Amazon is the latest streaming company to bring advertising to its platform. One Amazon stock analyst sees "substantial" revenue potential in the move, citing the e-commerce behemoth's advantages over streaming competitors.
"We think the insertion of video ads into Prime Video content will unlock substantial revs (revenues) at high incremental margins, bolstering the margin bull case," UBS analyst Lloyd Walmsley wrote in a client note Monday.
Further, UBS raised its price target for Amazon stock to 180, from 175. On the stock market today, Amazon stock closed up 1.8% at 129.46.
Advantage Over Other Streaming Platforms
Amazon said last week that Prime members in the U.S., U.K., Germany and Canada will see "limited advertisements" on its video service starting early next year. But U.S. Amazon Prime members can pay an additional $2.99 a month to avoid commercials.
Amazon joins Netflix, Warner Bros Discovery's Max and Disney's Disney + and Hulu in offering an ad-based tier.
But Amazon's plan differs in that users will automatically be placed in the ad-supported plan, with the option to opt out in the U.S. by paying slightly more.
Still, Walmsley wrote, "our conversations with contacts familiar with the offering view this as a transformation of the CTV (connected TV) landscape, as Prime Videos reach (roughly 200 million) users globally."
Further, Prime Video ads will be viewed as a "premium buy vs those from other CTV players," the UBS report said. That's in part because of Amazon's access to user data that can improve targeting and measurement.
Walmsley bumped UBS' projection for advertising revenue from Amazon in 2024 up to $55.8 billion, from $52.7 billion.
Amazon Stock: Growing Ad Business
Notably, Amazon's advertising business has been its fastest-growing division in recent quarters. Revenue jumped 22% year over year in the second quarter to $10.7 billion.
The company sells product sponsorship advertising on its website and has sold video advertising previously through its separate Freevee offering.
Meanwhile, Evercore ISI analyst Mark Mahaney sees "potentially significant" upside for Amazon bringing ads to Prime Video.
The move, he wrote in a recent client note, "allows it to tap into the $150 (billion) global TV advertising budget, and uniquely, allows Amazon to potentially innovate on ad formats that bring the conversions back to its retail business in a way that no other ad platform can do."
