Amazon’s Ad Business Worth $350 Billion: Analyst
Amazon’s stock price is ignoring the company’s booming advertising business, according to Jefferies analyst Brent Thill, who now values the segment at $350 billion. Thill upped his estimate from $300 billion, citing a surge in consumers flocking to Amazon for grocery shopping as a result of the pandemic.
Grocery/essentials: With about 50% of product searches starting on Amazon.com and over 450 million unique monthly visitors coming to the site, Amazon’s virtual shelf space can’t be ignored. COVID-19 served as a catalyst for converting many U.S. online shoppers into Amazon grocery customers and Jefferies expects the transition to have long-lasting effects.
“According to our survey, 40%/60% of U.S. online shoppers purchased more groceries/essentials on AMZN during the pandemic, significantly above its 2019 category share of just ~1%/3%. We believe many consumers will continue buying groceries/essentials on AMZN after the pandemic ends, and now model its U.S. retail share to reach 5%/9% by 2025.”- Brent Thill
Big spending from CPG: Jefferies estimates Consumer Staples companies are spending more than $210 billion a year on advertising. More shoppers coming to Amazon for groceries and essentials means more CPG brands will use a bigger portion of their ad budgets on Amazon.
Streaming platforms: The other part of the equation for Amazon’s ad opportunity is its OTT media channels: Prime Video, Twitch, and Fire TV platforms. The shift away from cable has been accelerated through the pandemic and plays into the hands of Amazon.
“Prime Video, the 3rd most-popular streaming platform after YouTube and Netflix, is projected to see a 19% increase in time spent (vs +16% for Netflix) Livestreaming hours are growing too – up 102% y/y in April – and Twitch, the leader in this space, is well-positioned to benefit”- Brent Thill.
Big picture: Amazon’s advertising business is still in its early stages, but its high margins and Amazon’s large customer base make the category a big piece of the company’s overall value. With $18 billion in revenue for 2020, advertising is Amazon’s smallest business today, but it is the fastest-growing. Due to its profitability, Jefferies says advertising represents about 20% of Amazon’s overall value and ranks third by contribution.
