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Consumer discretionary

Why Amazon.com, Inc. is Unlikely to Hurt Alphabet Inc’s Google Estimates

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The firm’s analysis suggests that the e-tailer’s growth in e-commerce would cause only a modest impact on Google

Without a doubt, Amazon.com, Inc. (NASDAQ:AMZN) has revolutionized the way of shopping from going to a store to making things delivered at the doorstep. Now, Nomura analysts are concerned if the online retailer would pose a threat to Alphabet Inc’s (NASDAQ:GOOGL) owned search business, Google. According to recent studies from a third party, Amazon’s product searches have increased over the past year.

Nomura analyst, Anthony DiClemente said the strong growth of Amazon’s business may create general risks to Google’s retail search business. Firstly, the extent to which the e-tailer captures a great share in overall e-commerce space increases the possibility that the consumers transact and shop exclusively on Amazon platform.

Secondly, it was stated by Mr. DiClemente: “Amazon’s share gains eventually provide Amazon with the potential to expand its search ad business. Given the majority of product searches now begin on Amazon (55% vs 45% a year ago), we believe this is an opportunity for Amazon, even if it’s not a near term priority for management.”

However, Nomura analyst concluded that Amazon’s strong growth would only impact less than two percent of the Google forecast for 2020 revenue, even if the company is able to enhance e-commerce market share and advertising revenue well ahead of their base case estimates. According to the analysis by Mr. DiClemente, Amazon would be able to increase its share in e-commerce market if overall e-commerce revenue grows, which would also help in related search ad revenue growth, causing very little impact to Google.

As of now, Nomura analysts are of the opinion that the e-tailer industry has a worth of $12 billion and expects it to reach $20 billion by 2020. Amazon currently has a market capital of $396.68 billion, and its shares trade at a 209.32 price to earnings ratio.

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