Amazon now has a multibillion-dollar advertising business

Key Points
  • Amazon's quarterly advertising sales surpassed $2 billion for the first time in the first quarter.
  • Amazon doesn't break out advertising sales but loops it under the "other" category, which grew 139 percent year-over-year.
  • EMarketer predicts Amazon will become the third largest digital ad seller in the U.S. by 2020, behind Google and Facebook.
Chief Executive Officer of Amazon, Jeff Bezos, tours the facility at the grand opening of the Amazon Spheres, in Seattle, Washington on January 29, 2018. 
Jason Redmond | AFP | Getty Images

Amazon's advertising business is growing fast — now adding billions of dollars to Amazon's quarterly sales.

On Thursday, Amazon disclosed that its "other" sales, mostly comprised of its advertising revenue, jumped 139 percent $2.03 billion for the first quarter, the first time that it's surpassed $2 billion.

"It's now a multibillion-dollar program and growing very quickly," Brian Olsavsky, Amazon's chief financial officer, said during the earnings call.

Olsavsky said advertising on its site is beneficial to both the customers and sellers on Amazon's platform. Ads help Amazon shoppers discover new brands and products more easily, while sellers are able to more effectively reach their target customers, he said.

The huge growth in Amazon's advertising business is reflective of the company's potential as a broader digital ad service.

'Conservative in its ad load'

While Amazon's ad business is still tiny compared to Google and Facebook, which collectively account for more than half of the digital advertising market, it's on track to become the third largest ad player in the U.S. by 2020, according to eMarketer.

"So far, it's been conservative in its ad load," Monica Peart, eMarketer's senior forecasting director, wrote in the report. "It remains an open question as to when Amazon will take advantage of its significant reach and dominance in rich shopper data to ramp up the placement of ads in other areas."

Amazon generates most of its advertising revenue by selling product search results, allowing sellers to buy slots for "sponsored products."

Olsavsky said that the "other" revenue saw an increase of $560 million in the first quarter due to accounting rule changes. But even after backing out those changes, the "other" segment would have grown roughly 72 percent, faster than any quarter in 2017.

He also said there are opportunities for video ads through its Prime Video offerings, but there are no plans to roll them out at the moment.

"We want customers to get the benefit of the new brand and product discovery, and then we want to let sellers for both emerging and established brands reach those customers," Olsavsky said.