Amazon Has a 2021 Growth Driver Going Under the Radar, Says Analyst

While many companies have been crushed by Covid-19’s impact, Amazon (AMZN) has benefited immensely. Sales have gone through the roof and the company has made all the right moves in catering for the outsized demand.

Of course, apart from the core ecommerce business, the company has multiple revenue streams. However, Needham analyst Laura Martin has pinpointed a segment which she believes is currently being overlooked.

The 5-star analyst says Amazon’s ad revenue stream is undervalued and anticipates “advertising revenue growth will be an important upside profit driver for AMZN during 2021.”

The latest third-party data indicates Amazon is increasingly taking more product search share from its search engine rivals, namely Google. Why is this important on the advertising end?

Martin explained, “Growing product search share attracts more advertisers and improves conversion rates, which attracts more advertisers.”

A ChannelAdvisor survey conducted in August found that if a U.S. adult plans on making an online purchase, 53% will head to Amazon first. In comparison, 23% will begin their product search on Google.

What’s more, Martin notes, “Searches for products on AMZN more frequently turns into a purchase.”

According to online ad specialist Wordstream, Google search’s conversion rate stands at roughly 4%, whilst AdBadger analytics indicate Amazon’s is at roughly 10%, so the conversion rate at Amazon is more than twice as much as it is on Google.

“We believe AMZN’s much higher conversion rate is because the ad’s “context” is better at AMZN,” Martin said. “That is, the mental starting point for many consumers when they open the AMZN app is to buy something.”

Talking of buying, that’s what Martin recommends investors do with Amazon stock. The analyst reiterated a Buy rating alongside a $3,700 price target. Investors are looking at gains of 19%, should Martin’s thesis play out in the year ahead. (To watch Martin’s track record, click here)

Barring one lone Hold rating, all 36 other recent Amazon reviews have reached the same conclusion – Buy. With a $3,819.89 average price target alongside the Strong Buy consensus rating, the projection is for ~23% upside over the next 12 months. (See Amazon stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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