Amazon’s Advertising Revenue Expected to Grow in 2024, According to BofA Analyst
According to BofA analyst Justin Post, advertising checks for ad spending on Amazon.com Inc (NASDAQ:AMZN) remain strong. Skai 4Q marketplace ad spending increased by 48% year-over-year through November. Post predicts that Amazon’s ad growth in 2024 will be boosted by new initiatives, including more ads in Prime Video and the ramping up of new ad partnerships.
The strength in ad revenue has the potential to contribute to Post’s margin upside thesis on the stock. His analysis suggests that advertising revenue will contribute 370 basis points to FY23 North America margins. BofA maintains a Buy rating on Amazon with a price target of $168.
In addition to retail efficiencies, Post sees the potential for ad revenue upside to drive margin upside in 2024.
CEO Andy Jassy revealed that $7 billion of Amazon’s $17 billion media content spend in 2022 was allocated to Prime Video content production and licensing. The recent announcement of a $3 monthly premium for ad-free Prime Video suggests that Amazon plans to aggressively increase video ads in FY24.
Netflix commentary suggests that an ad subscription can monetize better than an ad-free subscription. If Post assumes that Prime has 150 million video users and 70% choose lower-cost subscriptions with ads, he estimates $3 billion in potential incremental ad revenue and $4.8 billion in total incremental ad+subscription revenue.
Amazon has signed advertising deals with Pinterest, Meta, and Snap to boost its ad performance on their sites. While financial details are limited, Post sees potential for modest expansion in Amazon’s network ad revenues for the sponsored product deals. The deals with Meta and Snap also have the potential to improve the return on investments (ROIs) of Amazon’s ads, boosting Gross Merchandise Volume (GMV).
Post estimates that Amazon made significant progress with North America margins in 2023, with NA margins at 3.5% compared to -0.9% in 2022. However, when estimated advertising margin contribution is excluded, he forecasts NA retail margins at -0.2% in 2023, still with significant room to grow. Based on Amazon’s commentary and his advertising estimates, Post believes that NA retail margins have the potential to reach 7%, well above Street estimates at 5.7% in 2025.
Post projects FY23 revenue and EPS of $570.67 billion and $4.72.
As of the last check on Wednesday, AMZN shares traded lower by 0.34% at $149.42.
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