came about because I was reading an article in the Economist about Bad Bunny's super bowl halftime performance and they noted rather interestingly that There are over 40 million Spanish speakers in the U.S. about 330 million people in the States, which would make it the fifth biggest hispanophone country in the world. And I'd also seen a Visual Capitalist piece which was looking at the most spoken languages on the planet. And so where do you think Spanish
- [01:13]
B
ranks on the planet?
- [01:15]
C
I would say fourth, maybe Fourth or fifth.
- [01:19]
A
No need to guess. Rachel. Yeah, she's spot on. Yeah, fourth is. According to f ethnolog data cited by Visual Capitalist, Spanish is the fourth most spoken language in the world. 558 million people speaking it between native and non native. Number one is
- [01:42]
B
I would say English,
- [01:43]
C
but English, I would say it is English.
- [01:45]
A
Yes, it is English. 1.5 billion, though interestingly just a quarter of that. 1.5 billion folks are English are native speakers. Mandarin is second, 1.2 billion. Pretty much most of those are native. And then Hindi, over 600 million comes in third expansion, fourth. Anyway, today's real topic, the big three questions surrounding Amazon. All right, we set the table. First, what's going on full year, 2025, how did Amazon do? They grew top line revenue 2025, 12.4% year over year. It's faster than 2024, reaching $717 billion. 38% of that money comes from their online store. Sales growing 9%. That's the fastest growth yearly growth since 2021. And Amazon's 2025 ad dollars, the ad business grew 22%. That's faster than the previous year, approaching 70% billion. But today we're talking about the biggest questions surrounding the company. Questions from the company about themselves, questions from journalist analysts, us. So Rachel, what do you think is one of the main questions for Amazon at the moment?
- [03:02]
B
So for me, one of the top questions is, you know, you mentioned the best online, fastest online sales growth since 2021. So my question is what can Amazon do to keep e commerce growing at that rate, to keep it chugging along okay. And I think they've been doing a really good job. I mean, they have features like add to delivery now, which is prime members. You can add items after you place your orders. And that now accounts for roughly 10% of all prime volumes fulfilled through their network. So adding those kinds of features to the E commerce experience is really helping Amazon keep that growth going. They have, you know, these whole same day initiatives of just faster delivery overall, but also their grocery business, and that's also just getting people to order more often and to order more per order. I said order a lot in that sentence. But they really are doing all of these things to make the experience of ordering on Amazon easier, to make the overall service stickier. And I think that is something that the company will have to keep doing and it's going to get harder because you, you know, how many more of these types of features can Amazon offer? That's the question.
- [04:23]
A
And it seems to be that kind of pushing more towards this as they pull away, at least for the moment, from their store strategy. They're basically doubling down on super fast online delivery as they closed. I thought this was one of the questions that we could have and talk about, which is kind of tied to this, which is Amazon pulling out of the Fresh and Go stores. And those concepts didn't really resonate with customers too much. Rachel, I think you wrote about this. What was your take here on the Fresh?
- [04:54]
B
Well, I think, you know, we've talked about this a lot where the writing has kind of been on the wall for Amazon Fresh and also Amazon Go. You know, these concepts have been around for a while, but Amazon hasn't really found a way to stand out in the physical grocery space. With them. And especially with Amazon Go, it just didn't seem like it was scal. So I think it was kind of a long time coming. But it does raise questions, right, about what Amazon can do in grocery. They have Whole Foods, but they don't have another brick and mortar concept. And without that, I think it's going to be very difficult for the company to scale that. So that was actually another one of my questions. If you want to go in there is like, can Amazon crack physical retail?
- [05:39]
A
Yeah. Yeah. 14Amazon Go stores, about 50Amazon Fresh stores that they'll be closing, converting some of them into Whole Foods Market locations. And it has, I think it was either you or Zach writing about a couple of their hybrid concepts. They've got a Whole Foods Market concept store, which is 10,000 square feet automated micro fulfillment center. And then they've also Got a two level store testing that has Amazon Grocery on the ground floor and Whole Foods on the second floor. So they're still very much trying to figure this out, but it's a small part of their business. Physical store sales now just 3% of Amazon's overall business growing at mid single digits now for the last couple of years. So I think, yeah, I had this one down as well. So I think it's a, this is a good question.
- [06:35]
B
Yeah, I think it would be remiss not to mention the fact that they are planning to open a 229,000 square foot supercenter outside Chicago. Yeah, clearly they're not done with physical retail and you know, they're definitely still experimenting with these different formats. Whether they get the same amount of resources that maybe Amazon Fresh and Amazon Go did from the, the beginning, I think could be a question. And I think, you know, to bring this over to advertising a little bit. Like what does this mean for Amazon's in store retail media ambitions? I mean with their dash carts and things like that, if they don't have that physical footprint to back that up.
