Amazon advertising threatens Google, facebook

Amazon's advertising business is growing fast enough that it threatens the dominance of Google and Facebook, according to BMO Capital Markets.

The company's ad business is "gaining significant momentum" and will take market share from Google, Facebook, and others, BMO's Daniel Salmon said in a note out Tuesday morning. Salmon upped his price target on Amazon to $1,200 from $900. Amazon closed Monday at $891.51. 

The advertising segment of e-commerce giant Amazon's business model has the potential to grow sales by 65 percent in 2017, reaching $3.5 billion, Salmon added. "A key point of differentiation for Amazon [from competitors] is the massive amount of consumer purchase data it possesses."

"While Google knows what people are searching for and Facebook knows what people are interested in and who they are connected to, Amazon knows the specific products that customers are purchasing and how frequently they are purchasing these products."

BMO also downgraded Google's parent company — Alphabet — to market perform from outperform on Monday. Those shares dropped more than one percent in premarket trade.

Amazon was little changed in premarket trade on Tuesday's news, after hitting an all-time intraday high of $893.49 on Monday. BMO Capital maintains an outperform rating on the stock.

So it’s obvious Jeff Bezos’ e-commerce giant will grow its share of overall digital ad spending as it increases its number of Web searches. More and more, shoppers are taking to Amazon to search for deals on everything from Cinnamon Toast cereal to toasters — and ad dollars are following those consumers.

Salmon’s report helped send Amazon shares up 1.7 percent on Tuesday, to $906.83. Google-owner Alphabet saw its shares slip nearly $4, to $834.57.

Amazon’s ad business will generate $3.5 billion this year, and will grow 63 percent, to $5.7 billion, next year, Salmon predicted. By comparison, the entire TV industry books around $70 billion per year.

Salmon cites ad holding company WPP Group’s decision to open an office in Amazon’s hometown of Seattle as evidence that spending will grow. WPP Chief Executive Martin Sorrell said in early March at a mobile conference, “The threat to Google, in my view, is Amazon. It’s Amazon and search on Amazon that is potentially the biggest threat . . . Amazon’s tentacles are spreading rapidly into all areas.”

Salmon put a new price target of $1,200 on Amazon shares — while he downgraded Alphabet in a separate report. A stunning 55 percent of US consumers begin searching for products on Amazon, noted Salmon.

Amazon’s voice-activated Alexa home assistant could provide yet more growth in the long term as advertisers pay to have their products touted when customers request searches, Salmon said.

Amazon is “the biggest competitive headwind [for Google] since Facebook,” he said.