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Amazon’s Ad Business Looks Set to Soar

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Jan. 16 2019, Updated 8:51 a.m. ET

Amazon’s ad business has been growing quickly

e-Commerce giant Amazon (AMZN) made huge strides in its digital ad business in 2018. The Seattle-based company’s ad revenue has seen triple-digit growth consistently year-over-year.

Along with the tech giant’s cloud business, its lucrative ad business has caused its net margins to expand in recent quarters, while it still operates its core business at razor-thin margins.

Amazon’s digital ad revenue is now the third highest in the United States behind Google and Facebook, with the e-commerce giant beginning to test their duopoly—although it’s still trailing far behind.

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Amazon could gain more market share

According to a survey of 50 senior US advertising buyers by Cowen (via Recode), the e-commerce giant could double its ad revenue among these senior ad buyers in the next two years, bringing it to 12% of total digital ad spending by 2020.

Meanwhile, Facebook’s (FB) core platform is expected to lose as much as three percentage points of market share by then, according to Cowen. However, Instagram’s two-percentage-point increase in market share could help negate that.

Amazon is a more direct competitor to Alphabet’s (GOOG) Google than to Facebook, as a good chunk of product searches take place on Amazon’s platform directly these days.

Amazon has been playing a risky game lately in increasing the number of product ads on its platform. The strategy has boosted its ad revenue, but it risks putting its users off.

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