by Tom Taulli | December 20, 2013 12:34 pm
From the start, Jeff Bezos saw Amazon (AMZN) as more than just a place to sell books. Heck, by using the word “Amazon,” he was thinking on a grand scale. The result is that AMZN sells millions of products and will likely generate $75 billion in sales this year.
It has certainly been a nice thing for shareholders, as AMZN stock has gained over 23,000% since its IPO in the mid-1990s!
But when you look deeper at the company, you’ll realize there are revenue streams for Amazon, which go beyond e-commerce transactions. Just a few that help AMZN stock are cloud computing, streaming and subscriptions. But there is something else that gets little attention: advertising.
See, AMZN is really a huge customer database, which has been extremely powerful in recommending products to customers. But it has also been useful for ads. Let’s face it, the best ones are relevant.
So by leveraging customer data — and a huge user base — AMZN has been able to build a sizeable ad business. In fact, it has become yet another nice revenue stream that has been a key driver for AMZN stock.
So how big? Well, according to eMarketer, the company accounts for about 1.4% of the overall market. This ranks it at No. 7 — behind behemoths like Facebook (FB) and Google (GOOG) — and comes to about $600 million.
Something else interesting: AMZN is actually larger than Twitter (TWTR) — which has gotten a lot of buzz for its ad strategy but holds just 0.6% — and LinkedIn (LNKD), which is at 0.4%.
eMarketer also projects that the share of AMZN will increase to 2% by 2015. But this could be an understatement. After all, AMZN has its own mobile device, the Amazon Kindle, which should grab a nice piece of the growth opportunities. It will also get supercharged with the Big Data analytics.
And looking down the line, Twitter ads still look kind of unimpressive — which is worrisome considering TWTR stock is already expensive. Consider that eMarketer projects its business will represent only about 2.2% of the overall ad revenues by 2015 — barely ahead of AMZN.
Of course, this does not mean that the ad business will be critical for AMZN stock. It will still be a relatively small part of the revenue mix. But it is a sign that the Amazon platform is incredibly valuable — and more importantly, the company has proven that it can use it to move into diverse businesses.
For the company and AMZN stock to keep up its strong growth rate, this will be vitally important.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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