JPMORGAN: Amazon’s 'fast-growing' ad business is putting pressure on Google (GOOG, GOOGL, AMZN)

Greg Sandoval
Updated
Sundar Pichai
Sundar Pichai

Getty

  • A JPMorgan analyst wrote Monday that Amazon's rapid rise in digital advertising has spooked Google investors. Amazon has become the third-largest digital advertiser, according to eMarketer.

  • Google parent Alphabet's shares are down 8% since the company reported second-quarter earnings in July. 

  • Anm uth said Google is still an attractive stock because of its adoption of artificial intelligence, which is leading to greater innovation at the company's businesses.

  • Also read: This chart shows how Google is transforming from ad company into a diversified tech colossus

Investors are worried that Amazon's burgeoning ad business could cut into Google's business and that is pressuring the latter company's shares, according to Doug Anmuth, an analyst with JPMorgan.

Google parent company Alphabet is expected to release third-quarter earnings on Thursday, and Anmuth noted that Google's stock price is down 9% since it's last earnings report.

He believes that a variety of factors are contributing to the stock's malaise. The shares have been hampered by the privacy concerns that "impacted Facebook," Anmuth wrote in a report. He also mentioned some of the scrutiny into Google's own business practices in the United States and abroad.

But to Anmuth, the most important factor is the competitive threat posed by Amazon's "fast-growing advertising business."

In the second quarter, Amazon reported it's ad business hauled in $2.2 billion in sales. For the year, Amazon will book $4.6 billion in ad revenue, according to predictions from research firm eMarketer. That figure is more than double the amount the company booked last year and accounts for 4.1% of all digital ad spending in the United States, the firm said.

Jeff Bezos
Jeff Bezos

Reuters

Amazon's digital ad platform is now the third largest, behind Google and Facebook. 

Still, Anmuth sees plenty of growth in Google's future.

"We continue to like Google shares as investments," Anmuth wrote, "and the infusion of artificial intelligence and machine learning across (Google's) businesses are driving greater innovation and should help sustain solid growth."

Analysts polled by FactSet expect the company to report third-quarter earnings of $8.27 billion, or $10.42 a share. 

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