Piper Jaffray said that the Amazon advertising business would be the key driver for Amazon’s profitability in the years to come.
Analyst Michael Olson said, “Investors should be focused on Amazon advertising now; this is a major driver to results and valuation today and continuing in the coming quarters and years.”
Amazon’s continuous growth in the online advertising market will skyrocket the already overweighed Amazon share price. Piper Jaffray is assuring investors on the sustainability of Amazon’s stock. The investment firm said that Amazon’s online advertising revenues will by-pass its Cloud business by 2021.
Analyst Michael Olson said in a note to clients that “While the Street has been focusing on the trajectory of core retail, the growth of AWS and new categories such as grocery & pharma, Amazon’s advertising business has been quietly growing into a massive driver of current and future profitability. By 2021, we believe it is likely that advertising operating income will exceed AWS. … Investors should be focused on Amazon advertising now; this is a major driver of results and valuation today and continuing in the coming quarters & years.”
Currently, at $15 billion, Amazon’s advertising income will grow to $15 billion by 2021, he said. Amazon’s product search market is well above 50 percent. Olso also commented that Amazon’s ‘other segment’ surged 72 percent in sales. The other segment is where0n Amazon’s advertising sales reside.
“Being the world’s largest product search engine has its advantages and Amazon is starting to leverage them,” Olson said. “Advertising will be a driver to watch, as the retail industry continues to live or die by the shift to direct-to-consumer & digital channels and real estate on Amazon, more than any other digital company, may have a direct line of sight on the multi-billion dollar ‘trade promotion/merchandising’ budgets of many marketers.”