According to Morgan Stanley, Amazon
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will be one of the main beneficiaries of the advertising market in the retail media in the coming years, or in other words, it will earn more from the advertisements that appear on its website. “We see a $130 billion opportunity in the retail media advertising market by 2025,” said analyst Matthew Cost, “This allows advertisers to achieve better conversion by leveraging retailers’ customer data and ultimately generate more ad revenue for retailers.” Retail media market advertising revenues totaled approximately $80 billion in 2022.
The expectation is that companies’ spending on advertising in retail media will increase by 17% from 2022 to 2025 and will eventually make up 45% of total online advertising spending. This should be a boost for Amazon stock, as the company held a 47% market share last year.
“Among retailers, the biggest players like Amazon and Walmart are best positioned to grow in retail media, thanks to their large customer bases and datasets,” Kost wrote. “We expect Amazon to maintain its market share and continue to expand its advertising business from here.” Retail advertising is big, profitable business. Ads are much more profitable than online commerce or brick-and-mortar retail sales with operating profit margins of over 60%, compared to typical retail profit margins in the single digits or low double digits.
The report comes after just two weeks ago it was reported that Amazon was laying off another 9,000 workers, and this after last January it announced the layoffs of 18,000 workers (a move it began in November). According to a report on the CNBC website, Amazon CEO Andy Jesse announced this in a letter to employees.
The round is expected to affect Amazon’s cloud computing, advertising, human resources and streaming (Twitch). The company made the decision to lay off more employees in order to reduce costs while taking into account the slowdown in the economy as well as the “uncertainty that exists in the near future,” Jesse said in the letter, after the company completed the second phase of its annual budgeting process, known as “OP2.” .
In Q4 2022 results, Amazon posted adjusted earnings of 3 cents per share on revenue of $149.2 billion, while the market expected to see adjusted earnings of 17 cents per share on revenue of $145.42 billion.
But beyond the end of last year – Amazon’s problem is the forecast for the quarter that just ended. The company expects in the first quarter of 2023 revenues in the range of 121-126 billion dollars, while the analysts expect Amazon to have revenues of 125.1 billion dollars, which means that Amazon’s mid-range is lower than the analysts’ expectations and a profit of 27 cents per share. In the entire year of 2023, they expect revenues of 559 billion dollars and a profit of 1.6 dollars per share.
The company trades according to a value of one trillion dollars, has risen 23% since the beginning of the year after falling 36% in the last year.
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