Wall Street this week suggested ecommerce giant Amazon (AMZN) still has significant room for growth across its cloud and advertising businesses. While we tend to agree, the Club holding is unlikely to see any meaningful upside to earnings until it further cuts costs across the board. In a research note Tuesday, Morgan Stanley said it sees a $130 billion opportunity in retail media advertising by 2025 and called out Amazon as an “early leader” in the space, with 47% of total market share as of 2022. The firm defined retail media as “advertising that leverages retailers’ proprietary customer data to target ad campaigns.” Amazon’s advertising business saw year-over-year growth of 19% in the fourth quarter of 2022, well ahead of peers like Alphabet (GOOGL) and Meta Platforms (META), which reported ad revenue losses in the same period. That’s why analysts at Morgan Stanley argued Amazon is one of the “best-positioned” names to grow in retail media, given an immense user base that offers large data sets for driving digital ads. Advertisers spent $80 billion on retail media in 2022, according to Morgan Stanley. And as ecommerce shopping only gains in popularity, the analysts predict advertisers will likely spend about 5% of the value of their ecommerce sales on ads — ultimately leading to that $130 billion market opportunity, excluding China. Amazon, the analysts argued, is ahead in the retail advertising game. The company “has already developed a leading onsite retail media offering through ad formats like sponsored products,” they wrote. Morgan Stanley estimated Amazon will generate roughly $45 billion in ad services revenue this year, up from around $37.7 billion in 2022. Meanwhile, in a separate note Tuesday, Bernstein said Amazon’s other key growth driver — its cloud unit, Amazon Web Services (AWS) — can continue to gain additional market share in an underpenetrated market. But unlike advertising, AWS growth has decelerated, as Amazon’s customers rein in costs in a slower economy. When the company released its latest quarterly results in February, management said it expects customer-optimization efforts to be a headwind to AWS growth “in at least the next couple of quarters.” But analysts at Bernstein said concerns over the slowdown in the cloud industry more broadly are “somewhat overblown.” The analysts predicted the total addressable market for the cloud could be roughly $2.3 trillion and growing, ultimately allowing Amazon to solidify its position as a cloud leader and preferred vendor for businesses. The Club’s take We’re in agreement with both Morgan Stanley and Bernstein’s views that Amazon has an opportunity to grow its digital advertising business and cloud operations in the years to come. The ecommerce firm has proven it’s both the preferred destination for advertisers and a favored cloud provider for many customers. In Piper Sandler’s recently released survey on Gen-Z teenagers , 57% of respondents cited Amazon as their favorite online retailer. The survey showed that advertising on Amazon makes a lot of strategic sense — particularly if retailers want to capture the attention of a consumer while they’re still young. But in the near term, Amazon needs to focus on cutting back costs, including more headcount reductions and halting spending on unprofitable projects. That strategy should ultimately lead to improved earnings and unleash the business growth shareholders like us are waiting for. (Jim Cramer’s Charitable Trust is long AMZN, GOOGL, META. 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. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Dado Ruvic | Reuters
Wall Street this week suggested ecommerce giant Amazon (AMZN) still has significant room for growth across its cloud and advertising businesses. While we tend to agree, the Club holding is unlikely to see any meaningful upside to earnings until it further cuts costs across the board.
