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Amazon Roundup: Ad Market Share, Store Expansion, Prime, More
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Amazon (AMZN - Free Report) may be rapidly gaining digital advertising market share, but it also has a comprehensive physical store expansion up its sleeve. So despite the valuation, analysts continue to raise their price targets-
Taking Ad Share From Market Leaders
An accounting change and other factors will help Amazon generate an estimated $4.6 billion in U.S. online ad revenue this year, up 58.6% from its prior projections of $2.9 billion in March, according to eMarketer. Mobile will be the primary device category for these sales, going from $1.6 billion this year to $2.9 billion in 2019 and $4.8 billion in 2020.
The strong growth is expected to propel the leading online retailer to the third largest seller of online ads, ahead of Verizon’s (VZ - Free Report) Oath and Microsoft (MSFT - Free Report) and behind only Alphabet’s (GOOGL - Free Report) Google and Facebook .
Market shares in 2018 are expected to be 37.1%, 20.6% and 4.0% for Google, Facebook and Amazon, respectively. This may not sound like a big deal yet, but Amazon is growing its ad business very fast, partly because more than 50% of product searches now start on Amazon; partly because its size is making products harder to find, so sellers are willing to bid more to get on the first page; and partly because Amazon has a whole lot of insight into what people want to buy, what they search for and what they would like to have, which makes it very attractive for advertisers.
This doesn’t immediately mean that people will move away from Google, because they are just as likely to move back to Google to comparison shop and buy a product after they have researched it on Amazon. It’s more likely that the back and forth between the two will continue in the foreseeable future as Google also improves its product search and payment platforms, and especially in markets where Amazon is less entrenched.
On the heels of its growing advertising business come resultant tensions, not the least of which is closer scrutiny of its data collection practices. So the EU’s Margrethe Vestager told reporters at a press conference in Brussels earlier this week that companies have been sent a number of questionnaires that will help the EU determine whether Amazon gains an edge over other retailers with the data it collects on the sales they generate on its online shopping platform. The investigation is in its very early stages.
Ambitious Store Expansion
Bloomberg reported that Amazon is planning a massive expansion of its AmazonGo cashierless stores across the U.S. According to people familiar with the matter, the expansion is being planned in busy metropolitan areas, 10 of which will be operational this year, 50 in 2019 and going up to 3,000 by 2021.
While the first of the stores focused on freshly-prepared food as well as a small grocery area, some of the new locations will only serve prepared food. Setting up a number of these in relatively close proximity will help share the kitchen, meaning that the other locations in the area can be even smaller.
Because of the technology being used, the cost of setting up each store is around a million dollars. Since groceries usually carry lower margins, the focus on prepared food should help the company break even sooner.
A more compact format will also likely remove some of the complexity and help Amazon perfect the technology sooner.
What all this boils down to is that Amazon is working to become one of the largest convenience store/QSR chains in the country. The technology is what the company will be fine-tuning with the first few stores that will then be rolled out rapidly in 2020 and 2021. For investors it will be another long investment cycle the impact of which may be somewhat mitigated by the growing advertising business.
Citi on Prime Memberships
Citigroup analyst Mark May says that Amazon is likely to grow its Prime subscriber base from 101 million at the end of 2017 to 275 million, generating more than $500 billion in gross sales by 2029, with as much as 80% of U.S. households adopting the service by then. American Prime members will spend $120 a month, much higher than international members who will spend $35-40 each. May expects a 15% increase in the share price over the next year, raising his price target on the stock from $2,100 to $2,250.
Wells Fargo on Apparel Leadership
Amazon’s expected $30 billion in apparel sales will make it the number one apparel seller in the U.S. this year, pushing past current market leader Walmart (WMT - Free Report) , according to Wells Fargo analyst Ike Boruchow. The analyst estimates that apparel and footwear GMV of $25 billion in 2017 was a five to six fold increase from five years ago. He also writes, "Amazon dominates the online market for apparel and footwear (35 percent of share, or four times the #2 player) and they even have remarkably high market share in the total apparel/footwear market in the U.S."
A Morgan Stanley report from April predicts the same thing (CNBC).
The analyst expects a 17% appreciation from Friday’s closing share price and therefore raised his price target to $2,300.
B2B
Amazon Business, the company’s wholesale offering for businesses, generates $10 billion in global annual sales. The company has announced that the online service that generates these sales, now offers more than 250 million products including laptops, printer paper, toner, office supplies and tea and coffee to businesses across 70 countries. At the same time, small, third-party sellers have accounted for more than 50% of sales.
UK businesses are among its biggest users, with 16 of the top 20 universities and over 50% of FTSE 100 companies (the 100 companies with the highest market capitalization listed on the London Stock Exchange) choosing the service. It launched in the UK just over a year ago, in April 2017.
