Amazon is emerging as a force in digital ads, but here's why we remain cautious on the stock

Published Wed, Jan 11 20232:27 PM EST

Amazon 's (AMZN) advertising business is emerging as a primary competitor to Alphabet (GOOGL) and Meta Platform s (META), according to a new Wall Street survey. While encouraged by the growth in its ad business, we still don't think the tech and e-commerce giant has done enough to cut costs to protect margins. What Wall Street says Cowen released its 11 th annual ad buyer survey Wednesday and found that Amazon's digital advertising business is expected to grow its market share in 2023 and 2024. In the survey, 50 senior U.S. ad buyers said they anticipate Amazon's ad market share to rise from 6% in 2022 to 7% in 2024. Moreover, 40% of ad buyers believe Amazon will "emerge as a meaningful ad platform alongside GOOG and META." That was up from 35% in 2022. At the same time, 18% of advertisers said Alphabet and Meta (like Amazon are Club holdings) will account for most of their digital ad budget, down from 26% from the prior year's survey. In the group of existing customers under Amazon's advertising services, 54% of respondents said they plan to increase ad spend in 2023, up from 47% last year. However, due to gathering macroeconomic headwinds, Cowen lowered its 2023 estimates for total Amazon revenue to $555 billion, down from its prior $560 billion. The analysts cited lower revenue from the company's cloud business, Amazon Web Services (AWS). Cowen forecasted AWS revenue growth of 16% year-over-year in 2023 versus its original growth estimates of 22%. Cowen analysts dropped Amazon's price target to $140 per share from $160. They have an outperform (buy) rating on the stock. Shares of Amazon rallied 4.5% on Wednesday, on a four-session winning streak alongside the tech-heavy Nasdaq. Certainly, a change of pace to start the new year. The stock lost about half of its value in 2022. The survey comes as Amazon's overall sales have been weakening. While advertising services were strong in its latest quarter, AWS slowed as businesses were carefully controlling costs. Above all, the company's overstaffing poses a real problem. Amazon CEO Andy Jassy's recent move to let go of 18,000 jobs is not nearly enough as Jim Cramer has been pointing out. Amazon will release four