Amazon (AMZN) has developed a low cost money printing press.
And it's called an advertising business that benefits from companies clamoring to get their wares in front of Prime members and other shoppers. Piper Jaffray estimates that Amazon's advertising business will haul in $8 billion in revenue this year, contributing about $3 billion to operating profit. By 2020, Piper expects Amazon ad revenue of $16 billion and by 2021 and beyond, the business' sales could exceed that of Amazon Web Services.
Amazon estimates that advertising is already a "multi-billion" dollar business for the company.
Piper Jaffray projects the ad business should be valued between $150 billion to $190 billion.
"Investors should be focused on Amazon advertising now; this is a major driver to results and valuation today and continuing in the coming quarters and years," senior analyst Michael J. Olson says.
Behind the Call
The fact is that Amazon's increasingly dominant online positioning puts it in the driver's seat when it comes to securing lucrative ad revenue.
"We believe Amazon's product search market share is now well above 50%, exceeding Google (GOOGL) and other search engines, and ahead of company specific product search pages (i.e. Samsung.com). Being the world's largest product search engine has its advantages and Amazon is starting to leverage them. Specifically, product searches on Amazon can often return many thousands of options; in order for a seller to hold a relevant position in search results often requires inclusion in a paid listing slot or banner." -Michael Olson
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