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Amazon Cyber Monday Sales Highlight its Expanding Advertising Business

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Amazon (AMZN - Free Report) announced on Tuesday that it posted its biggest shopping day ever on Cyber Monday. The company, as usual, didn’t provide many details, but its impressive Thanksgiving holiday shopping sales reinforced its continued e-commerce domination and also highlighted its growing advertising business.

Holiday Shopping

Amazon noted that Cyber Monday remained its biggest single shopping day. Plus, the e-commerce firm noted that the recent five-day shopping holiday broke records after shoppers ordered over 180 million items from Thanksgiving through Cyber Monday.

Meanwhile, Amazon said that sales from small and medium-sized businesses surged over 20% on Black Friday from the year-ago period. This will all come as good news since Amazon disappointed investors last quarter after it fell short of Q3 revenue estimates and provided lower-than-expected Q4 guidance.

With all that said, Jeff Bezos’ firm has seen its stock price plummet over the last few months based on its Q3 financial results. However, we can see that Amazon is not alone, with its fellow FAANG stocks—Facebook (FB - Free Report) , Apple (AAPL - Free Report) , Netflix (NFLX - Free Report) , and Google (GOOGL - Free Report) —all down big from their recent highs as part of the broader market downturn.

 

Advertising Business

Amazon’s strong holiday shopping results are hardly a surprise since the company is projected to grab roughly 50% of the total U.S. e-commerce market in 2018, up from 44% last year. But investors have come to expect big things from Amazon’s core online retail business. And even its cloud-computing strength and huge market share compared to the likes of Microsoft (MSFT - Free Report) and IBM (IBM - Free Report) is likely already priced into AMZN stock.

This brings us to what could become Amazon’s next major growth area: advertising. Amazon recently became the third largest digital advertiser in the U.S. behind only Facebook and Google. The e-commerce firm is still projected to lag far behind its peers in terms of market share at 4.1%, compared to Facebook’s 20.6% and Google’s 37.1%, according to eMarketer.

Looking ahead, however, Amazon is projected to see its share of total U.S. digital ad spends climb to 7% by 2020 to hit $10.92 billion, up from a projected $5.83 billion in 2018.

Ad Details

Amazon’s advertising business has become attractive to retailers everywhere, and the reasoning seems pretty intuitive.

Market research firm Survata projected that roughly 49% of product searches begin on Amazon. On top that, the e-commerce giant has detailed data on actual consumer shopping habits and purchases that are vital to companies such as Procter & Gamble (PG - Free Report) and nearly every other retailer. These two factors alone make it an amazing, best bang-for-you-buck style spot to advertise.

 

At this time, a major portion of Amazon’s advertising business comes from its retail website where companies can pay to be listed as a “sponsored product” for searches. This threatens Amazon’s retail rivals such as Kroger (KR - Free Report) , Walmart (WMT - Free Report) , and Target (TGT - Free Report) , which make money by selling brands desirable space within their stores.

Bottom Line

Amazon’s ad sales are expected to jump to $28.4 billion over the next five years, according to Cowen & Co. This would represent more than the combined expansion of ad revenue for all television networks globally, according to media-buyer GroupM.

Going forward, Amazon should also be able to utilize its expanding live streaming service, which looks poised to stand out against Netflix and Disney (DIS - Free Report) , to entice advertisers even more (also read: Why Amazon is Ready to Spend Billions on Live Sports in the Streaming Age).

Advertising will still only account for a small amount of Amazon’s overall business. But, with the days of 40% quarterly revenue growth likely over based on its size alone, new sources of growth might be more necessary than ever.

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