Amazon's (AMZN) Search Ad Business Seen Growing But Will Unlikely Hurt Powerhouse Google (GOOGL) - Nomura

October 7, 2016 12:17 PM EDT
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Amazon (NASDAQ: AMZN) has without a doubt changed the way people buy things - from going to a store to having them delivered at your doorstep. Now, analysts at Nomura are asking if Amazon poses a threat to Google's (NASDAQ: GOOGL) search business. A recent third party studies suggest that the percentage of product searches that begin on Amazon has increased in the past year.

Anthony DiClemente said Amazon’s growth may pose two general risks to Google’s retail e-commerce search business:

1) the extent to which Amazon captures a greater share of the overall e-commerce market increases the likelihood that consumers shop and transact exclusively on the Amazon platform;

2) Amazon’s share gains eventually provide Amazon with the potential to expand its search ad business. Given the majority of product searches now begin on Amazon (55% vs 45% a year ago), we believe this is an opportunity for Amazon, even if it’s not a near term priority for management.

However, the analyst concluded that even in a scenario where Amazon is able to grow e-commerce market share and ad revenue well above their base case forecasts, the impact to Google estimates would be less than a 2% reduction to their 2020 revenue forecast. The firm analysis suggests that the overall growth in e-commerce would allow for Amazon to increase its e-commerce market share as well as grow related search ad revenue with only very modest impact to Google.

The firm dstimate that retail e-commerce search advertising market is a $12 billion industry in 2016 and could reach $20 billion by 2020.

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