Marcus Johnson (00:04):

Hey gang. It's Friday, February 20th. Rachel, Marisa, and listeners, welcome in to Behind the Numbers: an EMARKETER Video Podcast. I'm Marcus. And joining me for today's conversation, we have two New York based folks. The first is one of our retail analysts. We call her Rachel Wolff.

Rachel Wolff (00:20):

That is my name. Thanks for having me, Marcus.

Marcus Johnson (00:22):

We're also joined by newsletter analyst, Marisa Jones.

Marisa Jones (00:26):

Hi Marcus. Thank you for having me.

Marcus Johnson (00:28):

Hello. Of course. Today's fact. So this came about because I was reading an article in The Economist about Bad Bunny's Super Bowl halftime performance. And they noted rather interestingly, that there are over 40, 4-0 million Spanish speakers in the US. About 330 million people in the States. Which would make it the fifth biggest hispanophone country in the world. And I'd also seen a visual capitalist piece, which was looking at the most spoken languages on the planet. And so where do you think Spanish ranks-

Rachel Wolff (01:13):

On the planet.

Marisa Jones (01:14):

I would say fourth, maybe. Fourth or fifth.

Rachel Wolff (01:19):

[inaudible 00:01:19] pretty good.

Marcus Johnson (01:19):

I need you to guess Rachel. Yeah, she's spot on. Yeah. Fourth is according to Ethnologue data cited by Visual Capitalist, Spanish is the fourth most spoken language in the world. 558 million people speaking it, between native and non-native. Number one is?

Rachel Wolff (01:42):

I would say English, but I know with Mandarin-

Marisa Jones (01:44):

English I would say.

Marcus Johnson (01:44):

It is. It is English. Yeah.

Rachel Wolff (01:45):

Oh, is it?

Marcus Johnson (01:45):

It is English. 1.5 billion. Though interestingly just a quarter of that 1.5 billion folks are native speakers. Mandarin is second 1.2 billion, pretty much most of those are native. And then Hindi over 600 million comes in third. Spanish in fourth. Anyway, today's real topic, the big three questions surrounding Amazon.

(02:14):

All right, we set the table first. What's going on? Full year 2025, how did Amazon do? They grew top line revenue 2025, 12.4% year over year. It's faster than 2024, reaching $717 billion. 38% of that money comes from their online store sales growing 9%. That's the fastest growth yearly growth since 2021. And Amazon's 2025 ad dollars, the ad business grew 22%. That's faster than the previous year approaching 70, 7-0 billion. But today we're talking about the biggest questions surrounding the company, questions from the company about themselves, questions from journalists, analysts, us. So Rachel, what do you think is one of the main questions for Amazon at the moment?

Rachel Wolff (03:02):

So for me, one of the top questions is you mentioned the best online, fastest online sales growth since 2021. So my question is, what can Amazon do to keep e-commerce growing at that rate?

Marcus Johnson (03:16):

I like it.

Rachel Wolff (03:17):

To keep it chugging along? And I think they've been doing a really good job. I mean, they have features like add to delivery now, which is Prime members, you can add items after you place your orders. And that now accounts to roughly 10% of all Prime volumes fulfilled through their network. So adding those kinds of features to the e-commerce experience is really helping Amazon keep that growth going. They have these whole same day initiatives of just faster delivery overall, but also their grocery business. And that's also just getting people to order more often, and to order more per order. I said order a lot in that sentence but-

Marcus Johnson (04:01):

You did.

Rachel Wolff (04:02):

... they really are doing all of these things to make the experience of ordering on Amazon easier to make the overall service stickier. And I think that is something that the company will have to keep doing, and it's going to get harder. Because how many more of these types of features can Amazon offer? That's the question.

Marcus Johnson (04:22):

And it seems to be that pushing more towards this. As they pull away, at least for the moment from their store strategy, they're basically doubling down on super-fast online delivery as they closed. I thought this was one of the questions that we could have and talk about, which is kind of tied to this. Which is Amazon pulling out of the fresh and Go stores and those concepts as it didn't really resonate with customers too much. Rachel, I think you wrote about this. What was your take here?

