Could Amazon Be The Dark Horse In The Digital Ad Revenue Race?

Following meetings with several key social and search ad agencies, Cowen said in a note Thursday overall trends seem to bode well for Facebook Inc FB, Alphabet Inc GOOGLGOOG and Amazon.com, Inc. AMZN in the second half of 2017 and into 2018.

Specifically, the firm said Amazon is considered to be a potential gamechanger in digital advertising, given that it has been the most discussed topic outside of measurement among its experts.

The firm clarified that the executives tend to service the direct response advertising channel.

Cowen has Outperform ratings on all the three stocks, namely Facebook, Google and Amazon, with its price targets being $195, $1,075 and $1,125, respectively.

Analysts John Blackledge, Nick Yako and Thomas Champion view that ad demand remained strong among DR advertisers, particularly Dynamic Product Ads and Video, which are both seeing rapid growth.

Dynamics Of Dynamic Product Ads

The analysts noted that Facebook's Dynamic Product Ads, which connect directly into a retailers' catalog are proving highly effective ad formats and also removing friction for advertisers, making it easier to maintain. Therefore, the analysts think it could lead to increased spending in the future.

Cowen also noted that Facebook places pixels on advertisers' properties in order to gather the relevant information to serve a more targeted highly effective ad. Given the success of the Dynamic Products Ads, the firm said Facebook is trying to take the ad format into more verticals, including travel, real estate and auto.

The firm also noted that Facebook is now using the new innovative ad format to cross/up sell consumers, while also using it as a retargeting tool. Giving example, Cowen noted if Facebook knows a user is booked to a flight to the New York City in August, it could serve the user specific hotels available during his/her visit.

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Video Ads, A Huge Opportunity

Cowen also said a lot of brand ad dollars are flowing toward Facebook video ads, especially, Instagram Stories, which has evolved as a huge opportunity for brand advertisers. The firm noted that the experts touched upon Facebook's new collection ad format, which combines both video and Dynamic ads.

"This underscores a trend they are seeing in terms of the convergence/intersection of Brand and DR advertising, a trend they will continue to watch closely," the firm said.

The experts compared FB Collection Ads to YouTube's Shoppable ads, the firm noted.

Amazon Expands The Size Of Digital Advertising Market

Delving on Amazon, Cowen said its recent advertising efforts are attracting interest from brands/advertisers, particularly CPG companies. This interest, according to the firm, is not for necessarily their branding ad budgets, but more so the co-op budget for end caps in retail locations.

Therefore, the firm noted that the experts believe Amazon has the potential to expand the size of the digital advertising pie overall, while not necessarily capturing share from Google or Facebook.