Ad Revenue Could Add $18B To Amazon’s Bottom Line

Amazon may have had a strong run last year, but at least one Wall Street analyst thinks there’s more room for the eCommerce giant to grow in 2018.

Citing BMO Capital Markets, CNBC reported news on Tuesday (Jan. 16) that a thriving advertising business will aid the company in 2018 — so much so that BMO raised its price target on Amazon’s stock to $1,600 from $1,200. BMO now has the highest price target of all Wall Street analysts that cover the company, marking a 23 percent increase in shares from where the stock closed Friday (Jan. 12).

“We believe the emergence of Amazon’s advertising business can support both margin and multiple expansion and could be a greater catalyst for the shares if management shares more data points like it did for Amazon Web Services,” BMO Analyst Daniel Salmon wrote. “The end result is greater confidence in the company’s advertising opportunity and an increase in our estimates.”

According to Salmon, Amazon has an $18 billion revenue opportunity, thanks to sponsored product, headline search and product display advertisements. Amazon could also get a boost in revenue when it begins listing certain advertising fees as revenue, noted the analyst.

Earlier in January, CNBC reported that Amazon’s voice-activated digital assistant Alexa is being turned into an advertising business for the eCommerce giant, with the company reportedly in talks with other firms about running ads on its Echo devices. CNBC stated that Amazon is in communication with consumer companies such Procter & Gamble and Clorox about advertising opportunities powered by Alexa.

Some of those early conversations were focused on whether or not companies would pay to be placed higher in searches on the Echo — similar to what happens with Google searches. The report noted that since Amazon doesn’t do much advertising on its Echo device, consumer companies worried they would be shut out of the voice movement; this new opportunity, however, should alleviate some of that concern.