Rachel Wolff (04:54):

On the Fresh, well, I think we've talked about this a lot where the writing has kind of been on the wall for Amazon Fresh and also Amazon Go. These concepts have been around for a while, but Amazon hasn't really found a way to stand out in the physical grocery space with them. And especially with Amazon Go, it just didn't seem like it was scalable. So I think it was kind of a long time coming, but it does raise questions right about what Amazon can do in grocery. They have Whole Foods, but they don't have another brick and mortar concept. And without that I think it's going to be very difficult for the company to scale that. So that was actually another one of my questions we want to go in there is can Amazon crack physical retail?

Marcus Johnson (05:39):

Yeah. Yeah. 14 Amazon Go stores, about 50 Amazon Fresh stores that there'll be closing, converting some of them into Whole Foods market locations. And it has, I think it was either you or Zach writing about a couple of their hybrid concepts. They've got a Whole Foods market concept store, which is a 10,000-square feet automated micro-fulfillment center. And then they've also got a two level store that they're testing that has Amazon Grocery on the ground floor and Whole Foods on the second floor. So they're still very much trying to figure this out.

(06:20):

But it's a small part of their business. Physical store sales now, just 3% of Amazon's overall business, growing at mid single digits now for the last couple of years. So I think, yeah, I had this one down as well. So I think this is a good question [inaudible 00:06:34] physical.

Rachel Wolff (06:34):

Yeah. And I think it would be remiss not to mention the fact that they are planning to open a 229,000 square foot super center outside Chicago.

Marcus Johnson (06:45):

Yeah, [inaudible 00:06:46].

Rachel Wolff (06:45):

So clearly they're not done with physical retail, and they're definitely still experimenting with these different formats. Whether they get the same amount of resources that maybe Amazon Fresh and Amazon Go did from the beginning I think could be a question. And I think to bring this over to advertising a little bit, what does this mean for Amazon's in-store retail media ambitions? I mean with their Dash Carts and things like that, if they don't have that physical footprint to back that up.

Marcus Johnson (07:15):

Yeah, very good. Marisa, questions you have?

Marisa Jones (07:21):

So my question is unsurprisingly more focused on Amazon's ad business, which is it's fastest growing segment, but still accounts for only about 10% of its overall revenues in Q4. So I guess my question is really Amazon's ad business is really accelerating, but is it powerful enough and do they have enough of a strategy to become a larger and more stable profit center? More on the likes of what we see from Google and Meta's very established ad businesses. So Amazon has for some time been growing at least a higher rate or a similar pace to competitors like Meta. But even though it has much very accelerated growth, it still lags behind billions and billions in these two.

(08:07):

Most of its revenues aren't coming from ads like you see with these other companies. So my question is really how sustainable is this growth? And what are they planning to do in the future to keep it growing as fast rate as it is now?

Marcus Johnson (08:21):

Yeah, well yeah, as you mentioned, ad revenue now representing close to 10% of Amazon's money, which is remarkable to be honest. Because it wasn't that much of a thing until quite recently. You know in a piece Prime video, a big driver of this that only started showing ads a couple of years ago. And now over 315 million viewers towards the end of last year. So yeah, the big question is can it keep up this ad revenue momentum heading into 2026? Full year 2025, ad revenue grew 22%, what drove a lot of that growth last year?

Marisa Jones (08:59):

So we're seeing a lot of growth coming from Amazon's expansion into full-funnel AI-powered campaign solutions. But obviously also, like you said, Prime Video has experienced very significant growth in its ad-supported tier. It's a very popular option. I have it. It's a great service and they're really doing a lot there. And I think a really unique benefit that Amazon has that it can continue leaning on to drive growth, and that it's emphasizing in these AI-powered solutions is that their campaigns on Amazon begin at the top of the funnel with streaming. And go all the way through the funnel until consumers complete their conversions on a brand site, or through sponsored Amazon ads and they actually make a purchase.

(09:45):

So Amazon has the benefit of being retail media, but also streaming. But also all these other things where users can really complete the entire process in one setting without leaving the Amazon website really. So that is a benefit it has. It's really pushing forward with showing brands that they can create AI-powered campaigns fully on Amazon. They debuted just a few months ago some modified products and some new products including Campaigns manager, which takes its Amazon ads console and DSP into a more streamlined solution for full funnel campaigns.

