According to BofA Securities analyst Justin Post, Amazon's advertising business is poised for a successful year ahead. While the company is renowned for its e-commerce and cloud-computing operations, Post believes that its advertising division may take the spotlight in 2024.
This move by Amazon demonstrates their intention to leverage their extensive Prime Video user base to further expand their advertising business. With its diverse range of offerings, Amazon continues to pave the way for new growth opportunities across multiple sectors of its business.
Ads: A Revenue Story with Margins in Mind
According to a recent report by Post, ads play a crucial role in driving revenue for businesses. However, their significance goes beyond just financial gains. In fact, Post believes that the growth of ads can have a positive impact on profit margins, which have already shown considerable improvement in 2023.
Specifically, Post predicts that North America margins will rise from 3.9% in 2023 to an estimated 4.8% in 2024. However, he suggests that this estimate might be conservative, considering the potential contribution of Prime Video ads. In fact, Post believes that Prime Video ads have the potential to boost margin growth by around 50 basis points.
Prime Video is not the only avenue for advertising partnerships that have caught Post's attention. He is also encouraged by collaborations with social media giants, such as Snap Inc., Meta Platforms Inc., and Pinterest Inc. These partnerships hold the promise of improving returns on investment and increasing gross merchandise volume through Amazon's ad platform.
Although specific financial details are limited, Post foresees the Pinterest arrangement leading to modest expansion in Amazon's network ad revenues. In the case of separate deals with Meta and Snap, there is potential for enhancing the effectiveness of Amazon's ads, thereby driving higher gross merchandise volume.
Post maintains a buy rating on Amazon shares and has set a price objective of $168.
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