E-Commerce

Q2 outlook: E-commerce marketplaces turn to ad revenue for growth

Marketplaces reported better-than-expected earnings, but what does that mean for sellers?
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Well, it’s that time of year again….halfway-earnings calls time, that is. Dire warnings from Walmart and mass layoffs at Shopify dominated the first few rounds of calls, but marketplaces like eBay, Etsy, and Amazon were among those that outperformed analyst projections in Q2, due in part to third-party sales and ad spending.

Setting the scene: “There was a lot of concern on the e-commerce side because we saw some pretty weak numbers coming out of Target, Walmart, they’re cutting guidance…they’re also noting slower consumer spending,” Arun Sundaram, VP of equity research at CFRA told Retail Brew.

  • Walmart stock tumbled in July after the retailer cut its profit outlook for the rest of the year, and Target, which is expected to announce Q2 results later this month, warned that dealing with excess supply would mean a “short-term hit” to profits.
  • “We thought a lot of that would trickle in and impact Amazon but we were actually kind of pleasantly surprised with Amazon earnings,” Sundaram said. “They don’t seem to be as impacted by some of these macro factors.”

Mixed sales: Amazon’s third-party sales are an important data point, Sundaram said. While first-party sales (inventory owned by Amazon) dropped, revenue from third-party sellers increased by over 9%.

That’s partly because of a fuel and inflation surcharge for sellers Amazon implemented back in April, he explained. But that doesn’t mean third-party sellers weren’t still winners in Q2.

  • “Even excluding that, I think that third-party businesses are doing a little bit better than their first-party business,” Sundaram said. 57% of all goods sold were third party, “and that’s actually the highest in Amazon history,” he explained.
  • The increase in third-party sales was also good for Amazon’s ad services, which was partly responsible for the platform’s overall revenue growth, because those sellers tend to be ad purchasers, Sundaram added.

All about the ads: Elsewhere in e-commerce land, while Etsy reported a small decline in gross merchandise sales, it posted 10% YoY revenue growth overall, plus around 6 million new customers. The platform’s execs attributed part of that growth to ad revenue.

  • “Etsy Ads revenue has grown 516% over the last five years,” CEO Josh Silverman said on the Q2 earnings call.
  • EBay reported a dip in online sales, but surpassed overall revenue expectations, in part thanks to advertising services. EBay’s first-party ads grew 2%, the company said.

“We’re seeing marketplaces outperform expectations because brands are looking for alternatives to paid media,” said Kurt Elster, whose agency, Ethercycle, works with Shopify merchants to increase ROI. “Marketplaces are a low-risk way to reach new audiences and drive up brand impressions.”—MA

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