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Amazon.com Inc. (NASDAQ:AMZN) Cash Cow Prime Is Ballooning

Amazon.com Inc Prime Now (AMZN)

Amazon.com Inc. has received a spate of positive analyst views as Wall Street hails its ability to unlock growth. The shares of Amazon have jumped by more than 60% in the year-to-date period and the stock has climbed 7% over the last three days. Analysts are linking the current and future growth in the stock to the success of its Amazon Prime service.

Amazon.com Inc Prime Now (AMZN)

Brian Nowak of Morgan Stanley has maintained an “Overweight” rating on Amazon while setting a $740 price target on the stock. Based on insights from Morgan Stanley’s AlphaWise e-commerce data, Nowak believes that Amazon has a bright outlook ahead. The data shows that Prime is seeing speedy growth in its global user base and Nowak expects the growth to translate into “continued higher retail gross profit dollars per customer.”

Amazon Prime is key

Amazon Prime has been a key cash driver for the firm because Prime users pay to use the service and they provide Amazon with cashflow from their annual fees. More so, data suggest that Prime members spend about 20% more than non-prime users.

The income from Prime has been the factor behind the positive surprises that Amazon has been seeing in its retail gross profit per dollar/customer growth. In fact, the gross profit per dollar/customer at the firm has been on a constant increase in the last three quarters and it has a 19% year-over-year growth.

Nowak says, “This Prime traction creates more sustainability for AMZN’s retail gross profit per customer growth…and a larger margin of safety for AMZN to continue delivering higher company-wide profitability and Street beats,”

Launching Prime in new markets

Amazon understands the part that Prime plays in its revenue and the firm is launching Prime in new markets. The Morgan Stanley report notes that “The US remains the largest market, but we are particularly encouraged by Germany and the UK where Prime consumer awareness is rising and churn is falling”.

Amazon is planning to launch its Prime Video Service in Japan next month. There are signs that the Japanese and future Asian launch will propel Amazon to new levels of growth. For one, the service will remain priced at ¥3900 (about $32) a year, compared with $99 a year in the US.

Despite the low price point, Amazon says “Prime Video will offer thousands of popular Japanese and U.S. movies and TV shows, anime series, music concerts and variety shows, plus Amazon’s own award-winning originals and new Japanese originals.”

Analysts know the value that Prime brings to the table, this fact is not lost on Amazon. The firm is ready to milk Prime for all the value it can make to the top and bottom lines.

 

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.