Cowen Dives Into Amazon's Home Business, E-Commerce, Advertising Ecosystem

Amazon.com, Inc. AMZN demand signals remain vibrant, a Cowen analyst said Tuesday after attending a conference for participants across the Amazon ecosystem.

The Analyst 

Cowen analyst John Blackledge maintains an Outperform rating with a $2,250 price target.

The Thesis

E-commerce in the furniture and home furnishings vertical should grow from $68 billion in 2019 to $135 billion in 2024, with e-commerce penetration going from 22 percent to 34 percent of sales over the period, according to Cowen's projections. 

Amazon Home Business Outlook

Blackledge said he met with one of the largest home sellers on Amazon, and said the unnamed company expects to generate total revenue of $50 million 2019, with 60 percent of revenue generated on Amazon in North America — a 30-40 percent gain year-over-year.

The same home seller said its business on Wayfair Inc W is seeing rapid growth, with the platform budgeted for 30 percent of the total business in 2019, growing 150 percent year-over-year, the analyst said in a Tuesday note. 

Amazon’s business advertising is still in beta, and the seller’s ad spend is capped, Blackledge said.

“While this home seller lists the same SKUs on Wayfair vs. Amazon, the bulk of their goods on W are listed under house brands. The home seller started advertising on W in [the fourth quarter] and is pleased with results, highlighting strong ROI and a user-friendly interface (though less sophisticated vs AMZN given it recently launched).”

Amazon Advertising Update

After speaking with the CEO of an Amazon ad agency, the analyst said significant runway exists for Amazon advertising.

Cowen estimates Amazon advertising revenue of $13 billion in 2019, representing 52-percent growth year-over-year.

The executive mentioned several changes to Amazon’s advertising business, including a video in-browsing experience that is being sold on a cost-per-view basis, Blackledge said. 

“The ad unit is still in beta but is being rolled out to non-iOS devices this month. The exec thought this ad unit could have significant potential." 

Changes were also made to product targeting, where advertisers can target an entire product category, the brands it competes with or products with similar star reviews. Dynamic bidding was also introduced, where advertisers can adjust their bids up or down for certain ad placements.

“In the past, if Amazon knew during the auction that a bid wouldn’t convert, they would adjust bids down by a certain amount. Advertisers can still do fixed bids, which the exec thought should be used for new product launches," the analyst said. 

Project Zero

After speaking with an ex-Amazon executive, Blackledge said the company is transitioning to an automated purchase order system that incorporates machine learning to sniff out potential counterfeits. The initiative is named "Project Zero," as Amazon to completely eliminate counterfeiting on its platform.

“While the program is in a trial phase, Amazon has partnered with brands such as Vera Bradley and Chom Chom Roller, among others, to test the various counterfeit prevention tools.”

Price Action

Amazon shares were up 0.36 percent at $1,780.67 at the time of publication Tuesday. 

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Photo courtesy of Amazon.