Showdowns in Tech: Let the Ad Wars Begin (AMZN) has disrupted plenty of industries, and now the e-commerce giant is challenging major players in Silicon Valley.

We’re talking about digital advertising, a field long dominated by Alphabet (GOOGL) and Facebook (FB). While those two companies control more than half the market, they’ve shown signs of peaking at the very same time AMZN is taking off.

Last quarter, for instance, the Seattle-based retailer reported a 122 percent increase in its “other” business unit that mostly consists of advertising. GOOGL, on the other hand, expanded just 20 percent and FB saw its growth slow to 33 percent from 42 percent the previous quarter. Forget about AdWords; we’re talking about Ad Wars!

There may be reasons to think the battle will continue. First, Jeff Bezos is only now entering the market in a big way. Second, his company has spent years building a customer base and traffic. Did you know AMZN is the No. 4 web site in the U.S. by traffic – ahead of destinations like Yahoo and Twitter (TWTR)?

Shoppers already use AMZN not just to purchase, but also to find merchandise. Almost a year ago, industry watcher Survata found almost half of product searches (not general web queries) begin on AMZN. Its large, captive audience of customers is ready to spend. That differentiates it from the eyeballs on GOOGL or FB, many of which are doing research or chatting with friends.

Another research firm, Jumpshot, made the interesting point in September that AMZN’s market share has peaked around 80 percent in several merchandise categories. That’s not great news for their product sales, but now Bezos can pivot to hitting those shoppers with ads.

Showdowns graph

Percentage change chart comparing performance of AMZN, GOOGL and FB over the last six months.

Piper Jaffray has been excited about the trend because so much of the new revenue will pass directly to the bottom line – almost like “free money.” Those high margins, estimated to be well over 50 percent, could soon make advertising a bigger profit center than AMZN’s AWS cloud-computing division, according to Piper.

But it’s not all peaches and cream for AMZN. Remember its core retail business is showing signs of market saturation, which explains last quarter’s revenue miss and stock decline. At the same time, 
traditional merchants like Wal-Mart Stores (WMT) and Target (TGT) are starting to compete after building their own e-commerce businesses.

The real story is that for years AMZN, FB and GOOGL co-existed. AMZN sold products, while GOOGL and FB dueled for advertising. Now AMZN is turning into a competitor and starting from a position of strength.

Speaking of positions of strength, that seems to exactly what FB has been losing. Not only has the social-media giant’s traffic shown signs of peaking. It also alienated small business owners by changing its news feed earlier in the year. Meanwhile newer offerings like Stories and Video have yet to fully catch on.

Amid that flux at Mark Zuckerberg’s firm, AMZN may seem like a bastion of stability and reliability for advertisers.

Taking a broader look at these three companies’ finances, investors may notice AMZN has less potential currency risk than FB and GOOGL. More than 60 percent of AMZN’s revenue last quarter came from North America, versus 46 percent for FB and GOOGL. It’s something to bear in mind as weaker global growth weighs on foreign markets.

In conclusion, large 
technology stocks rose in tandem for years as each stuck to its main business. But now as each shows signs of reaching saturation, they’re starting to compete with each other. That could have big implications for profit growth, margins and stock valuations.

This post considered how AMZN may invade the advertising market. Next time, the hunter becomes the prey as Microsoft (MSFT) challenges AMZN’s dominant position in cloud-computing.

This article was written by David Russell, TradeStation Securities, Inc., part of the Monex Group Inc, published on 12/11/2018.

Risk Disclaimer: The information above is of general nature only and does not take into account your objectives, financial situation or investment needs. Prior to you make an investment decision, please make sure you carefully read and fully understand our Financial Services Guide, Terms and Conditions, Privacy Policy and other relevant documents that you can obtain from this website. Monex Securities Australia Pty Ltd (AFSL No. 363972; ABN 84 142 210 179) is the Financial services provider. Financial products trading carries risks and may not be suitable for all investors. You are strongly recommended to seek independent financial advice before making any investment decisions.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!