Why Amazon Stock Is Even More Attractive with a $3 Billion Opportunity

If you're keeping an eye on Amazon (NASDAQ: AMZN), you might know that the company has made significant strides in the advertising world. In 2023, Amazon earned $47 billion from third-party sellers who paid to promote their products on its platform. This was a $10 billion increase from 2022 and made up nearly 10% of Amazon's total revenue last year. Pretty impressive!

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However, as growth in this area begins to slow down, Amazon is turning to a new revenue stream—video advertising. Experts believe the television advertising market could bring Amazon $3 billion in revenue, though this might be an understatement.

Amazon Enters TV Advertising

Yes, Amazon is now diving into television advertising. In January, Amazon introduced an ad-supported tier to its Prime streaming service. Prime members who want to avoid these ads can pay an extra $2.99 per month.

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This move wasn’t entirely surprising since many streaming services now offer ad-supported options to deal with rising content costs. What is surprising is how serious Amazon is about this new business. Last week, Amazon made its first appearance at the annual "Upfronts," an event where traditional TV networks like Walt Disney and NBCUniversal pitch and sell commercial time to advertisers. With streaming video ads increasingly taking over traditional cable commercials, Amazon's participation at the event was noteworthy.

But how much revenue can Amazon expect from this new venture? Market research firm Omdia predicts that Prime Video will generate $2 billion in advertising revenue this year. Analysts at TD Cowen are even more optimistic, forecasting $3 billion.

These estimates might still be conservative considering the past and expected growth of the ad-supported streaming market.

Ad-Supported Streaming Is Growing Fast

Cable TV is rapidly losing subscribers. Data from Leichtman Research Group shows that less than half of U.S. households now pay for cable TV, a trend echoed by eMarketer.

Where are these viewers going? The answer is clear: streaming services. Research from Parks Associates shows that the average American household subscribes to 5.6 streaming services. Many of these services include ads to help offset rising subscription costs. Parks Associates notes that half of U.S. households now use ad-supported streaming services regularly, and this number is expected to grow.

Advertisers are following viewers to these new platforms. Coherent Market Insights predicts that the global ad-supported video-on-demand (AVOD) market will more than double by 2030, reaching $71 billion. North America is expected to remain the largest AVOD market, making up nearly 40% of this sector.

Nielsen's data shows that Prime is the second-most-watched ad-supported streaming service in the U.S., right behind Netflix. With 115 million U.S. Prime members, Amazon is in a great position to capture a big share of the growing AVOD market. The same potential exists internationally.

Benefits for Amazon Stock

Considering the massive potential of the global AVOD market, the $3 billion revenue projection might be on the low side. Amazon likely expects to earn much more from its entry into TV advertising.

Even if we take TD Cowen’s $3 billion estimate at face value, there is still a significant indirect benefit for Amazon: retaining its top e-commerce customers. Prime members tend to spend twice as much on Amazon.com as non-Prime members. Making it more affordable to remain a Prime member is a smart move for Amazon, even without the additional ad revenue.

With the added revenue from Prime's advertising business, the case for investing in Amazon stock becomes even stronger. Amazon’s expansion into TV advertising represents a substantial growth opportunity that investors should not ignore.

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