Growth in online advertising
As more and more marketers move online from traditional advertising outlets like Newspapers and Magazines, the leading Internet firms will be major beneficiaries of this trend. According to ZenithOptimedia, total Internet advertising will grow from $88.5 billion in 2012 to $132.4 billion by 2015. And display advertising, which made up about 38% of online advertising in 2012, is expected to increase to 43% of total Internet advertising in 2015.
| Exhibit: Growth in Online Advertising Markets (in USD billions) | |||||
|---|---|---|---|---|---|
| 2011 | 2012 | 2013E | 2014E | 2015E | |
| Display | 28.2 | 33.2 | 39.8 | 47.7 | 57.2 |
| Classified | 11.3 | 12.1 | 12.8 | 13.4 | 14.1 |
| Paid search | 37.4 | 43.2 | 48.8 | 55.0 | 61.1 |
| Total | 76.9 | 88.6 | 101.5 | 116.1 | 132.4 |
| Source: ZenithOptimedia | |||||
As a result, well placed firms like Facebook, Google, and Amazon can all gain a lot of ground at the expense of traditional print media. And all these firms are improving their monetization on mobile as well. Facebook Inc (NASDAQ:FB) now has a mobile run-rate of $1.5 billion, and Google laid out a mobile run-rate of more than $8 billion in 3Q12, which has likely grown higher. And Amazon’s mobile ads placements on its websites and on third-party sites gives the company yet another opportunity to generate higher margin revenue compared to its e-Commerce business which has razor thin margins.
Amazon is expected to grow its advertising revenue rapidly from current levels as it has an edge over other rivals who lack purchasing data from real consumers. There has been a large range of estimates regarding the growth of Amazon’s advertising business among investors and analysts alike. eMarketer is expecting Amazon’s ad revenue after paying out TAC to increase to $835 million in 2013. This projection seems a little conservative, and might end up being much higher than the estimate by the research firm, eMarketer.
Going forward
While Amazon.com, Inc. (NASDAQ:AMZN) is still in the early stages of being a major advertising outlet, the company’s growth potential in the space is very big. Even though advertising makes up a very small portion of Amazon’s total revenue, the business commands much higher operating margins as evidenced from various advertising-based firms like Google, Baidu.com, Inc. (ADR) (NASDAQ:BIDU), Facebook, etc. Amazon can monetize its large customer-base frequenting its massive platform by placing ads based on data and analytics and earn more revenue, which will have a positive impact on its bottom line relative to its core retail operations.
The article Amazon’s Advertising Fortunes Can Surge originally appeared on Fool.com and is written by Ishfaque Faruk.
Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Facebook, and Google. The Motley Fool owns shares of Amazon.com, Facebook, and Google. Ishfaque is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
