Amazon Web Services (AWS) may be the driver of growth for the eCommerce giant now, but Piper Jaffray predicts that in three years' time, advertising will bring in more revenue for Amazon.
According to a report in CNBC, Piper Jaffray Analyst Michael Olson said that Wall Street is focused on AWS, but that new segments – including advertising – will be a driver of revenue growth in the future.
"By 2021, we believe it is likely that advertising operating income will exceed AWS … investors should be focused on Amazon advertising now; this is a major driver to results and valuation today, and continuing in the coming quarters and years," wrote Olson. The analyst has a $2,100 price target on Amazon.
According to Olson, Amazon’s advertising business should hit $16 billion in 2021, which would be $1 billion higher than the $15 billion he estimates AWS will bring in. The analyst already thinks Amazon has more than 50 percent market share in product search, while its other segments – including its ad business – increased sales 72 percent in the second quarter alone.
"Being the world's largest product search engine has its advantages, and Amazon is starting to leverage them," wrote Olson. "Advertising will be a driver to watch, as the retail industry continues to live or die by the shift to direct-to-consumer, and digital channels and real estate on Amazon, more than any other digital company, may have a direct line of sight on the multi-billion dollar 'trade promotion / merchandising' budgets of many marketers."
Amazon’s cloud computing business has long been the leader, as rivals Microsoft and Google try to close in. But when it comes to advertising, that has been the domain of Google and Facebook, with the two controlling the lion's share of online ad dollars. Amazon has been picking up its efforts more recently, with CNBC reporting earlier this year that the eCommerce giant held talks with big consumer companies about running ads on its Alexa-powered Echo smart speakers. Some of the early talks focused on whether or not companies would pay to be placed higher in searches on the Echo, similar to what happens with Google internet queries.