Amazon ‘s cloud and retail juggernauts rightly get most of the attention on Wall Street. But there’s a lesser-known gem becoming a bigger and bigger part of the company’s overall business. Amazon’s ad business, which launched in 2008 to help brands market products on its platform, has seen incredible growth since the company started breaking out the segment in 2021. That year advertising services recorded $31.2 billion in sales, according to FactSet, and represented 6.6% of Amazon’s total revenue. Last year, advertising services was the company’s fastest-growing segment — up 19.8% year over year to $56.2 billion and accounting for nearly 9% of total 2024 revenue of $638 billion. For comparison purposes, Amazon Web Services (AWS) cloud sales in 2024 grew 18.5% to $107.6 billion. AWS was nearly 17% of total sales. Its retail business, including online and physical store sales and third-party services revenue, grew more than 8% to $424 billion last year, representing just over two-thirds of total revenue. Even better than Amazon’s advertising sales growth is its profitability. While the company does not break out margins, Evercore ISI estimates Amazon’s ad profit margin to be around 30% to 40%. That’s way higher than retail and on par with AWS. “The two fastest growing elements of the business, AWS and advertising, have the highest margins,” said Evercore analyst Mark Mahaney, who called Amazon one of “the best mix shift stories you can find in tech land.” Amazon’s ad business growth is more than holding its own, even though it’s small internally and when compared to Meta Platforms ‘ ad revenue, which grew 22% to $161 billion in 2024, and Alphabet ‘s Google, which grew 11% to roughly $265 billion. It is, however, bigger than Alphabet’s YouTube, which last year grew 14.7% to generate $36.15 billion in ad revenue. Amazon’s sponsored product listings and display ads are currently the main drivers of ad segment sales. The next leg of growth will likely come from placing more and more ads on Prime Video, which accounts for only a small portion of ad sales. “Now that Netflix and Apple TV have ads, that’s opened the door for Prime to include higher ad loads in its package,” said D.A. Davidson’s Gil Luria — and thus, fueling future advertising services growth. To be sure, while still expected to be robust, Wedbush sees Amazon advertising services growth rate decelerating to 17.3% in 2025, which is a bit lower than the FactSet consensus estimate for 18% full-year growth. Wedbush’s Scott Devitt attributes the deceleration to “a bigger revenue base which results in natural revenue slowdown.” However, he added, ad revenue could reaccelerate through “new stimulants for growth” coming from placing more ads on video and expanding Amazon’s ad services off the platform. Devitt also estimates that Amazon’s advertising margin could be hovering around 60%, although he noted that this may not be a precise figure since its not disclosed by the company. That’s also quite a bit higher than the estimates from Evercore’s Mahaney. AMZN 5Y mountain Amazon 5 years Another important catalyst for Amazon’s ad business is allowing advertisers to place inventory beyond its platform through its Retail Ad Service, launched last month. It allows other e-commerce retailers to use Amazon’s ad technology to place targeted ads on their own sites and more broadly scale their independent offerings. TD Cowen expects this initiative will “support Amazon’s ad revenue growth as it should attract a greater share of ad spend amid higher overall ad inventory,” the analysts wrote in their Amazon Ad buyer survey on Jan. 13. With this move, “Amazon is getting more into Google’s market,” D.A. Davidson’s Luria said, explaining that Google is by far the dominant player in creating an ad network that retailers and brands can purchase supply. But he argued Amazon is creeping into this space because of its own “rich marketplace for ads.” Amazon’s booming advertising business is deeply linked to the strength of its retail platform. The more people shop on Amazon, the more valuable its ads become, according to Luria. “The key to understanding Amazon’s advertising business is part of the flywheel,” he said, explaining that as shoppers buy across more categories, ad placements become more effective. Evercore’s Mahaney echoed this sentiment, emphasizing that Amazon’s ad revenue wouldn’t exist without its massive retail business. “The vast majority of the ad revenue is tied to retail sales through their sponsored listings,” he said, calling it an “ancillary business” that has transformed into a major success. Bottom line Jim Cramer said Amazon is just getting started with its advertising business. The company’s “initiatives run faster than they can monetize,” Jim noted on Tuesday, highlighting the ad businesses as a key opportunity, particularly within Prime Video. While the market reacted negatively to Amazon’s recent first-quarter forecast, giving back some of its year-to-date stock gains, Jim points out that the company often outperforms its own guidance. “You can’t judge Amazon by its outlook since there are many positive things that happen intra-quarter, like the incredible turn in Europe, which could last for years,” he said. We also continue to watch Amazon’s ongoing efforts to cut costs and improve profit margins. Taking all of this into consideration, Jim sees Amazon as a buying opportunity on dips for investors who want to beef up their positions. The Club last purchased Amazon shares back in August for around $168 each. The stock, which closed Wednesday at $226.63 per share, closed at an all-time high of $242.06 on Feb. 4. Our price target on the stock is $240. (Jim Cramer’s Charitable Trust is long AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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BARCELONA, SPAIN – MARCH 2: The Amazon ads logo, the advertising solutions service formerly known as AMD or Amazon Marketing Services, during the Mobile World Congress 2023 on March 2, 2023, in Barcelona, Spain. (Photo by Joan Cros/NurPhoto via Getty Images)
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Amazon‘s cloud and retail juggernauts rightly get most of the attention on Wall Street. But there’s a lesser-known gem becoming a bigger and bigger part of the company’s overall business.
