Advertisers May Be Committing More Dollars To Amazon

With all the ventures that Amazon.com, Inc. AMZN is involved in, it's easy to overlook one of its most promising growth segments: advertising.

A new report from Bank Of America Merrill Lynch analyst Justin Post said data points indicate that advertisers are committing more dollars to Amazon, with the company’s "other" revenues up 62 percent in the fourth quarter and growing $660 million year-over-year.

Major Ad Agencies Plan 40-100% Increase

Amazon offers two primary advertising options for its first- and third-party vendors: self-serve ads, which allow sellers to target consumers through search, products or interests; and premium ads, which allow sellers to choose between display, e-commerce, video, programmatic and offline ad solutions, Post said. 

In December, the Wall Street Journal reported that top ad agencies Omnicom, WPP’s GroupM and Publicis plan to increase spending on Amazon by 40-100 percent in 2018.

In a recent survey conducted by GroupM, 63 percent of U.S. business to customer marketers said they plan to increase ad spend on Amazon in 2018, versus 54 percent for Alphabet Inc GOOG's Google and 53 percent for Facebook, Inc. FB, according to BofA. To handle increased advertising demand, Amazon said the company will add 2,000 jobs in New York City — mostly in advertising and fashion — over the next three years at a Hudson Yards office. 

'A Strong Position' 

The number of ads on Amazon appears to be growing rapidly — although Post said that ad load has been conservative, suggesting runway for continued growth. Gross ad revenue grew 74 percent year-over-year in 2017 to $3.8 billion, and that figure will nearly double to $6.8 billion in 2018, according to the analyst's estimates. 

“Looking forward, Amazon’s ad business is in a strong position, with opportunity to benefit from higher traffic, cost per click and ad coverage, while first party consumer packaged goods advertising could be poised to expand rapidly as Amazon builds scale in grocery."

BofA maintains a Buy rating on Amazon with a $1,650 price target.

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