Amazon's Ad Business Hits Milestone: Is it the Next Revenue Pillar?

Core Insights - Amazon's advertising business achieved a record 9.36% of total revenues in Q2 2025, amounting to $15.69 billion, reflecting a 23% year-over-year growth driven by AI optimization and an expanding digital advertising market [1][9] Group 1: Advertising Growth Drivers - The advertising segment generates revenue through sponsored placements, display and video ads, enhancing product visibility and retail transactions, which also increases sales and third-party seller fees [2] - Amazon's ad ecosystem includes over 300 million ad-supported users in the U.S., leveraging platforms like retail, Prime Video, Twitch, and Fire TV, with partnerships such as Roku providing access to 80 million CTV households [3] - The Amazon Demand-Side Platform (DSP) utilizes proprietary data to deliver measurable results, contributing to the company's confidence in sustaining ad-driven growth [4] Group 2: Competitive Landscape - Alphabet Inc. leads the digital advertising space with a 10.4% year-over-year revenue increase to $71.34 billion in Q2 2025, supported by innovations and a strong user base [5] - Meta Platforms reported a 21.1% increase in ad revenues to $46.6 billion in Q2 2025, with AI integration enhancing campaign performance despite facing privacy challenges [6] Group 3: Financial Performance and Valuation - Amazon's stock has increased by 2.2% year-to-date, underperforming compared to the Zacks Internet – Commerce industry and the Zacks Retail-Wholesale sector [7] - The forward 12-month Price/Sales ratio for Amazon is 3.15X, higher than the industry's 2.27X, indicating a relatively higher valuation [10] - The Zacks Consensus Estimate for Amazon's 2025 earnings is $6.70 per share, reflecting a 21.16% increase from the previous year [13]