Amazon's revenue hits a new low; in-site advertising has the highest cost-effectiveness

This year, many sellers have complained about how hard it is to do business and make money! Amazon is not what it is today because of just one thing, but because of many factors .

Just recently, Amazon released its fourth-quarter 2022 financial report. Data showed that Amazon achieved revenue of US$149.2 billion, a year-on-year increase of 9%; net profit attributable to shareholders was US$278 million, a year-on-year decrease of 98%. Since 2022, Amazon's net profit has experienced year-on-year declines for four consecutive quarters.

In 2022, Amazon's operating income hit the lowest growth rate since its listing, only 9%, and a full-year net loss of US$2.7 billion, far less than the net profit of US$33.4 billion in 2021. Even without considering the losses of Amazon's investments, Amazon's profit performance is not good. The profit for the whole year of 2022 alone was US$12.2 billion, which was a significant decrease compared with the same period in 2021 (US$24.9 billion). And I think it is also because the global epidemic has been under certain control since 2022, offline consumption has gradually recovered, Amazon's online retail business revenue growth has been limited, and the expense rate has been further pushed up . In order to cope with the growing cost pressure, Amazon closed some stores, cut some projects, and froze recruitment in the fourth quarter of 2022 to control costs, and also carried out a layoff in 2023, laying off nearly 18,700 people.

Moreover, the competition among major platforms is also very fierce, threatening Amazon's dominance in the global e-commerce market. In the US domestic market, traditional brands such as Walmart and Costco are trying hard to catch up. During last year's "Black Friday" promotion, the search volume on the Amazon platform was lower than that of Walmart, Target, and Kohl's, and Amazon ranked fourth .

For small businesses, it is becoming increasingly difficult to make a profit on Amazon. On the one hand, they have to bear the numerous Amazon fees, and on the other hand, the sales of their products are not good. Amazon also has no intention of stopping increasing fees.

Many merchants have expressed their intention to leave and look for a way out elsewhere, but in my opinion, Amazon is not that bad, nor as bad as many merchants see it to be. On the contrary, I believe that Amazon is still the leader of the global e-commerce platform and is unshakable.

The reason lies in the huge advantages of the advertising business.

Among retail platforms, Walmart and Instacart had the fastest advertising growth, reaching over 40%, while Amazon only had 19%. However, Amazon's advertising revenue was as high as $34.59 billion, while Walmart's profit was only $3.16 billion, and Instacart's was even lower, at $1.12 billion.

It is not difficult to see that, relying on the e-commerce dividends of the past two years, the boom period of e-commerce media advertising has arrived, and major retailers have also benefited greatly.

Among all retail platforms, Amazon is the most popular platform for advertisers for two reasons. First, the cost of advertising on Amazon is low, and second, the traffic is large. The platform can use data and positioning capabilities to accurately place advertisements, which makes Amazon a platform with a relatively high cost-effectiveness.

Data shows that in 2021, 89% of e-commerce media advertising spending went to Amazon, so Amazon's advertising department has developed tremendously, with full-year revenue reaching US$31.15 billion, including US$9.7 billion in the fourth quarter alone.

In addition, Amazon has carved up a portion of Google's advertising share in the U.S. search advertising market. By 2023, Amazon will net nearly one-fifth of search advertising in the U.S., which is more than five times Microsoft's search advertising revenue.

Now let’s look at Temu, Amazon’s most challenging competitor in the US market.

It is worth mentioning that at the 57th American Professional Football League "Super Bowl" finals, Temu's 30-second "Shop Like a Billionaire" advertisement appeared twice on the "Super Bowl", which aroused the curiosity of the outside world about Temu. Because the advertisement on the "Super Bowl" costs about 200,000 US dollars per second, people can't help but wonder about the origin of Temu?

Temu originated from Pinduoduo. Like its domestic counterparts, it became popular in the United States through its low prices. After entering the U.S. market in September 2022, it quickly became the most downloaded shopping app in the U.S. market in the fourth quarter, surpassing Amazon, Walmart and other apps at one point.

However, this dark horse that is expected to pose a huge challenge to Amazon is constantly receiving negative reviews from American consumers due to problems and defects such as slow logistics and troublesome returns . Other issues reported include undeliverable packages, unclear fees, order confusion and poor customer service attitude . Among the full five-star user reviews, only 1.8 stars are presented.

Although Temu spends a lot of money on advertising and has low prices, Amazon is still more cost-effective at present. Amazon has few risks and is relatively stable. In terms of product quality, supply chain construction, brand reputation and even cultural output, Temu cannot do it now. Amazon is still the big brother! As long as you are not a big seller who has already made it on Amazon, I suggest that you spend your advertising budget and energy on Amazon's on-site advertising first. If you use it well, the output brought by it will be much higher than that outside the site.