Amazon (AMZN) Scales to 3rd Largest Digital Ad Platform - JP Morgan

June 18, 2021 10:45 AM EDT
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JP Morgan analyst Doug Anmuth notes that online advertising a significant opportunity for Amazon (NASDAQ: AMZN) and other retailers.

“After COVID-19 accelerated overall e-comm penetration & the shift toward a digital economy, advertising has become an even more important opportunity for AMZN & fellow retailers in terms of both revenue and margins. The online advertising TAM is large--$160B+ in the US--with the retail & CPG verticals combined estimated to account for ~36%+ of US online ad spend in 2021, or ~$58B. On the profit side, online advertising is a higher margin revenue stream, with online advertiser gross margins typically ~80%+ and operating margins ~40%+,” Anmuth wrote in a note.

Alphabet (NASDAQ: GOOGL) and Facebook (NASDAQ: FB) are clear leaders in this sector while AMZN is catching up rapidly. The analyst projects $28 billion in Amazon ad revenue this year.

“While Google & FB remain the clear leaders with 65%+ share of global online ad dollars, AMZN’s ad business has grown significantly from $1.8B in 2015 to $18.3B in 2020 & we project ad revenue of $28B in 2021 (+55% Y/Y). We believe AMZN advertising will grow significantly considering: 1) AMZN’s share of global online ad dollars remains small at 6.2%; 2) Retail & CPG are two of the largest ad verticals & AMZN is underpenetrated at ~33% share of US online retail/CPG ads; & 3) Amazon is well positioned as the 3 rd scaled digital ad platform given customers are high intent, AMZN’s significant customer purchase history/data; & Amazon has nearly complete ability to move customers down the ad funnel,” Anmuth added.

“On profitability, we believe online advertising represents a significant margin opportunity & an assumed ~42% operating margin implies AMZN’s ad business could represent ~35% of AMZN’s overall OI in 2021, or $12B. While AMZN is the fastest growing scaled online publisher, we do not believe the company has the same potential number of advertisers L-T as GOOGL & FB.”

The analyst highlights AMZN as a top pick overall with a $4,600 price target.



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