(10:23):

It has an AI-powered assistant to manage hundreds of campaigns across different accounts. It has a creative agent, which is just a rebrand really, of its creative studio that is tailored for streaming ads, and can create campaign material based on concepts. And it has a full funnel campaign tool that leverages Agentic AI to run and create multi-channel campaigns. So they're really pushing into their ... yeah, they're really pushing-

Marcus Johnson (10:49):

Just a few things.

Marisa Jones (10:49):

... into like AI is such a growth driver for them. And really trying to push into our AI-powered tools can do more than these competitors can.

Rachel Wolff (11:00):

Just a few other notes on Amazon's ad business, which is that yes, they do have all of these huge growth drivers. Especially Prime I think is really an important one for them. But still most of their ad revenues is coming from their retail business. It's from sponsored placements. I think Jassy mentioned once again in this quarter. And so the question for them is like, how do you convince ... The question is really can you get brands that don't sell directly on Amazon to really buy into the whole idea of advertising on Prime Video into this whole full funnel Amazon offering?

(11:33):

And the other driver for Amazon as well is that they have all of these huge sales events, like we had a four-day Prime Day last year, and that is another way that Amazon has been able to squeeze more revenues out of its existing ad base. And I think that is also going to be the question this year is, how many of these sales events are there going to be? What is the length going to be like? And will there be the same pressure on these sellers to advertise in the same way that they have been over the past few years?

Marcus Johnson (12:05):

You mentioned AI, so I want to go there for a second. Because that was one of the ones I had.

Marisa Jones (12:08):

Me too. Yeah.

Marcus Johnson (12:09):

Is AI spending a problem? Was this the same question you had as well?

Marisa Jones (12:16):

Yeah.

Rachel Wolff (12:17):

Go ahead.

Marisa Jones (12:18):

I was going to-

Marcus Johnson (12:18):

Oh did you both? Did you both say you had this?

Marisa Jones (12:20):

Oh yeah.

Marcus Johnson (12:20):

Oh, sorry.

Marisa Jones (12:21):

I had something along the lines of its CapEx estimates for 2026 being almost 50 billion higher than initial expectations.

Marcus Johnson (12:31):

Yeah. Rachel same for you?

Rachel Wolff (12:34):

My question is what are they going to do with all that money? It's really-

Marcus Johnson (12:39):

Yes.

Rachel Wolff (12:39):

I think it's everybody's question.

Marcus Johnson (12:40):

So just catch people up. Yeah. Is AI spending a problem? We asked this of Meta, they're doubling CapEx spending. Spending money on data centers, AI chips, infrastructure, things like that. Meta was doubling CapEx spending to nearly 125 billion this year. Google doubling CapEx spending to around 185 billion. So on both of those episodes, we talked about this. Amazon now planning to nearly double CapEx to 200 billion. If you count Microsoft Meta platforms, Alphabets, Google, Amazon, and Oracle. Collectively, they plan to spend over $700 billion in CapEx this year. And according to Sean McClain of the Wall Street Journal that's close to the 2026 spending budget for Japan. And is higher than the ones of Germany and Mexico.

Rachel Wolff (13:29):

We have a really great chart, shout out to the tech briefing. We have a chart that shows big tech's capital expenditures ballooning since 2002. And it is kind of a scary chart to look at these huge numbers, and it's just up and to the right.

Marcus Johnson (13:45):

Yes.

Rachel Wolff (13:45):

But what's interesting is if you look at Amazon, they have significantly outspent Alphabet, Meta, Microsoft, Apple on CapEx since 2022. So maybe it's not uncharacteristic for them to be spending more, it's just the amount that they're spending is pretty astronomical.

Marcus Johnson (14:04):

Yeah. There seems to be two sides to this. One is this isn't that much of a problem, and the mood surrounding spending being it is kind of being blown out of proportion. Christine Ji of MarketWatch writing, "Some analysts believe the negative sentiments surrounding Amazon is overdone." With Deutsche Bank analyst Lee Horowitz writing, "Amazon is not becoming more capital intensive, but rather staging a pull forward of capital that would've been deployed in the cloud over many years to drive the digital transformation of the economy. For Amazon, the risk of under-investing is much greater than over-investing."