- [07:15]
A
Yeah, very good Marissa. Questions do you have?
- [07:21]
C
So my question is unsurprisingly more focused on Amazon's ad business, which is its fastest growing segment but still accounts for only about 10% of its overall revenues in Q4. So I guess my question is really Amazon's ad business is really accelerating, but is it powerful enough and do they have enough of a strategy to become a larger and more stable profit center? More on the likes of what we see from Google and Meta's very established ad businesses. So Amazon has for some time been growing at least a higher rate or a similar pace to competitors like Meta. But even though it has much very accelerated growth, it still lags behind billions and billions in these two. Most of its revenues aren't coming from ads like you see with these other companies. So my question is really how sustainable is this growth and what are they planning to do in the future to keep it growing at as fast a rate as it is now?
- [08:21]
A
Yeah, well, yeah, as you mentioned, ad revenue now representing close to 10% of Amazon's money, which is remarkable to be honest because it, it wasn't that much of a thing until quite recently. You know, in a piece, Prime Video, a big driver of this that only started showing ads a couple of years ago and now 300, over 315 million viewers, you know, towards the end of last year. What, so what? So yeah, the big question is can it keep up this ad Revenue Momentum Heading into 2026, full year 2025, ad revenue grew 22%. What drove a lot of that growth last year.
- [09:00]
C
So we're seeing a lot of growth coming from Amazon's expansion into full funnel AI powered campaign solutions. But obviously also like you said, Prime Video has experienced very significant growth in its ad supported tier. It's a very popular option. I have it, you know, it's a great service and they're really doing a lot there. And I think a really unique benefit that Amazon has that it can continue leaning on to drive growth and that it's emphasizing in these AI powered solutions is that their campaigns on Amazon begin at the top of the funnel with streaming and go all the way through the funnel until consumers complete their conversions on a brand site or through sponsored Amazon ads and they actually make a purchase. So Amazon has the benefit of being retail media, but also streaming, but also all these other things where users can really complete the entire process in one setting without leaving the Amazon website really. So that is a benefit it has. It's really pushing forward with showing brands that they can create AI powered campaigns fully on Amazon. They debuted just a few months ago some modified products and some new products including Campaigns Manager which takes its Amazon ads console and DSP into a more streamlined solution for full funnel campaigns. It has an AI powered assistant to manage hundreds of campaigns across different accounts. It has a creative agent, which is just a rebrand really of its creative studio that is tailored for streaming ads and can create campaign material based on concepts. And it has a full funnel campaign tool that leverages agentic AI to run and create multi channel campaigns. So they're really pushing into their. Yeah, they're really pushing into like AI is such a growth driver for them and really trying to push into our AI powered tools can do more than these competitors can.
- [11:00]
B
Just a few other notes on Amazon's ad business which is that like yes, they do have all these huge growth drivers, especially Prime I think is really an important one for them. But, but still most of their ad revenues is coming from their retail business. It's from sponsored placements. I think Jesse mentioned like once again in this quarter. And so the question for them is like how do you convince. The question is really can you get brands that don't sell directly on Amazon to really buy into the whole idea of advertising on Prime Video into this whole like full funnel Amazon offering. And you know the other driver for Amazon as well is that they have all of these huge sales events. Like we had a four day Prime Day last year. And that is another way that Amazon has been able to squeeze more revenues out of its existing ad base. And I think that is also going to be the question this year is, you know, how many of these sales events are there going to be? What is the length going to be like? And will there be the same pressure on these sellers to advertise in the same way that they have been over the past few years?
- [12:03]
A
Mm. Yeah, you mentioned AI, so I want to go there for a second because that was one of the ones I had.
- [12:08]
C
Me too. Yeah.
- [12:09]
A
Is AI spending a problem? Was this the same question you had as well?
- [12:16]
B
Yeah, go ahead.
- [12:19]
A
Did you both say you had this? Oh, sorry.
- [12:21]
C
Something along the lines of its capex estimates for 2026 being almost 50 billion higher than initial expectations.
- [12:31]
A
Yeah. Rachel, same for you.
- [12:34]
B
My question is, what are they going to do with all that money? It's really.
- [12:39]
A
Yes. Catch people up. Yeah. Is AI spending a problem? We asked this of Meta. They're doubling capex spending. Spending money on data centers, AI chips, infrastructure, things like that. Meta was doubling capex spending to nearly 125 billion this year. Google doubling capex spending to around 185 billion. So on both of those episodes we talked about this. Amazon now planning to nearly double capex to 200 billion. If you count Microsoft Meta platforms, Alphabets, Google, Amazon and Oracle. Collectively they plan to spend over $700 billion in CapEx this year. And according to Sean McLean of the Wall Street Journal, that's close to the 2026 spending budget for Japan and is higher than the ones of Germany and Mexico.
