Amazon’s ad revenue could reach $4.5 billion in 2018, according to an analyst note by JPMorgan.
The company is set to emerge as a challenger to Facebook and Google’s dominance of online advertising.
Its scale and data, fast growth, investments into developing advertising channels and reputation among advertisers make it well-positioned to emerge as a big player.
Advertisers are not the only ones betting on Amazon’s rise as a crucial ad vehicle countering Facebook and Google’s dominance of digital advertising. Wall Street is too.
Amazon is well-positioned to emerge as the third scaled digital ad platform after Google and Facebook, with its ad revenue set to surpass $4.5 billion in 2018, according to a note by JPMorgan analyst Doug Anmuth.
Here is why JPMorgan thinks Amazon’s ascent is inevitable:
Amazon has a killer combination of both scale and data
Amazon’s sheer scale and data makes it a considerable alternative to the duopoly. Facebook may know the most about people and their interests, and Google may know what people are actively searching for. But Amazon is unique in that it is the only one that has the data on what people buy.
“Amazon is best positioned in our view, with its in-market customers, scale, strong access to data, shopping history, ability to close the loop and leading market share in smart home speakers with Alexa/Echo,” Anmuth wrote.
Retail is set to be the biggest advertising opportunity for Amazon, JPMorgan says. Amazon only accounted for approximately 10% of the $18 billion in US online retail ad spend in 2017. But retail represents a $6 billion market opportunity for Amazon in the US alone.
Amazon is a fast-growing, high margin business
Amazon doesn’t break down its ad revenue, putting it in its “Others” bucket. But it has one of the fastest-growing digital ad businesses in the United States, already ahead of both Twitter and Snap’s ad businesses.
According to JPMorgan, ad revenue represents more than half of Amazon’s “Other” revenue and has grown in the 60% range in the past few quarters. And with advertising being a high-margin services business, its margins are only set to increase more.
“We expect Amazon’s ad revenue to grow rapidly over the next few years, reaching $6.6 billion in 2019, or a 55% 2017-19 CAGR,” Anmuth write.
A shift in accounting practices should boost net revenue for Amazon in 2018, with greater margins and gross profit, according to JPMorgan. The company is set to rake in approximately $5 billion of gross profit dollars from advertising in 2019.
Amazon is actively scaling its ad business
Amazon laid the groundwork and consistently pumped in resources to develop its advertising business throughout 2017. It has imminent plans to open a new office with over 2,000 jobs dedicated to advertising in New York City, has built out ad tech for publishers, helped marketers target their customers with ads and focused in on search advertising.
Amazon offers three different primary ad units including Sponsored Products, Headline Search Ads and Product Display Ads. It has also built out a programmatic ad offering …read more
Source:: Businessinsider – Tech