(14:34):

On the other side of the coin, the markets don't think the concern about AI spending is overblown. Amazon's stock was down about 10% the two weeks following the announcement, which is a lot. On Amazon's investor call, analysts pressed executives to explain why they think their enormous bets will pay off. Mark Mahaney an analyst at the investment bank, Evercore said, "That's the debate in the market today. Help us get to your level of confidence." Not there yet.

Rachel Wolff (14:58):

Yeah. I think that's the question, right? There's a lot of uncertainty about Amazon's AI strategy. They talk, I mean, if you look at their earnings call and their earnings statement, they talk a lot about all of these advances that they've made in AI, and how much demand there is for the various AI products that they're rolling out. But if you look at the retail side, I think there is a lot of question around like agentic commerce for example. And is Amazon ready to handle that sort of shift? And there's just a lot of unknowns there.

Marcus Johnson (15:30):

Yeah.

Marisa Jones (15:30):

I think there's also the question of, obviously we're seeing investors kind of wary about this massive spending without proven results. There is also the question that I'm wondering, I think will become more prominent this year is, how is Amazon going to measure the return on this investment? How will they justify to investors that investing so heavily in AI is worthwhile, and is leading to measurable results for their business? And we don't really know how they're going to prove that yet.

Marcus Johnson (16:00):

Yeah.

Rachel Wolff (16:00):

Right. And does this put more pressure on Amazon to really skip to grow its ad business even more, given that that's the money that's going to be funding all of these investments?

Marcus Johnson (16:11):

Real quick, the other thing I thought about was cloud AWS approaching 20% of Amazon's business, which is huge. It's really, really huge. That's more money being made from AWS for Amazon than subscription services, which is Prime basically, ad revenue, and physical store sales combined. So I thought that was an interesting note in their earnings. Other questions, Rachel, what else you got?

Rachel Wolff (16:39):

I have one more that I kind of touched upon earlier, which is agentic commerce and is Amazon ready for it?

Marcus Johnson (16:45):

Okay, yeah.

Rachel Wolff (16:46):

So I would say certainly back on this, on the one hand, Amazon definitely has the tools. It has agentic buying capabilities through Rufus, and buy for me, and these other AI buying applications. And it is seeing pretty strong adoption for Rufus, they said over 300 million people used it last year. It generated over $12 billion in incremental annualized sales. But I think the question that for Amazon and for all retailers is, are shoppers going to be content just using Amazon's tools? Or are they going to start shifting their search behavior, their product discovery to ChatGPT and Gemini?

(17:29):

And in that scenario, since Amazon is so intent on closing itself off to those third parties, does Amazon end up losing some of that momentum? Maybe losing growth in its ad business or even its e-commerce dominance, if it doesn't start to partner with these third parties?

Marcus Johnson (17:50):

Yeah, that's a good one. Marisa, any others?

Marisa Jones (17:52):

I guess just my last question, I'm really kind of tracking closely every quarter how Amazon compares with the other triathlete leaders, Google and Meta. So I'm just eager to see and wondering what Amazon is thinking that as it increasingly is competing for ad dollars that really go to the big three, what unique value proposition it's planning on offering to its advertisers. Like I said before, it's very full funnel, but is there anything more than that?

(18:17):

Are Amazon's AI enhancements better than what Meta and Google are already doing? Is it its commerce intent data that will really draw in advertisers? So yeah, that is just my question is what value proposition does it have that makes it a better investment?

Marcus Johnson (18:34):

I've got two more for you, quick. One is, I mean, we're speaking a bit about AI, Amazon may launch a marketplace where media sites can sell their content to AI companies according to TechCrunch, citing original reporting from The Information. So OpenAI, they've signed content licensing partnerships with the AP, Vox, News Corp, the Atlantic, others. And so it's basically putting together a platform, a marketplace to sell the internet pretty much how much is the content worth? And then people can come and buy and sell on this exchange.

(19:15):

Lucas Ropec of TechCrunch noting that Amazon's not the first major tech company to go down this road. Microsoft recently launching what it calls Publisher content marketplace, PCM, which it says will give publishers a new revenue stream. Also providing AI systems with scaled access to premium content, and saying it's designed to empower publishers with the transparent economic framework for licensing their content. So curious to see where that goes.