- [13:29]
B
Yeah, we have a really great chart. Shout out to the tech briefing. We have a chart that shows big tech's capital expenditures ballooning since 2002. And it is kind of a scary chart to look at these huge numbers and it's just like up and to the right. But what's interesting is if you look at Amazon, they have significantly outspent Alphabet, Meta, Microsoft, Apple on CapEx since 2022. So, you know, maybe it's not uncharacteristic for them to be spending more. It's just the amount that they're spending is pretty astronomical.
- [14:05]
A
Yeah, it seems to be two sides of this. One is this isn't that much of a problem and the mood surrounding spending being is kind of being blown out of proportion. Christine G. Of MarketWatch writing, Some analysts believe the negative sentiments running Amazon is overdone with Deutsche bank analyst Lee Horowitz writing, Amazon is not becoming more capital intensive, but rather staging A pull forward of capital that would have been deployed in the cloud over many years to drive the digital transformation of the economy. For Amazon, the risk of underinvesting is much greater than overinvesting. On the other side of the coin, the markets don't think the concern about AI spending is overblown. Amazon's stock was down about 10% the two weeks following the announcement, which is a lot on Amazon's investor core. Analysts pressed executives to explain why they think their enormous bets will pay off. Mark Mahaney, an analyst at the investment bank Bank Evercore, said, that's the debate in the market today. Help us get to your level of confidence. Not there yet.
- [15:00]
B
I think that's the question. Right. There's a lot of uncertainty about Amazon's AI strategy. You look at their earnings call and their earnings statement, they talk a lot about all of these advances that they've made in AI and how much demand there is for the various AI products that they're rolling out. But if you look at the retail side, I think there is a lot of question around Agentic Commerce, for example, and is Amazon ready to handle that sort of shift and there's just a lot of unknowns there.
- [15:30]
C
Yeah, I think there's also the question of obviously we're seeing investors kind of wary about this massive spending without proven results. There is also the question that I'm wondering, I think will become more prominent this year is how is Amazon going to measure the return on this investment? How will they justify to investors that investing so heavily in AI is worthwhile and is leading to measurable results for their business? And we don't really know how they're going to prove that yet.
- [16:00]
B
Right. And does this put more pressure on Amazon to really skip to grow its ad business even more, given that, you know, that's the money that's going to be funding all of these investments?
- [16:11]
A
Real quick, the other thing I thought about was cloud AWS approaching 20% of Amazon's business, which is huge. It's really, really huge. That's more money being made from AWS for Amazon than subscription services, which is prime, basically ad revenue and physical store sales combined. So I thought that was an interesting note in their earnings. Other questions, Rachel, what else you got?
- [16:39]
B
I have one more that I kind of touched upon earlier, which is agentic commerce. And is Amazon ready for it? Okay, so I would say, you know, circling back on this, on the one hand, you know, Amazon definitely has the tools. It has agentic buying capabilities through Rufus and Buy for Me and, you know, these other AI buying applications and it is seeing pretty strong adoption for Rufus. They said over 300 million people used it. Last year it generated over $12 billion in incremental annualized sales. But I think the question that for Amazon and for all retailers is, you know, are shoppers going to be content just using Amazon's tools or are they going to start shifting their search behavior, their product discovery to ChatGPT and Gemini? And in that scenario, since Amazon is so intent on closing itself off to those third parties, does Amazon end up losing some of that momentum, you know, maybe losing growth in its ad business or even its e commerce dominance if it doesn't start to partner with these third parties?
- [17:48]
A
Yeah, that's a good one. Marissa, any others?
- [17:52]
C
I guess just my last question. I'm really kind of tracking closely every quarter how Amazon compares with the other triopoly leaders, Google and Meta. So I'm just eager to see and wondering what Amazon is thinking that as it increasingly is competing for ad dollars that really go to the big three, what unique value proposition it's planning on offering to its advertisers. Like I said before, it's very full funne, but is there anything more than that? Are Amazon's AI enhancements better than what Meta and Google are already doing? Is it its commerce intent data that will really draw in advertisers? So yeah, that is just my question is what value proposition does it have that makes it a better investment?
