Amazon (AMZN -1.64%) has been in the news for the wrong reasons lately. The technology giant laid off employees as it tries to navigate through a tough demand environment that has led to a recent sharp slowdown in its growth. The e-commerce and cloud computing giant's 2022 revenue increased just 9% to $514 billion, which was a substantial slowdown over 2021's full-year revenue growth of 22%. What's more, Amazon swung to a net loss of $2.7 billion last year from a profit of $33.4 billion in 2021.
While it's clear there were justifications for downsizing its workforce, it was somewhat surprising that job cuts were even seen in the relatively fast-growing Amazon Web Services (AWS) cloud computing business. There are still hopes this segment could win big from the growth in the adoption of generative artificial intelligence (AI) applications, which have generated a lot of hype recently.
Even with the cuts elsewhere, there is another area where Amazon is busy expanding -- Fire TV. Let's see why growing this segment of its business could be a smart move.
Amazon is making a smart move by expanding its Fire TV lineup
Amazon has sold over 200 million Fire TV devices so far and it is making moves to sell even more. The company recently announced that it will introduce three new sizes of the Fire TV Omni QLED series and launched the budget-oriented Fire TV 2 Series for $200. With these launches, Amazon now has smart TVs with screens ranging from 32 inches to 75 inches and across various price points that should help it attract more users. Additionally, Amazon's Fire TVs will now also be available in the U.K., Germany, and Mexico for the first time.
As a result, Amazon will now be able to tap multiple smart TV markets that are growing at a nice clip. In the U.S., for instance, sales of smart TVs are expected to grow at an annual pace of 10.5% through 2028, while Mexico is expected to witness faster annual growth of 15% through 2027. Grand View Research estimates that the global smart TV market could clock 11% annual growth through the end of the decade and generate over $450 billion in revenue.
So, it won't be surprising to see Amazon dive deeper into the smart TV market by expanding its reach into more geographies so that it can corner a bigger chunk of this lucrative pie. However, that's not the only way Amazon could win by expanding its reach in smart TVs.
The advertising business could get a boost
Amazon's advertising business reported solid growth in 2022. The company generated almost $38 billion in revenue from this segment, up 21% over the prior year. It is worth noting that Amazon's advertising business grew at a much faster pace as compared to that of rivals such as Alphabet and Meta Platforms, both of which struggled last year thanks to a slowdown in ad spending.
Amazon's impressive advertising growth gave the company a 7.3% share of the overall market last year. The company's focus on expanding its presence in the smart TV market could help it gain more share over Alphabet and Meta, especially considering that they don't have a presence in the TV hardware space and aren't as strong as Amazon in the connected TV market, either.
In other words, Amazon is setting itself up nicely to take advantage of the growing demand for connected TV (CTV) advertising. Simply said, CTV advertising is a kind of digital advertising that happens on over-the-top (OTT) streaming platforms where subscribers stream on-demand video content. This is a fast-growing niche. In the U.S. alone, CTV ad spending is expected to more than double from $21 billion in 2022 to $43 billion in 2026.
It is also worth noting that ad spending on CTV is increasing at the expense of traditional linear TV advertising. Given that the linear TV advertising market was worth a whopping $175 billion last year, growth in this segment should set up Amazon's advertising business for terrific long-term growth.
Amazon is currently the third-largest player in the CTV ad market with an estimated market share of 12%. It is behind Roku and Samsung, which control 44% and 17% of the CTV ad share, respectively. But Amazon's presence in TV hardware and the popularity of its Prime Video streaming service should give the company's prospects in this fast-growing advertising niche a shot in the arm.
Amazon Prime Video, for instance, is the top OTT streaming platform in the U.S. with a 21% market share. So, if the company manages to get more of its TVs into consumers' homes as compared to Roku and Samsung, the probability of it gaining more share in the CTV ad market should also increase. We have already seen how big the CTV ad market is expected to become in the U.S. and abroad, and a bigger share of this space has the potential to add billions of dollars to Amazon's revenue.
So, investors would do well to keep a tab on Amazon's progress in this niche as the Fire TV business could turn out to be another significant growth driver for this tech giant.
