While investors are focused on Amazon.com Inc.'s AMZN, +0.52% core retail, growth of its AWS cloud business and grocery and pharmaceuticals businesses, ...and more »
While investors are focused on Amazon.com Inc.'s AMZN, +0.52% core retail, growth of its AWS cloud business and grocery and pharmaceuticals businesses, Piper Jaffray analyst Michael Olson said he believes the advertising business will be Amazon's next big business, with profits potentially surpassing that of AWS within three years. Amazon shares rose 0.5% in premarket trade. He expects ad revenue of about $8 billion in 2018, potentially contributing greater than $3 billion to operating profit. "By 2020, we expect Amazon ad revenue of $16 billion and by 2021, beyond the scope of our current model, we believe it is highly likely that profits contributed from advertising will exceed those from ASW," Olson wrote in a note to clients. "Said differently, investors should be focused on Amazon advertising now; this is a major driver to results and valuation today and continuing in coming quarters and years." He reiterated his overweight rating on Amazon's stock and his $2,100 price target. The stock has run up 18% over the past three months through Friday, while the S&P 500 SPX, -0.40% has gained 3.9%.
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