Amazon Sellers Are Buying More Ads During COVID-19

Food sellers increased their Amazon ad purchases more than any other category between February and June, according to Feedvisor.
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We know that consumers are doing more shopping on Amazon  (AMZN) - Get Report these days. And to get their attention, many sellers are buying more ads on Amazon's marketplace. 

According to Feedvisor, which tracks and surveys Amazon sellers, ad spending across several popular categories has grown in the COVID-19 pandemic, with food sellers spending 65% more on ads in June compared to February. Other categories similarly showed increases in ad spend over the same period, with beauty and personal care ad spend up 24%, electronics up 34% and apparel up 10%. Sellers of home and kitchen goods spent 3% more on ads in June compared to February. 

"We can expect to see increased impression counts on keywords across categories, as shoppers move online, and, in turn, we expect to see media budgets shift increasingly to e-marketplaces to keep up with demand," wrote Feedvisor's Dani Nadel in a report. 

Amazon's advertising business is a distant third to the dominant digital advertising players, Google  (GOOGL) - Get Report and Facebook  (FB) - Get Report. But its advertising business is growing much faster than its more established competitors. 

Advertising revenues make up the bulk of Amazon's "other" category, which generated $14.1 billion total in 2019 and has posted growth in the approximately 40% range in recent quarters. And analysts view advertising as a potentially huge and very profitable line of business for Amazon. In a report out this week, Cowen analyst John Blackledge named Amazon's nascent advertising business as one of a few factors that could drive its share price to $3,700, with advertising helping to drive both revenue growth and margin expansion. For investors, an open question is how much economic headwinds will hamper growth of the segment, if at all. 

On Amazon's first-quarter earnings call, CFO Brian Olsavksy said that while Amazon saw some pullback and negative impact on prices toward the end of March, unlike some competitors, its ad segment isn't as tied to heavily impacted categories like travel.

"[The pullback] wasn’t as noticeable as maybe what some others are seeing, and it’s probably offset a bit by the continued strong traffic we have to the site," he said. 

Analysts are anticipating a blockbuster quarter for Amazon's marketplace sales, with the current average projection for its overall second quarter revenue at $80.9 billion, according to FactSet. 

Amazon shares are up 62% year to date.