- [18:36]
A
I got two more for you, quick. One is, I mean, we speak speaking a bit about AI, Amazon may launch a marketplace where media sites can sell their content to AI companies. According to TechCrunch, citing original reporting from the Information so OpenAI they've signed content licensing partnerships with the AP, Vox, News Corp, the Atlantic, others. And so it's basically putting together a platform, a marketplace to. To sell the Internet, pretty much how much is the content worth? And then people can come and buy and sell on this exchange. Lucas Ropec of TechCrunch noting that Amazon's not the first major tech company to go down this road. Microsoft recently launching what it calls Publisher Content Marketplace, pcm, which it says will give publishers a new revenue stream, also providing AI systems with scaled access to premium content, saying it's designed to empower publishers with a transparent economic framework for licensing their content. So curious to see where that goes and then layoffs as well. That was the last one I had. Why is Amazon really reducing its workforce? The company recently announced it would cut an additional 16, 16,000 jobs this past October. It laid off 14,000 won 4,000 corporate employees for this round. Karen Weiss of the New York Times explaining that in Amazon's home state, Washington, 2,000 employees lost their jobs, including recruiters, analysts and managers. The hardest hit job category was software engineers.
- [20:09]
B
Yeah, it's an interesting one, right? Because usually if a company is doing this well, you don't necessarily see the scale of layoffs. But I think it goes back to look at how much money they're spending on AI, look at how much they're pouring into just transforming their organization to prepare for this AI revolution that is coming. And so I think that has a lot to do with it. They think they can find efficiency there. They need to control costs. So I think it's kind of along the lines of what we talked about last quarter when they announced the first half of those layoffs.
- [20:48]
A
Yeah, and it's a really good point. But Andy Jassy, Amazon's boss, has not been shy about explaining to folks this was going to happen and more is likely to come. They telling staff I meant over time the company would operate with fewer corporate workers, adding that layoffs had. But it's interesting because he's explaining it by saying that it's got less to do with AI or finances, obviously made $700 billion and more to do with reducing layers of bureaucracy. So that's the party line we talked about about kind of corporate layoffs. But Amazon's. So they've got 1.6 million employees in Q3. I think that makes it the second largest private employer in the world behind Walmart, maybe the fifth. It's top five in the world behind the US and the Chinese army, the National Health Service and the England and Walmart. So it's a huge employer, 1.6 billion employees in Q3. Most of them are hourly kind of warehouse workers. And Amazon's not been shy about saying last year that it plans to replace half a million jobs with robots. The Times was reporting on last year. So that's my last question. I'll go through a list quickly. We need to pick a top five. Sorry, top three, not top five. Too many. What do we have? We have. What can Amazon do to keep E commerce growth going? Can Amazon crack physical retail? What's their plan? Can it keep up this ad revenue momentum in 2026? And I paired with that the triopoly question as well. What's their unique value proposition for advertisers? Marissa, is AI spending a. That's the fourth one. Is Amazon ready for identic commerce? Are consumers ready for It. And then lastly, why is Amazon really reducing its workforce? Rachel, which of these do we need to keep?
- [22:41]
B
Well, I'm not biased at all, but I'm.
- [22:43]
A
Here we go.
- [22:45]
B
I'm gonna vote for my own. The first question I think is going to be really crucial for Amazon just in general. Right. Retail is the core of its business and it drives its advertising business. So if it doesn't have that piece going at full steam, then everything else is kind of in trouble.
- [23:02]
A
Okay, Marissa, what do you got?
- [23:04]
C
I think I'm going to go with the AI spending question. I think that was kind of the big takeaway for investors and myself when I read the Q4 results is just how much they're spending. So, yeah, I think that's the one that sticks out to me the most.
- [23:20]
A
Okay. I like it. I think for the last one, we'll go. I think we'll go. Ad revenue. Yeah. Can it keep up this momentum? Because I had a stellar 2025 and we've said it's part of this tropoly for a long time, but it is really starting to creep closer and closer to the big two meta and Google. So I think that's a big question, especially at the start of the year, kind of heading into 2026. So we've got what can Amazon do to keep E commerce growth going? Can it. And revenue momentum in 2026. And is AI spending a problem? Solid, solid top three there. Thank you so much, folks, for your time. That's all, that's all we've got time for, for today's episode, but thank you so much to my guests. Thank you. First to Rachel.
- [24:05]
B
Thank you both. This was a lot of fun.
- [24:06]
A
And of course, to Marissa.
- [24:08]
C
Yeah. Thank you guys.
- [24:09]
A
Yes, indeed. Thank you to the whole production crew. We have John and Stuart who runs a team helping out with this one. Thanks to everyone for listening in to behind the Numbers and the Marketer video podcast Podcast. Subscribe, follow, leave a rating and review all the things other podcast people tell you. We'll be back on Monday discussing three big questions surrounding TikTok happiest of weekends.