Amazon (NASDAQ: AMZN) announced on September 22 that it will add limited advertisements to its Prime Video content next year. It will begin displaying advertisements in its content in the U.S., UK, Germany, and Canada in early 2024. The same will be introduced in the rest of the countries in which it operates later in the year.
Amazon even plans to offer ad-free content to its U.S. subscribers for a fee of $2.99 per month. Pricing for other countries has not yet been revealed. Amazon is currently trading at $129.46 as of October 2.
So far in 2023, the stock has gained 54%, outperforming the 12% increase in the broader market.
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Will this addition boost Amazon’s revenue?
In 2022, Amazon generated $37.7 billion in advertising revenue. According to Statista, this figure could rise to $71 billion by 2027. Analysts estimate Amazon’s total revenue could jump from $514 billion in 2022 to $601 billion in 2024.
Besides a wide range of video content, Amazon Prime also provides its users with exclusive Amazon deals, free gaming benefits on Prime Gaming, ad-free music, and a variety of other features. It is unlikely that adding ads will force users to quit Prime.
Analysts believe this feature will further enable Amazon to innovate its ad content on Prime to promote its retail business and increase revenue and profit margins.
By 2028, the global TV advertising market could be worth $285 billion, growing at a compounded rate of 3.7%. Amazon stands to benefit from this expansion.
Moreover, Amazon has also quickly shifted its focus to the rapidly growing artificial intelligence (AI) industry. On September 25, it announced a $4 billion investment in AI start-up Anthropic, allowing the company to use generative AI tools to adapt to changing trends in the tech sector.
The target price seems achievable
This ad streaming service has the potential to increase Amazon’s revenue and earnings. Tipranks rates Amazon stock a “strong Buy,” with a 36% upside potential based on its average target price of $176.02 over the next 12 months.
With Amazon’s attempt to incorporate generative AI and ongoing efforts to increase revenue, the analysts’ target price does not appear to be that far-fetched.
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