Prediction: This will be a major growth driver for Amazon in the coming years.
Although this is not Amazon’s core business, it is growing faster than other businesses.
Amazon (AMZN -1.54%) Best known as the king of e-commerce, it has a huge lead, accounting for more than a third of all e-commerce sales in the United States. For Amazon’s own business, e-commerce accounts for about 67% of total sales. In the fourth quarter of 2023, online store sales increased 9% year-over-year, and third-party sales increased 20%.
Amazon Web Services (AWS) is Amazon’s second largest segment, accounting for 14% of the total, with AWS revenue in the fourth quarter up 13% year-over-year. However, advertising has emerged as Amazon’s third largest segment and the fastest growing. Let’s consider its potential and what it means for investors.
Keep Amazon in a Growth Category
At $14 billion, advertising accounts for about 8% of sales. However, advertising revenue in the fourth quarter was up 27% year-over-year and has been the fastest-growing segment for several quarters. Amazon only started reporting this as a separate segment in late 2021.
As artificial intelligence emerges as a major driving force for business, advertising is undergoing remarkable changes and laying the foundation for substantial growth. And experts expect this growth to continue in the coming years, as the chart below shows.
Image source: Statista.
Amazon has several advantages when it comes to advertising. It has powerful AI capabilities that help advertisers find the right audience with pinpoint accuracy, and with hundreds of millions of shoppers already on the Amazon website looking for the products you offer, it’s the perfect place to gain exposure. TV and video advertising and search advertising, the largest advertising categories per chart, are in Amazon’s wheelhouse.
The company recently launched sponsored TV advertising in the U.S., opening up opportunities for small businesses with smaller budgets and expanding its own opportunities. Executives said revenue growth for some of its soccer streams was “dramatic” and that it was still just beginning to develop its full advertising capabilities. Even better, advertising is a high-margin business that can help you increase your bottom line.
We expect advertising to drive high growth for Amazon in the near future.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil She has no position in any of the stocks mentioned. The Motley Fool has a position at Amazon and recommends it. The Motley Fool has a disclosure policy.
