Home Ecommerce Pivotal Forecasts Amazon Ad Revenue To Reach $38 Billion

Pivotal Forecasts Amazon Ad Revenue To Reach $38 Billion

SHARE:

Pivotal Research forecast Amazon’s advertising revenues will reach $38 billion by 2023, growing faster than any other Amazon business in that time. The investment research firm also initiated coverage of the ecommerce company on Monday.

Pivotal’s coverage of Amazon was spurred this summer at Cannes and in conversations with marketers about the looming presence of the Amazon Advertising Platform, said senior analyst Brian Wieser.

Industry execs spoke about Amazon with a sense of urgency that crystallized how its ad platform, and commerce in general, would reshape how marketers allocated investments, he told AdExchanger.

Amazon’s “Other revenues” category, about 90% of which is media and ad tech, was on pace for $10 billion in 2018. While Pivotal doesn’t believe Amazon’s revenue will catch Google’s and Facebook’s in five years, estimated to be $215 billion and $59 billion respectively, adding almost $30 billion in ad revenue will make Amazon a clear “third force” in data-driven advertising.

The “Other revenues” category jumped in 2018 because of an accounting change where Amazon categorized retail trade promotions as advertising.

While these trade marketing budgets accounted for about $3 billion of Amazon’s $9 billion ad revenue last year and are growing fast, Wieser said Amazon’s conventional programmatic revenue is a more significant opportunity.

Unlike Google and Facebook, Amazon’s advertising revenue comes primarily from network partners, not owned and operated media, so it can dial up ads based on how it prioritizes profit and sales volume. For instance, if Amazon suddenly decided to give a higher percent of each transaction to ad partners, its ad network and overall sales could light up while profitability remained unchanged.

Advertising is the lifeblood of Google or Facebook, but for Amazon, advertising is just one of many lines of business, so Amazon has the luxury of getting its profits from other areas if it chooses to. Consequently, Amazon defies standard investment modeling.

Wieser said there’s a high degree of guesswork in forecasting ad revenue and modeling a business like Amazon.

“My understanding from speaking with people in the industry is that Amazon’s retail, subscription-based and advertising revenues are fairly fluid,” he said. “Amazon will optimize revenue streams and profitability based on what it sees from consumers.”

Pivotal isn’t the only investment firm that has recently re-thought how to evaluate Amazon.

A year ago BMO Capital Markets changed its valuation methodology for Amazon to what it called “Stacked DCFs,” cumulatively valuing Amazon’s three primary businesses (the marketplace, AWS and advertising) instead of averaging them, thus giving Amazon higher multiples on revenue. “While it is unconventional, we believe this is an appropriate way to value the company,” wrote Dan Salmon, BMO Capital’s media and internet analyst, in the firm’s Amazon update.

Must Read

Comic: TFW Disney+ Goes AVOD

Disney Expands Its Audience Graph And Clean Room Tech Beyond The US

Disney expands its audience graph and clean room tech to Latin America, marking the first time it will be available outside the US. The announcement precedes this week’s launch of Disney+ with ads in Latin America.

Advertible Makes Its Case To SSPs For Running Native Channel Extensions

Companies like TripleLift that created the programmatic native category are now in their awkward tween years. Cue Advertible, a “native-as-a-service” programmatic vendor, as put by co-founder and CEO Tom Anderson.

Mozilla acquires Anonym

Mozilla Acquires Anonym, A Privacy Tech Startup Founded By Two Top Former Meta Execs

Two years after leaving Meta to launch their own privacy-focused ad measurement startup in 2022, Graham Mudd and Brad Smallwood have sold their company to Mozilla.

Privacy! Commerce! Connected TV! Read all about it. Subscribe to AdExchanger Newsletters

Nope, We Haven’t Hit Peak Retail Media Yet

The move from in-store to digital shopper marketing continues, as United Airlines, Costco, PayPal, Chase and Expedia make new retail media plays. Plus: what the DSP Madhive saw in advertising sales software company Frequence.

Comic: Ad-ception

The New York Times And Instacart Integrate For Shoppable Recipes

The New York Times and Instacart are partnering for shoppable recipe videos.

Experian Enters The Third-Party Data Onboarding Business

Experian entered the third-party data onboarder market on Tuesday with a new product based on its Tapad acquisition.