BMO Capital Markets: Amazon’s 2017 Ad Revenue Could Top $3.5B

Amazon’s ad revenue may be way higher than previously thought. Like, three and a half times higher.

According to new analysis from Dan Salmon, managing director for media and Internet equity research at BMO Capital Markets, the company could generate $3.5 billion in ad revenue in 2017. And he expects that figure to grow 63% to $5.7 billion in 2018.

“We believe Amazon will take share of marketing spend from Google, Facebook, other online direct-response budgets, offline direct marketing and retailers’ trade promotion budgets,” Salmon wrote in the report. As a result, BMO Capital Markets also adjusted its price targets.

“We think most estimates were low because, up until recently, ad revenue was largely only discussed in Amazon’s annual report as being part of their ‘other’ segment,” he told AdExchanger.

That “other” category represents Amazon’s supplementary revenue, which bundled co-branded credit cards and advertising services revenue.

Numerous observers, (including AdExchanger), focusing on the “other” segment alone, have pegged Amazon’s ad revenue at only $1 billion or so.

Because Amazon does not specifically disclose its advertising services revenue, the category’s performance has always involved a bit of guesswork. 

For the most part, display and video ads (which don’t show up in search listings like Sponsored Products) comprise the majority of “other” ad revenue, as does the Amazon Advertising Platform – which includes inventory both on and off Amazon sites, according to BMO.

But Amazon has such a diverse array of ad products that, in actuality, a sizable amount of ad revenue may fall under the “electronics and other general merchandise” subsegment.

For instance, its high-margin, pay-per-click unit, Sponsored Products, would be categorized under this subsegment, Salmon said.

And some ad revenue is likely also classified under the media subsegment – which covers the promotion of books, TV shows and so on.

salmonBMO is quick to point out that these figures are only estimates and represent the firm’s opinions, since Amazon does not break out its total advertising revenue.

But the analysis is backed up by a recent research note from investment bank Morgan Stanley that similarly predicted Amazon’s ad revenue could hit $5 billion by 2018.

Recent changes to Amazon’s segment reporting also may begin to shed more light on its paid media business going forward as advertising becomes a more “meaningful part of the business,” Amazon’s CFO said during company earnings on Thursday.

“Amazon has a variety of different systems for its various ad products and still relies on some third-party vendors like Google for some of them,” Salmon added. “But we expect Amazon Advertising Platform to increasingly become the launching pad for campaigns using Amazon data across both its O&O properties and the open web.”

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