Goldman’s top large-cap internet pick for 2024 is Amazon , which the firm expects will explore new growth avenues by capitalizing on evolving e-commerce trends and artificial intelligence advancements. According to analysts led by Eric Sheridan, several themes can drive Amazon higher in the next 12 months, including: Rising “utility nature” of Amazon Prime users’ shopping habits Increased service offerings for third-party sellers on/off platform Cross-platform narratives building across advertising and media consumption Potential for margin self-repair in coming years, from normalization of e-commerce margins in North America as well as improved International margins Underappreciated secular growth opportunity for Amazon Web Services, especially as the cloud computing landscape evolves alongside artificial intelligence Notably, Amazon is a key beneficiary of a trend that Goldman says is the “blurring of lines between digital advertising and eCommerce business models over the past several years,” with retail media gaining traction. As part of this growth, traditional e-commerce platforms offer more advertising and digital advertising platforms continue to innovate with social commerce. Amazon has jumped more than 73% this year, outperforming the broader market by a wide margin. The stock’s outsized gains have been fueled by acceleration in the company’s cloud business Amazon Web Services and digital advertising segments, its cost discipline efforts after its pandemic-era expansion as well as its dominance in the e-commerce market. Amazon exceeded analyst expectations in the third quarter, reporting revenue jumped 13% during the period. Retail media networks are an advertising platform on which retailers sell ad space on their digital channels to third-party brands, in an effort to market brands or products to consumers close to when they intend to make a purchase. In November, Amazon announced a partnership with Meta to create a new feature that allows individuals to link Facebook, Instagram and Amazon accounts, enabling users to shop through social media feeds and check out with their saved Amazon payment and shipping information — all without ever leaving Meta-owned apps. “While the new feature will be rolled out on a gradual basis (starting in the U.S.), we expect this partnership to not only drive transaction growth for Amazon but also to present a significant opportunity for Meta as it provides advertisers with best-in-class measurement and attribution signals,” Sheridan wrote in a Monday note. Amazon also announced a similar partnership with Snap in November and with Pinterest in April. The outsized growth of retail media in recent years is another opportunity for Amazon, according to Goldman. “We still see a long runway for AMZN to continue to grow its advertising business,” Sheridan wrote. “We see AMZN as well-positioned against this theme given its global user base, scaled [first party] data, diverse offering of media/digital platforms (eCommerce, streaming media incl. [advertising-based video on demand] & live sports, Twitch, etc.) and development of its ad tech stack over the past 5+ years.” AMZN YTD mountain Amazon stock. The analyst added that Amazon is planning to include ads on its Prime Video platform starting in early 2024 in the U.S., U.K., Germany and Canada, which he expects will be a tailwind to overall advertising revenue as well as an additional opportunity for Amazon to attract a larger and more diverse base of advertisers. Continued expansion of on-demand delivery beyond restaurant meals and towards other offerings, such as grocery and alcohol, is another way Amazon is expected to capitalize on e-commerce trends, where the consumer increasingly wants convenience, choice and speed. Additionally, Goldman expects AI ad machine learning tools to be increasingly employed in Amazon’s cloud businesses, which should benefit growth and profit margins. “We have estimated that AI Services contribution to AWS revenue has totaled less than $1bn in 2023, but [is] increasing in contribution through the year,” Sheridan wrote.