(19:41):

And then layoffs as well. That was the last one I had. Why is Amazon really reducing its workforce? The company recently announced it would cut an additional 16, 16,000 jobs. This past October, it laid off 14,000, 14,000 corporate employees. For this round, Karen Weise of New York Times explaining that, "In Amazon's home state, Washington, 2000 employees lost their jobs, including recruiters, analysts and managers. The hardest hit job category was software engineers." So [inaudible 00:20:09] interesting. Yeah.

Rachel Wolff (20:09):

It's an interesting one, right? Because usually if a company is doing this well, you don't necessarily see the scale of layoffs.

Marcus Johnson (20:16):

Exactly.

Rachel Wolff (20:16):

But I think it goes back to look at how much money they're spending on AI. Look at how much they're pouring into just transforming their organization to prepare for this AI revolution that is coming. And so I think that has a lot to do with it. They think they can find efficiencies there. They need to control costs. So I think it's kind of along the lines of what we talked about last quarter when they announced the first half of those layoffs. Yeah.

Marcus Johnson (20:48):

Yeah. And that's a really good point. But Andy Jassy, Amazon's boss has not been shy about explaining to folks this was going to happen and more is likely to come. They're telling staff AI meant over time the company would operate with fewer corporate workers, adding that layoffs had ... But it's interesting because he's explaining it by saying that it's got less to do with AI or finances obviously made 700 billion. And more to do with reducing layers of bureaucracy. So that's the party line.

(21:21):

We've talked about corporate layoffs, but Amazon's, so they've got 1.6 million employees in Q3. I think that makes it the second-largest private employer in the world, behind Walmart, and maybe the fifth. It's top five in the world behind the US and the Chinese Army, the National Health Service in the England and Walmart. So it's a huge employer. 1.6 million employees in Q3. Most of them are hourly warehouse workers. And Amazon's not been shy about saying last year that it plans to replace half a million jobs with robots. The Times was reporting on last year. So that's my last question.

(22:00):

I'll go through with this quickly. We need to pick a top five. Sorry, top three, not a top five. Too many. What do we have? We have, what can Amazon do to keep e-commerce growth going? Can Amazon crack physical retail? What's their plan? Can it keep up this ad revenue momentum in 2026? And I paired with that, the triopoly question as well. What's their unique value proposition for advertisers? Marisa. Is AI spending a problem? That's the fourth one. Is Amazon ready for agentic commerce? Are consumers ready for it? And then lastly, why is Amazon really reducing its workforce? Rachel, which of these do we need to keep?

Rachel Wolff (22:41):

Well, I'm not biased at all, but I'm just-

Marcus Johnson (22:43):

Here we go.

Rachel Wolff (22:44):

I'm going to vote for my own. The first question I think is going to be really crucial for Amazon, just in general, right? Retail is the core of its business and it drives its advertising business. So if it doesn't have that piece going at full steam, then everything else is kind of in trouble.

Marcus Johnson (23:02):

Okay. Marisa, what you got?

Marisa Jones (23:04):

I think I'm going to go with the AI spending question. I think that was kind of the big takeaway for investors and myself when I read the Q4 results, is just how much they're spending. So I think that's the one that sticks out to me the most.

Marcus Johnson (23:19):

Okay. I like it. I think for the last one, I think we'll go ad revenue. Yeah. Can it keep up this momentum? Because it had a stellar 2025, and we've said it's part of this triopoly for a long time, but it is really starting to creep closer and closer to the big two Meta and Google. So I think that's a big question, especially at the start of the year heading into 2026. So we've got what can Amazon do to keep e-commerce growth going? Can it keep up this ad revenue momentum in 2026? And is AI spending a problem? Solid top three there. Thank you so much, folks, for your time. That's all we've got time for today's episode. But thank you so much to my guests. Thank you first Rachel.

Rachel Wolff (24:04):

Thank you both. This was a lot of fun.

Marcus Johnson (24:06):

And of course to Marisa.

Marisa Jones (24:08):

Yeah. Thank you guys.

Marcus Johnson (24:09):

Yes, indeed. Thank you to the whole production crew. We have John and Stuart who runs the team helping out with this one. Thanks to everyone for listening in to Behind the Numbers: an EMARKETER Video podcast. Subscribe, follow, leave a rating, and review all the things other podcast people tell you. We'll be back on Monday discussing three big questions surrounding TikTok. Happiest of weekends.