According to UBS analyst Lloyd Walmsley, this new ad program could significantly impact Amazon's bottom line. In a recent report, Walmsley projected that ads on Prime Video could generate an impressive $6.2 billion in annual revenue and contribute 40 cents per share in earnings from the United States alone. While the international market is expected to yield a smaller but still significant revenue boost, with estimated incremental revenue ranging from $125 million to $1.05 billion.
Walmsley now predicts that Amazon's advertising revenue for 2024 will reach $55.8 billion, exceeding Wall Street's consensus figure of $54.5 billion. As a result, he has adjusted his earnings per share estimate for 2024 by adding an extra 12 cents, bringing it to $3.57.
Impressed by the potential growth, Walmsley, who rates Amazon stock as a Buy, has raised his price target for the company's shares from $174 to $180.
As a consequence of this announcement, Amazon's shares saw a 1.6% increase in value on Monday morning, reaching $129.10.
Amazon's Ad Revenue Expected to Surge with Expanded Advertisements on Prime Video
Amazon is poised to generate substantial ad revenue with the expansion of advertisements on its Prime Video platform. Analysts estimate that ad time on Prime Video will initially be three minutes per hour, potentially increasing to as much as six or even nine minutes. This move would align Amazon's advertising capabilities with Hulu, which currently has 10 minutes of ads per hour.
Notably, Amazon Prime Video is included in the company's widely popular Prime subscription package, priced at $139 per year. Alternatively, viewers have the option to purchase the video package separately for a monthly fee of $14.99.
The introduction of ads on Prime Video is part of Amazon's larger strategy to leverage its vast customer database for more effective ad targeting. The wealth of customer information that Amazon possesses positions its advertising offerings as a premium choice for ad buyers, distinguishing it from other streaming services.
Industry analyst, Walmsley, predicts that Amazon's move will further disrupt the traditional linear TV model and impact other ad-based streaming services. Traditional TV advertising is expected to decline by 5% next year following a 9% drop this year. With Amazon's entry into the market, there will be a "mid-single-digit headwind" affecting companies heavily reliant on linear programming such as Paramount, AMC Networks, Warner Bros. Discovery, and Fox.
Overall, this expansion of advertising opportunities on Amazon Prime Video is anticipated to be a lucrative venture, with significant potential for high incremental margins in ad revenue.