AMZN Likely To Take Ad Market By Storm: FB, GOOGL On Alert!

Competition in the digital ad market is heating up with Amazon (NASDAQ:AMZN) closing in on the two leading tech players dominating the digital ad market, namely Facebook (NASDAQ:FB) and Alphabet’s (NASDAQ:GOOGL) Google.

Various research reports are indicative of the fact that the e-commerce giant’s ad business will outpace the growth rate of the duopoly going ahead.

Per a recent Juniper Research study, total spends on digital advertising is forecast to reach $520 billion by 2023, up from an estimated $294 billion in 2019.

The firm predicts Amazon’s advertising revenues to reach $40 billion by 2023, which is a staggering 470% increase from the ad sales it generated in 2018. This equates to the company gaining an 8% share of the global advertising spend, which is more than double its current 3% share.

Moreover, eMarketer projects Amazon to emerge as the “big winner” in digital advertising during 2019. According to eMarketer, US advertisers are likely to spend $11.33 billion on Amazon’s platform this year, up 53% year over year. The firm expects this figure to further reach more than $15 billion by 2020, accounting for nearly 10% of the total US digital ad spending.

While shares of Amazon have rallied 11.9% in the past year, the Alphabet and Facebook stocks have declined 4.5% and 3.5%, respectively.

What’s Aiding Amazon?

Amazon’s greatest advantage is its wealth of data pertaining to a customer’s browsing and buying tendencies. Further, the heavy investment the company is making in machine learning is helping it offer more efficient targeting via its advertising platforms. Moreover, Amazon’s maximum digital revenues are recognized from its suite of sponsored ads.

We note that advertisers are primarily interested in an online shopping site as that enables them to reach out to their target audience much faster. And undoubtedly, Amazon is the hub where they can tap highest number of shoppers.

Going by a Feedvisor study published in March, two-thirds of respondents, who purchased products on Amazon, have started surfing new products on its portal, compared with one-fifth who used Google. This is nothing new. Earlier, last May, an Adeptmind survey found that nearly half of US internet users started their product searches on Amazon compared with a third on the rival search engine of Google.

We believe, with so much of room to grow, Amazon can pose a real challenge to the two market stalwarts.

Should FB, GOOGL Feel the Heat?

Facebook generates substantially all its revenues from selling adverts to marketers. The company’s focus to develop new ad products on Instagram and other platforms has aided it to witness a significant uptick in online and mobile advertising in a short span of time.

However, advertising being the major source of revenues, the loss of marketers to other platforms can hurt the company’s top-line growth, going forward.

Meanwhile, a recent slowdown in Google’s ad revenue growth sparked concerns that advertisers are shifting some spending to digital rivals. Last year, a CNBC report cited two media agencies to affirm the switchover of 50-60% of certain brands’ ad budgets from Google Search to Amazon.

Notably, per eMarketer, the combined share of the duopoly might take a hit for the first time this year, despite an uptrend in revenues.

Also, Juniper Research corroborates that Google’s advertising revenues will exceed $230 billion by 2023. However, its share of digital advertising spend will slide 1% over the next four years. Further, the growing strength of rival platforms like Amazon and Baidu (NASDAQ:BIDU) is a dampener, adds the firm.

While Facebook carries a Zacks Rank #2 (Buy), Amazon and Alphabet have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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