Amazon {{ m-tag option="price" ticker="AMZN" currency="USD" }} plans to introduce ads on its Prime Video platform in early 2024. Analysts from UBS and Wedbush predict this could bring in between $6.6 billion to $8 billion in incremental revenue.

Revenue Projections: The Numbers Game
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UBS analyst Lloyd Walmsley estimates that showing just three minutes of ads every hour could add $3 billion to Amazon's revenue. Doubling the ad time to six minutes could bring in $6 billion.

Unlike traditional linear TV, which shows about 16 minutes of ads per hour, Amazon aims to have "meaningfully fewer" ads. This strategy allows Amazon to generate significant revenue without overwhelming the viewer.

Subscription Plans: More Choices for Consumers
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Amazon will offer an ad-free plan for an additional $2.99 per month. Prime Video is included in Amazon's Prime membership, costing $14.99 per month or $139 per year. A standalone Prime Video membership is $8.99 per month.

Wedbush analyst Scott Devitt suggests that the impact of a global rollout could be in the range of $6.6 billion to $8.0 billion in incremental revenue. The ad-free offering represents a 20% hike to the monthly Amazon Prime subscription price in the U.S.

Monetization Shift: A New Focus for Amazon
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Amazon has seen a slowdown in Prime adoption, especially in the U.S. This has led the company to shift its focus towards direct monetization through ads, aiming to move the needle on its subscription revenue line.

High Margins: The Profitability Factor
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The incremental margins for Prime Video advertising are expected to be relatively high. Amazon has already paid for much of the content, either owning it outright or having licensed it, reducing incremental costs.

Conclusion:

With Amazon's stock up 50% in 2023, the high incremental margins and potential for significant total revenue make this a compelling opportunity for investors.

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