Analysts at Bank of America believe advertising revenues could contribute 5 points to tech giant Amazon’s (NASDAQ:) long-term margins, helping to push them to new highs.
The investment bank noted that Amazon’s advertising revenues continue to grow faster than Gross Merchandise Value (GMV) and have become a key driver of retail profitability.
Analysts expect these trends to continue, supported by ramping Prime Video ads and AI integration, while 3P ad partnerships could contribute modest revenues and additional GMV.
“We estimate advertising contributes over 4 percentage points to retail margins today and could grow toward 5 points by 2026,” they wrote.
“The Prime Video ramp should drive the most incremental growth, we estimate Prime Video ads could ramp to nearly $5bn in sales by 2025, with further room for growth in 2026 as ad loads increase,” added the firm.
Furthermore, Bank of America sees advertising strength, retail efficiencies, and AWS acceleration driving Amazon’s operating profit upside in 2024. Analysts also think that growing visibility for Amazon advertising, aided by the Prime Video ad ramp, could drive greater confidence in 10% or more long-term retail margins.
The firm maintained a Buy rating and $210 price target on Amazon in its research note.
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