The growing advertising clout of Amazon (NASDAQ:AMZN) is threatening the domination of Facebook (NASDAQ:FB) and Google, according to BMO Capital Markets. Daniel Salmon of BMO says in a note that Amazon’s advertising business has “gained significant momentum” in recent times.
BMO has also upped their price target for Amazon from $900 to $1,200 because BMO says the stock is currently underappreciated by investors. On Monday, the stock closed at $891.51. On the other hand, Google’s (NASDAQ:GOOGL) parent Alphabet’s stock has been downgraded to “market perform” from “outperform”. The price target has also been lowered to $880 from $1,005. The Amazon stock is presently the firm’s top pick.
Amazon Can Grow 65 Percent This Year According to BMO
Justifying their move, Salmon said the advertising division of the e-commerce giant, Amazon, has the potential to grow even further. In fact, this year, it can grow by as much as 65 percent, reaching $3.5 billion. He says the huge amount of consumer purchase data with Amazon can make the critical difference.
He adds by saying, “While Google knows what people are searching for and Facebook knows what people are interested in and who they are connected to, Amazon knows the specific products that customers are purchasing and how frequently they are purchasing these products”.
Amazon Versus YouTube Versus Facebook
There is a new advertising battle brewing between these three businesses. Salmon says YouTube’s long-term prospects seem bright, in spite of the advertising scandal. Brands boycotting advertising on YouTube is sure to end soon. The impact on Google would be minimum. However, the advertising war is going to intensify in the future, with Amazon doing well as compared to Facebook and Google.
Amazon’s Sponsored Products allow businesses that sell on their platform to place advertisements alongside the search results. Advertisements can also be placed on product detail pages. This is when Daniel Salmon mentions that the advertising revenue of Amazon could grow by 65 percent to reach $3.5 billion in 2017.
Amazon’s advertising business already boasts a high margin – the margins are as high as 50 to 70 percent. Considering the consumer purchase data they have, there is a tremendous opportunity to target the advertisements correctly and boost the overall revenue of the business.
Salmon says Amazon (NASDAQ:AMZN) will also monetize Alexa devices through paid searches, which will give them, even more money. That is a few years away, though.