BofA is excited about Amazon’s advertising opportunity, especially as the company prepares a big push around Prime Video
Amazon.com Inc. is known for its expansive e-commerce operation and its cloud-computing prowess, but a third pillar of the company’s business could see more shine in 2024.
That’s according to BofA Securities analyst Justin Post, who predicted a “solid” year ahead for Amazon’s advertising business.
Admittedly, ads are already a nice contributor for Amazon (AMZN) and amounted to an estimated $32 billion in North America revenue last year, by Post’s math. But he’s upbeat about a new development for 2024 as the company prepares a big advertising push on Prime Video: In the coming weeks, viewers will start seeing ads on the service unless they pay an extra $2.99 a month.
Read: Why Amazon’s stock could be 2024’s biggest winner among major internet names
“Netflix commentary suggests that an ad sub can monetize better than an ad-free sub,” Post wrote. Assuming that there are 150 million Prime Video subscribers and that 70% don’t opt to pay for commercial-free programming, he estimates about $3 billion in potential incremental ad revenue, and $4.8 billion in total incremental revenue from the initiative.
And ads aren’t just a revenue story. Post notes that growth for this part of the business should help margins, which already improved nicely in 2023. While Street estimates have called for North America margins of 4.8% in 2024, up from Post’s estimated 3.9% for 2023, but he thinks the consensus view is conservative given the potential for Prime Video ads to contribute about 50 basis points to margin growth.
Apart from Prime Video, Post is also encouraged by advertising partnerships with social-media companies Snap Inc. (SNAP), Meta Platforms Inc. (META) and Pinterest Inc. (PINS)
“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 $168 price objective on Amazon shares.