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Image: Bigstock
Amazon Roundup: Ad Market Share, Store Expansion, Prime, More
Amazon (AMZN - Free Report) may be rapidly gaining digital advertising market share, but it also has a comprehensive physical store expansion up its sleeve. So despite the valuation, analysts continue to raise their price targets-
Taking Ad Share From Market Leaders
An accounting change and other factors will help Amazon generate an estimated $4.6 billion in U.S. online ad revenue this year, up 58.6% from its prior projections of $2.9 billion in March, according to eMarketer. Mobile will be the primary device category for these sales, going from $1.6 billion this year to $2.9 billion in 2019 and $4.8 billion in 2020.
The strong growth is expected to propel the leading online retailer to the third largest seller of online ads, ahead of Verizon’s (VZ - Free Report) Oath and Microsoft (MSFT - Free Report) and behind only Alphabet’s (GOOGL - Free Report) Google and Facebook .
Market shares in 2018 are expected to be 37.1%, 20.6% and 4.0% for Google, Facebook and Amazon, respectively. This may not sound like a big deal yet, but Amazon is growing its ad business very fast, partly because more than 50% of product searches now start on Amazon; partly because its size is making products harder to find, so sellers are willing to bid more to get on the first page; and partly because Amazon has a whole lot of insight into what people want to buy, what they search for and what they would like to have, which makes it very attractive for advertisers.
This doesn’t immediately mean that people will move away from Google, because they are just as likely to move back to Google to comparison shop and buy a product after they have researched it on Amazon. It’s more likely that the back and forth between the two will continue in the foreseeable future as Google also improves its product search and payment platforms, and especially in markets where Amazon is less entrenched.
On the heels of its growing advertising business come resultant tensions, not the least of which is closer scrutiny of its data collection practices. So the EU’s Margrethe Vestager told reporters at a press conference in Brussels earlier this week that companies have been sent a number of questionnaires that will help the EU determine whether Amazon gains an edge over other retailers with the data it collects on the sales they generate on its online shopping platform. The investigation is in its very early stages.
Ambitious Store Expansion
Bloomberg reported that Amazon is planning a massive expansion of its AmazonGo cashierless stores across the U.S. According to people familiar with the matter, the expansion is being planned in busy metropolitan areas, 10 of which will be operational this year, 50 in 2019 and going up to 3,000 by 2021.
While the first of the stores focused on freshly-prepared food as well as a small grocery area, some of the new locations will only serve prepared food. Setting up a number of these in relatively close proximity will help share the kitchen, meaning that the other locations in the area can be even smaller.
Because of the technology being used, the cost of setting up each store is around a million dollars. Since groceries usually carry lower margins, the focus on prepared food should help the company break even sooner.
A more compact format will also likely remove some of the complexity and help Amazon perfect the technology sooner.
What all this boils down to is that Amazon is working to become one of the largest convenience store/QSR chains in the country. The technology is what the company will be fine-tuning with the first few stores that will then be rolled out rapidly in 2020 and 2021. For investors it will be another long investment cycle the impact of which may be somewhat mitigated by the growing advertising business.
Citi on Prime Memberships
Citigroup analyst Mark May says that Amazon is likely to grow its Prime subscriber base from 101 million at the end of 2017 to 275 million, generating more than $500 billion in gross sales by 2029, with as much as 80% of U.S. households adopting the service by then. American Prime members will spend $120 a month, much higher than international members who will spend $35-40 each. May expects a 15% increase in the share price over the next year, raising his price target on the stock from $2,100 to $2,250.
Wells Fargo on Apparel Leadership
Amazon’s expected $30 billion in apparel sales will make it the number one apparel seller in the U.S. this year, pushing past current market leader Walmart (WMT - Free Report) , according to Wells Fargo analyst Ike Boruchow. The analyst estimates that apparel and footwear GMV of $25 billion in 2017 was a five to six fold increase from five years ago. He also writes, "Amazon dominates the online market for apparel and footwear (35 percent of share, or four times the #2 player) and they even have remarkably high market share in the total apparel/footwear market in the U.S."
A Morgan Stanley report from April predicts the same thing (CNBC).
The analyst expects a 17% appreciation from Friday’s closing share price and therefore raised his price target to $2,300.
B2B
Amazon Business, the company’s wholesale offering for businesses, generates $10 billion in global annual sales. The company has announced that the online service that generates these sales, now offers more than 250 million products including laptops, printer paper, toner, office supplies and tea and coffee to businesses across 70 countries. At the same time, small, third-party sellers have accounted for more than 50% of sales.
UK businesses are among its biggest users, with 16 of the top 20 universities and over 50% of FTSE 100 companies (the 100 companies with the highest market capitalization listed on the London Stock Exchange) choosing the service. It launched in the UK just over a year ago, in April 2017.
Recommendation
Amazon shares carry a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>