Amazon's advertising business is approaching $50 billion in annual sales, but it may still be early days for the division, according to Wedbush analysts who raised their target price for Amazon stock.
Amazon "is well positioned to continue taking share of global digital advertising spending over a multi-year period," Wedbush analyst Scott Devitt told clients in a Wednesday note. The tech giant is on pace for $46.5 billion in advertising revenue this year, he added. Wedbush estimates Amazon's ad sales will grow to $57.4 billion next year.
Wedbush maintained an outperform rating for the stock. Further, the firm upped its 12-month price target for Amazon shares to 210, from 180. On the stock market today, Amazon stock gained 1.1% to close at to 153.84.
Amazon Stock: Big Ad Margins
While still much smaller than its e-commerce and cloud-computing empires, Amazon's advertising business has scaled up to be among the world's largest. Amazon started offering pay-by-click placements within search results on its platform in 2012. That business has expanded into video placements and other channels. Devitt wrote, "We believe Amazon's advertising opportunity remains early in its development."
Most notably, Amazon will begin selling ads on its Prime Video service next year in the U.S., U.K., Germany and Canada.
"Advertising now accounts for over 8% of Amazon's total annual revenue and has likely become the largest driver of operating profit with margins in the 60%-70% range, significantly higher than Amazon Web Services," Devitt wrote.
Wedbush believes the business has a strong setup for next year. For one, "secular tailwinds" are favoring the retail media category, where Amazon is a leader. The Prime Video expansion will help drive strong video ad sales. Beyond that, Amazon has several partnerships with social media platforms that will help it sells ad placements outside its own platform. That includes recent deals with Snapchat, Meta and another reached earlier this year with Pinterest.
"Combined, we see a sustainable runway of advertising revenue growth well above the gross merchandise value growth rate of the core retail business," Devitt wrote.
AMZN Up 81% This Year
Meanwhile, the 210 price target from Wedbush places the firm among the most bullish for Amazon stock. The average 12-month target price for AMZN stock from Wall Street analysts is 179, according to FactSet.
Amazon stock had gained 81% on the year entering trading Thursday. But Wedbush is not alone in expecting Amazon to rise further next year. Analysts with JPMorgan, Evercore ISI, TD Cowen and Bernstein, among others, have named Amazon stock as a top internet pick for 2024.
AMZN stock is on the IBD Leaderboard. Shares are extended well beyond a 145.86 buy point from a consolidation pattern, according to IBD MarketSmith. Further, Amazon stock hit an intraday 52-week high on Wednesday of 155.63.
