Amazon (AMZN) – TD Cowen Survey & More – January 13, 2024
TD Cowen Survey
TD Cowen shared encouraging data on Amazon’s ad business this past week as part of its survey of 54 large buyers in the U.S. Its data points to continued digital ad market share gains for a 4th straight year. Specifically, its market share is expected to rise from 7% today to 8% in 2025. 1% of the $802 billion market would be needle moving for revenue, but especially impactful for EBIT.
7 out of 10 of its respondents plan to allocate budget dollars to Prime Video in 2024. All in all, the firm sees this momentum driving nearly 17% Y/Y growth for 2024 and compounding at a robust 13% clip through calendar 2029. This is a few points better than what I assumed in the simplistic modeling I did when starting the position. Works for me. All of this led to revenue and EBIT modelling 1% and 19% above expectations, respectively, for Q4 2023.
Consistent readers know exactly why this matters: Ad revenue is among the highest margin revenue businesses that Amazon has. As it proliferates, its growth will be margin accretive. That, along with all of the other tailwinds we often discuss in fulfillment and logistics as well as AWS, should spur continued profit outperformance in the quarters ahead. That is what I expect, with this note showing TD Cowen does too. A lot of sell side notes are somewhat noisy and irrelevant. This was valuable and data-driven. Thank you, TD Cowen.
Buy with Prime
Amazon integrated its Buy with Prime offering with Salesforce Commerce Cloud. This adds to a partner list that already includes Shopify and others. This will mean broader access to Amazon’s world-class fulfillment from a merchant’s own storefront. That should lead to better capacity utilization for Amazon and slightly better margins. It’s simply one of many, many tools in its current margin expansion toolkit.
Source: Brad Freeman proprietary research
