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Synovus Fund Manager: Avertising is the key to Amazon's growth




Amazon is about to become the second US corporation to ever reach a $ 1 trillion market capitalization, but if you ask for Daniel Morgan, then there's plenty of room for it.

The e-commerce giant's cloud business, Amazon Web Services, is growing rapidly, and this growth will continue, said Morgan, Senior Portfolio Manager at Synovus Trust, an investment firm that owns Amazon shares. Meanwhile, he said, Amazon has a kind of under-the-radar business that already earns a lot of money, this year is more than twice the size and has a lot of potential – advertising.

"They're so well positioned now," Morgan said.

Amazon's shares closed Thursday's regular trading at $ 2,002.38, representing a market capitalization of $ 977 billion. The stock will need to go up to just over $ 2,050 a share to reach a $ 1

trillion valuation given the current number of shares. Morgan does not think it will reach that level this week, but he thinks it will not cost much to get there. No matter, he's in the long run, partly because of AWS. Amazon's cloud business holds around 30% of the market for the core cloud computing market, ahead of its competitors, including Microsoft and IBM.

The cloud and advertising fuel Amazon's growth

AWS continues to grow rapidly; In the second quarter, sales increased by 49% compared to the same period of the previous year. And that could stay that way in the years to come; Morgan estimates that the cloud computing market as a whole will grow at an annual rate of 33% by 2020.

"This cloud phenomenon is huge for me," he said.

But many Amazon investors are focusing on AWS. What they do not seem to pay much attention to is Amazon's advertising business, Morgan said.

The company's "other" revenues, which are largely advertising, totaled $ 2.2 billion in the second quarter, an increase of 132 percent over the same period last year. For this fiscal year, Amazon's other revenue was expected to reach $ 10.3 billion, or about 8 to 10 percent of its total revenue.

And that could only be the beginning of his rapid growth. For Morgan, Amazon has the potential to be the third major player in digital advertising alongside Google and Facebook. For him, that's what Amazon has for it:

  • It has data that's valuable to advertisers. Google knows what you're looking for, and Facebook knows your friends and interests, but Amazon knows what you buy and buy, Morgan noted.
  • It has the resources to compete. Amazon has the money and reach to keep pace with the Big Two of digital advertising, he said.
  • It has its own streaming video network. Amazon Prime Video Service has millions of users who regularly look to watch broadcasts like "The Man in the High Castle" and "The Marvelous Mrs. Maisel". The company knows what people see, who they are and what they want to buy – data that may drive a profitable advertising business if Amazon can figure out how it works without alienating users who have become used to commercialization Morgan.
  • It is the leader in the market for smart speakers. Amazon Echo Speakers are now in millions of homes and its Alexa Assistant, which underlies them, could eventually be in many more, now that other companies are using it in their own devices. This ability to reach as many consumers along with the data that Amazon has about their shopping habits could make audio ads distributed through Alexa another great opportunity for the company, he said.

"That's something many people do not talk about," he said, referring to the Amazon advertising business. "It's under the weed."

But, he went on, the ad business could be "another gold mine".


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