After years of spending lavishly on growth, Amazon cut costs in Q2 2022, reducing headcount by 6% and, according to CEO Andy Jassy, “improving the productivity of [its] fulfillment network.” As a result, Amazon reported a $2 billion loss, marking the business’s second consecutive quarterly loss, which hasn’t happened since 2014. Amazon’s revenue rose 7.2% to beat expectations, however, delivering $121.2 billion versus $119 billion expected. Now that misleading year-over-year comparisons to pandemic-affected quarters are past, Amazon expects to return to double-digit quarterly growth. Here’s what B2C marketers need to know about Amazon’s Q2 2022 earnings.

Amazon’s Ads Are Insulated From Macroeconomic Pressures

Amazon credited its 7.2% rise in revenue — 10% in North America alone — to its fast-growing ad business, which grew 18% to $8.8 billion, beating expectations of $8.65 billion. Amazon’s ad revenue isn’t decelerating as much compared to its peers. Unlike Meta, Snap, and Twitter, which have all been punished by pullbacks in ad spending, Amazon’s ad model is more insulated from macroeconomic pressures. Amazon CFO Brian Olsavsky credited this to the fact that “a lot of [Amazon’s] advertising is right when customers are going to make purchases” at the bottom of the funnel. Data from Forrester’s Q3 B2C Marketing CMO Pulse Survey, 2022, reveals that 98% of consumer products that CMOs surveyed are “very satisfied” with the ROAS (return on advertising spend) of ads on retail media networks such as Amazon’s, supporting Olsavsky’s contention that Amazon ads will be protected from budget cuts given their verifiable revenue impact and proof of yield.

Advertising Results Are Opaque But Offset E-Commerce Losses

The lack of transparency in Amazon’s advertising results is problematic. Amazon doesn’t disclose, for example, how much of its $8.8 billion in ad revenue comes from merchants required to purchase advertising to ensure pride of place on Amazon’s marketplace. Amazon faces significant regulatory risk from Congress construing Amazon’s behavior as anticompetitive. Without disclosing the sources of that $8.8 billion — or without even specifying whether that $8.8 billion is net or gross — we don’t know whether shoppers are being alienated by overcrowding in Amazon’s search results, nor do we know how much less profitable it is for Amazon to sell ads on Freevee, for instance, than it is to sell ads on Amazon’s marketplace. Despite this murkiness, the growth in Amazon’s advertising business offset another quarterly decline in online store sales, which dropped 4% year-over-year to $50.9 billion, missing analysts’ expectations of $51.8 billion. Without advertising, Amazon would have lost much more money than it did.

Amazon Continues To Write The Retail Media Playbook

The ability of Amazon’s ad revenue to make up for losses in other parts of the business dominates the playbook that others — including Walmart, Target, and Instacart — are following as they build out retail media networks. According to our Q3 2021 Sell-Side Retail Media Solutions Forrester Wave™ Customer Reference Survey, nearly 90% of retailers build retail media networks to “increase profit and margins.” Quarter after quarter, Amazon’s high-margin ad revenue fuels other retailers’ ambitions. As Amazon’s ad business continues to grow, and as others such as Walmart, Kroger, and Best Buy build competitive retail media networks, we expect retail media ad sales to more than double in the next four years, reaching $85 billion by 2026. This growth will come with challenges, such as how to balance monetization with customer experience and how to resolve tension between retailers’ walled gardens and advertisers’ desire to democratize data across retailers. Look for research from us in the next few months about how to solve these challenges.