May 23, 2022

Jefferies Dives Deep into Amazon’s Advertising Business

Amazon continues to thrive and benefit from the COVID-19 pandemic because of the high demand for groceries and essentials. Since the coronavirus outbreak, Amazon has seen strong financial results and an overall boost in sales and advertising.

Analysts at Jefferies reiterated their Buy rating on shares of Amazon on Wednesday, with a price target of $3,800. The analysts now value Amazon’s advertising business at $350B which is up from their previous value estimate of $300B for the segment.

The analysts are expecting increased Consumer Packaged Goods (CPG) spending to be a key long-term driver for Amazon’s advertising revenues, and raised their annual sales growth estimates by 2% in 2021 and beyond. Also, the analysts estimate a combined $1T CPG advertising opportunity for AMZN, consisting of $800 billion in trade spending, and 200 billion in advertising.

“According to our survey, 40%/60% of U.S. online shoppers purchased more groceries/essentials on AMZN during the pandemic, significantly above its 2019 category share of just ~1%/3%. We believe many consumers will continue buying groceries/essentials on AMZN after the pandemic ends, and now model its U.S. retail share to reach 5%/9% by 2025.”

Online shopping will continue to accelerate even post-pandemic because of the convenience and technology-driven society we live in. Digital payments are becoming more prevalent and as online purchases continue to increase so does Amazon’s business. Jefferies expects the behavior of consumers’ persistent online shopping habits to stick long-term because they appreciate the satisfaction of not needing to leave their homes.

Amazon’s ongoing domination of the e-commerce market will drive the company far beyond measure. As CPG spending continues to increase Amazon’s sales, we will continue to see tremendous growth in its Advertising business as the flywheel effect takes place – more sales results in a desire to increase ad spend, which leads to more sales and so on.

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Disclosure: At the time of publication, I have no positions in any of the securities mentioned in this article. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for creating this article (other than from TheStreet) and have no business relationship with any company whose stock is mentioned in this article. 

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