Sizing Amazon's Media Businesses, With Needham Managing Director Laura Martin

Amazon’s media businesses are worth far more than investors think – approximately $500 billion, or 38% of the company's market cap, according to investment bank Needham & Company. This week on AdExchanger Talks, Needham Managing Director Laura Martin talks about why.

In a June 16 research note, Needham estimates that the lion’s share of Amazon’s media value comes from subscriptions. The note cites a survey which found that 20% of Prime subscribers say they joined the loyalty program primarily for access to the associated media and entertainment offerings (Prime Video, Prime Music, Twitch, etc.).

The other 80% are in it for the free shipping. Given the immense number of Prime subscribers (175 million), that 20% adds up to some $20 billion in 2020 revenue directly linked to media subscriptions.

That said, it’s the acceleration of Amazon’s advertising revenue – $12 billion in 2019 and $18 billion expected in 2020 – that serves as the main reason for Needham’s overall bullishness, according to Martin.

“If you’re growing 50% a year, you’re getting to be a meaningful advertising alternative for brands really quickly,” she says. “Amazon is the only one that can really close that loop for any meaningful portion of your ad buys. Television or search or even Facebook – without a shopping cart almost no one else has that ability. That feedback loop is much less direct for any other company.”

Amazon’s transaction data is especially meaningful to advertising, but it supports other business lines too. For this and other reasons, Needham applies a 1.5X value multiplier to any ancillary business Amazon gets into.

“The anchor tenant … is the ecommerce business,” Martin says. “That’s the Trojan horse that gets them in the home. Every other aspect of Amazon that is appended to that is worth more because it has a lower customer acquisition cost – because Amazon is already in the home.”

Also in this episode: Twitch’s audience of young men, Google’s reliance on travel advertising, big tech’s spending on worker conditions.

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