Amazon Ad Revenue 'Likely to be Small' - Morgan Stanley

© Reuters. Amazon (AMZN) Ad Revenue 'Likely to be Small' - Morgan Stanley

By Sam Boughedda

With Amazon (NASDAQ:AMZN) increasing its outlay on content such as the NFL and Lord of the Rings, a Morgan Stanley (NYSE:MS) analyst looked into the tech giant's strategy and content spend in a note to clients Monday.

The analyst currently has an Overweight rating and a $175 price target on Amazon.

He titled the note "The Math and Strategy of The NFL and Lord of the Rings," and told investors Amazon's $16 billion of content spending continues to grow with the additions of the NFL and Lord of the Rings and scaling video spend is "timely/strategic."

"AMZN's investment in video content continues to grow (estimated to reach ~$16bn/$20bn of content spend in '22/'23... vs ~$14bn/$15bn at NFLX) with a couple significant step-ups coming in 2H:22... namely the addition of the NFL's Thursday Night Football and the September 2nd launch date of the Lord of the Rings (LoTR): The Rings of Power," wrote the analyst.

Morgan Stanley expects the NFL costs and LoTR costs to be amortized across their respective economic lives. They size the amortized NFL costs (both rights and production costs) at "$820mn/$860mn in '22’/23 with the costs incurred fully in 3Q and 4Q based on the NFL's season schedule (on a per game shown basis)."

AMZN is offering advertisers a myriad of ways to advertise around Thursday Night Football, with sponsorships giving advertisers the opportunity to promote their brand during pre-game, pre-kick, halftime and postgame shows, as well as streaming CTV ads which brands can use to reach fans throughout the game on Prime Video and Twitch," wrote the analyst. "Our Media team previously estimated that Fox generated ~$30mn in ad revenue per game with Thursday Night Football with AMZN showing 16 games (15 regular season, 1 preseason) that would result in ~$450mn+ of incremental advertising revenue per season, or ~120bps of AMZN's total ~$38bn '22 ad revenue."

He concluded that while the ad revenue could be slightly higher if Amazon successfully builds up more performance-based ad units linked to transactions on an absolute basis, the incremental ad revenue is likely to be small.