Like many Americans, I’m hooked on Amazon’s (NASDAQ:AMZN) Alexa-powered devices. Not a day goes by when our family isn’t using her for something. And if it’s one of our kids, odds are it’s asking her for a joke. So, imagine my surprise, when rather than hearing Alexa’s voice, it was Jimmy Fallon of the Tonight Show telling the jokes.
Say what you want about Fallon, but the fact that he was on the device shows it is actually a big deal. Amazon is quickly moving a major issuer with the devices and is finally starting to monetize Alexa in a big way. After all, I’d be willing to bet that NBC paid some hefty fees to have Fallon on the device. For Amazon stock, this could be a powerful new revenue tool and it underscores its recent moves into advertising on its platform.
For investors, it goes to show that there is still plenty of runway left when it comes to realizing more from AMZN stock.
AMZN: Overcoming a Big Problem
The original idea behind Alexa wasn’t to control your lights or tell you the weather, it was to sell you products. You could be in your laundry room, run out of soap and ask her to order you more right then. The problem is, most people don’t use her for that purpose. In fact, hardly anybody uses her for shopping at all.
According to a new report published on tech-news-site Gizmodo, Amazon has sold roughly 50 million Alexa-powered devices. The bulk of which are Echo smart speakers. However, only 2% of people who own an Alexa device have used them to make a purchase this year. Moreover, when looking at that 2%, 90% of them didn’t make any additional purchases through Alexa after that initial purchase. It was most likely just to experiment with it. And I’ll admit it, despite owning several Echo’s, we’ve never used them for buying anything.
This is kind of a big deal for Amazon. Depending on the device, AMZN actually loses money selling them. There are some studies that show, houses with Prime and an Echo do buy more — about $700 more — with the site over a year than those with Prime, but without the device. Yet, Amazon is leaving money on the table with more than 50 million devices being idle.
Which is why the Jimmy Fallon thing is interesting for Amazon stock.
We’ve already discussed how Amazon has quickly moved into the world of digital ads. Amazon currently sells “sponsored ads” for certain key search terms on its website. For example, on the search-word “detergent,” Proctor & Gamble (NYSE:PG) pays AMZN a hefty fee so that that Tide comes up as the first pick.
The beauty for Amazon is that it doesn’t matter if you buy the Tide or scroll down to Church & Dwight’s (NYSE:CHD) Arm & Hammer, it still makes the sale and collects the ad revenue. These digital ads are starting to boom, with eMarketer predicting that Amazon collected more than $2 billion in ad revenue during the first quarter alone. The ad-trade publication estimates that AMZN will make more than $4.6 billion on ad revenue this whole year.
The Next Big Thing for Amazon Stock?
On Alexa, ads will present themselves much in the same way. Firms are bidding on being the top choice or dog in a variety of different ways.
For starters, sponsored ads on Alexa present themselves in much the same way as they do online. A company cuts Amazon a check to be the first product when a consumer asks for something. If you’re looking for toothpaste, Alexa responds “I can look for a brand like Crest.” The Jimmy Fallon joke experiment is along the same lines. Comcast (NASDAQ:CMCSA) clearly cut some sort of deal to have Fallon tell the jokes and provide advertising for the show. The best part is that this feels natural, which is a highlight of using an A.I. speaker: You don’t really feel like you’re being advertised to.
And there’s no reason why AMZN couldn’t do this for other pieces of Alexa’s umbrella.
This seems to be happening through Alexa’s vast platform of Skills — Amazon’s version of apps. In a recent meeting over the summer, AMZN unveiled how firms will be able to pay to be triggered by various questions.
How long do I roast a turkey for? And the Food Network Skill kicks open, potentially with a tutorial. Even better for Amazon stock is that the company is now allowing developers to sell “consumables,” or premium content contained within a skill. An Amazon blog post highlighted that “With consumables, you can sell products that are relevant in the moment to customers as they experience your skill.” Like the tutorial on how to cook a turkey? How about a yearly subscription to Food Network magazine?
The beauty is that Amazon splits the revenue on the sales of consumables with developers. AMZN makes a quick 30% from that magazine subscription. And we can’t forget that they were paid to trigger the skill in the first place.
Alexa Ads Will Be Huge for Amazon Stock
Given the sheer number of Alexa-powered devices already in use and the number of new devices, from fridges to the dash of your car, coming online, the opportunity is monstrous for AMZN stock. The best part is, none of these opportunities are factored into Amazon’s valuation and that shows just how many levers the stock has to pull in order to make shareholder’s money.
All in all, the Amazon stock juggernaut really is still in the beginning innings and shares are a big buy.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.