Colin Sebastian, Digital Media & Internet analyst at Wall Street firm Lazard Capital Markets, estimates that Amazon.com's third-party business (3P) will generate nearly $9 billion in gross merchandise sales in 2009, with more than $1 billion in high margin net revenues for the company. This is up from roughly $7 billion in 2008.
Sebastian estimates that Amazon.com's non-retail segments contribute 30% - 40% of operating profits on just 10% of total company revenues, enabling Amazon to lower prices on its own inventory. "While Amazon's margin structure reflects extensive price discounting, we note that there is also room for meaningful margin expansion longer-term given the scale benefits of Amazon's comparatively low fixed cost overhead."
In a research note published on Wednesday, he wrote that after 3P, Amazon's Advertising segment is likely the biggest contributor to "nonretail" operating margins, stepping up competition with Google and comparison shopping engines.
Amazon's highly profitable Advertising segment consists of revenue from online display advertising, Product Ads and service ads (Clickriver). As a result of the significant traffic to Amazon's sites, Amazon sells display advertising on Amazon.com, IMDB.com, and DPreview.com. While careful to ensure that display advertising on its site does not undermine the user experience, Amazon likely realizes relatively high CPMs, especially on its home page. Collectively, we estimate that Amazon's Advertising segment could generate more than $250M in revenues in 2009. We also expect Amazon to continue building out new online advertising revenue channels in order to improve overall page value, customer relevancy and advertiser ROI.
Colin Sebastian, Digital Media & Internet analyst at Wall Street firm Lazard Capital Markets, estimates that Amazon.com's third-party business (3P) will generate nearly $9 billion in gross merchandise sales in 2009, with more than $1 billion in high margin net revenues for the company. This is up from roughly $7 billion in 2008.
