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Amazon could 'take Google to the cleaners' in retail search with a $20 billion ad business, analyst says

  • Amazon's nascent advertising business could be worth around $20 billion in 2020, according to Alex DeGroote, a media analyst at Cenkos Securities.
  • Amazon's strength would be in search advertising rather than display.
  • "Slowly over time you will use Amazon as your retail search engine rather than Google," DeGroote told CNBC.

Amazon's nascent advertising business could be worth around $20 billion in 2020 as it challenges the likes of Google in search, one analyst told CNBC.

Alex DeGroote, a media analyst at Cenkos Securities, estimates that North America's advertising market represents about 40 percent of the global total or around $200 billion currently. He said Amazon is about $3 billion of this now, amounting to around a 1.5 percent market share. Given the growth DeGroote is expecting by 2020, Amazon could soon have an $8 billion share in North America, and globally that would equate to $20 billion.

Amazon's strength would be in search advertising rather than display, according to DeGroote. This is because of the massive amount of products it lists on its platform. Potential companies that sell through Amazon could pay the e-commerce giant to have their products featured prominently when someone searches for something.

"I think Amazon will do retail search and take Google to the cleaners on retail search using their estate," DeGroote told CNBC in a recent phone interview.

"Slowly over time you will use Amazon as your retail search engine rather than Google."

Google and Facebook currently rake in the majority of digital ad spending globally. Google is expected to have 80 percent of the U.S. search ad market in 2018, according to eMarketer data. But evidence is growing of Amazon's increasing interest in this space. CNBC reported in December that Amazon was looking to step up its ad products in search and video. Martin Sorrell, CEO of WPP, the world's largest advertising firm told CNBC in January, that it was increasing its spending on advertising on Amazon from $200 million in 2017 to $300 million this year.

DeGroote said that Amazon quickly became a giant in the cloud computing space, and the same could happen in advertising.

"This is the company that without anybody realizing became the biggest cloud computing company in the world, advertising is a piece of cake," DeGroote said.

The company has already said itself that it has seen growing ad revenues. In a call with analysts in February after reporting a strong fourth quarter, Amazon CFO Brian Olsavsky, said advertising was a "key contributor" to its North American sales growth.

And Wall Street analysts are bullish on Amazon because of the prospect of a big advertising business. Analysts at Citi Research said in a note earlier this year that the e-commerce titan will be able to compete against Google and Facebook in advertising. Citi increased its price target for Amazon shares from $1,400 to $1,600. And J.P. Morgan said in January that Amazon could become a $1 trillion company with help from advertising.

But Amazon is now in the firing line of President Donald Trump, who claimed that the U.S. Postal Service loses "a fortune" delivering packages for the company. A few days prior, he took another shot at Amazon, saying in a tweet that it pays "little or no taxes to state & local governments."

Amazon shares closed 5.2 percent lower on Monday after Trump's comments.