Friday Jan 5 2024 14:08
4 min
Amazon.com, renowned for its extensive e-commerce operation and cloud-computing arm, may see a heightened focus on a third aspect of its business in 2024, according to BofA Securities analyst Justin Post.
While advertising already serves as a significant contributor, generating an estimated $32 billion in North America revenue last year by Post’s calculations, the analyst anticipates a promising year ahead for Amazon's advertising business. The company is gearing up for a substantial push on Prime Video, with ads set to appear on the service in the coming weeks unless viewers opt for an additional $2.99 per month for an ad-free experience.
In a note cited by MarketWatch correspondent Emily Bary, Post wrote:
“Netflix commentary suggests that an ad sub can monetize better than an ad-free sub”.
Post projects that with approximately 150 million Prime Video subscribers and an assumed 70% choosing not to pay for commercial-free programming, the initiative may help Amazon bring in a potential $3 billion in incremental ad revenue and $4.8 billion in total incremental revenue.
Despite the positive outlook, the Amazon share price has underperformed in recent days, and was last down 0.19% in premarket trading at $144.30. The stock has shed close to 5% of its value over the past five days, although it has jumped by 13% in the last 3 months.
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Beyond revenue considerations, Post notes that the growth in the segment could positively impact Amazon’s profit margins, which saw notable improvement in 2023.
While Street estimates anticipate North America margins of 4.8% in 2024, up from Post's estimated 3.9% for 2023, he suggests that the consensus view might be conservative, given the potential for Prime Video ads to contribute around 50 basis points to margin growth.
Aside from Prime Video, Post was also encouraged by Amazon’s advertising deals with social-media companies Snap, Meta Platforms, and Pinterest.
“While financial details are limited, for the Sponsored product deals, we see potential for modest expansion in Amazon’s network ad revenues,” Post wrote of the Pinterest arrangement. “For the separate Meta and Snap deals, there is potential to improve [returns on investment] of Amazon’s ads, boosting [gross merchandise volume].”
Post has a buy rating and a $168 price target for Amazon shares.
Amazon stock, which trades on the Nasdaq exchange under the ticker AMZN, has rocketed up by close to 68% over the past year. In contrast, the benchmark S&P 500 index grew by 23%, while the Dow Jones Industrial Average went up by 13.7% in the same period.
According to 42 analysts surveyed by TipRanks that offered 12-month Amazon share price targets, the consensus forecast for AMZN shares last stood at $183.28 — a potential 26.78% upside from its current price as of January 5, 2024.
The highest listed Amazon share price forecast on the platform was $220.00, while the lowest was listed at $145.00. Of the 42 analysts surveyed, all of them offered a Buy rating on AMZN stock.
In the latest analyst rating for Amazon shares, Ken Gawrelski from Wells Fargo maintained a Buy rating on AMZN on January 3 with a price target of $190.00.
When considering shares for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.
Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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