Advertising, go figure.
BMO Capital Markets analysts Daniel Salmon and William Lowden released a massive 46 page report on Tuesday explaining why they raised their price target on Amazon (AMZN - Get Report) stock to $1,200 from $900, with the main reason being opportunities in the e-commerce giant's advertising business.
"We believe the emergence of Amazon's advertising business can support both margin and multiple expansion, and could be a greater catalyst for the shares," the analysts said.
Wall Street has speculated that Amazon could be on a crash course to being worth $1 trillion.
Salmon did not return a request for further comment.
The investment bank expects Amazon's ad business to skyrocket 65% to $3.5 billion in 2017, driven largely by its sponsored products, which represents $2 billion, 58%, of that total estimate.
"Sponsored products is a cost-per-click native advertising product that uses keyword targeting capabilities to place ads alongside search results and on product detail pages," BMO said.
Advertising is hard to nail in e-commerce as companies need assurance that if they are to pay the high cost of buying an ad, it will be seen by consumers.
Amazon's sponsored products business doesn't charge customers until a shopper clicks on their ads. Plus, once customers begin their campaign, they can continually adjust the ads' keywords and designs if they are not seeing the performance they desire, providing a security blanket for both the purchaser and Amazon.
"I would say sponsored products is off to a great start," said Amazon CFO Brian Olsavsky on the company's recent fourth quarter earnings call. "I find it a very effective way for advertisers to reach interested customers."
Amazon launched sponsored products in June 2015.
As TheStreet reported in March, WPP (WPPGY) CEO Sir Martin Sorrell said Amazon's advertising business, although in its infancy, could eventually pose a serious threat to Alphabet's Google (GOOGL - Get Report) and dominate the nearly $200 billion advertising market.
More Amazon news on TheStreet:
- Amazon's Jeff Bezos Is Primed to Overtake Bill Gates as World's Richest Person
- How Amazon Could Put an End to Google and Facebook's Ad Dominance
- Amazon Now Collects a Sales Tax EVERYWHERE -- Here's What It Means to Your Wallet
- More Than 260 Jobs Will Be Lost as Amazon Shuts Down Quidsi
Editor's Pick: Originally Published Apr. 4.