This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why Wall Street Loves Amazon Prime

Stock quotes in this article: AMZN, NFLX

NEW YORK (TheStreet) -- Though some consumers may not be happy about Amazon (AMZN) raising the cost of its Prime shipping service, Wall Street is loving it.

Pacific Crest Securities analyst Chad Bartley, who rates Amazon "outperform" with a $460 price target, believes that Prime is going to be a major initiative for the company in the years to come, given the value proposition of Prime, and what's to come in the future for the service. Bartley believes that Amazon reached 21.5 million Prime members at the end of 2013, which would represent 47% year-over-year growth. That estimate would be an acceleration from 2012, when Bartley believes Amazon saw Prime members rise 46%.

According to a survey conducted by Bartley, most Prime members have joined the service in the last two years. Some 30% of Prime members haved subscribed to the service for less than one year, 34% for 1 to 2 years, 21% for 2 to 3 years, and 15% for three or more years, he said. Amazon started the free, two-day shipping and digital content service in 2005, when Bartley estimates it had just 600,000 subscribers.

ChannelAdvisor recently estimated that Amazon has around 23 million Prime members, which could mean that Amazon could end the first-quarter with around 23.75 million subscribers.

It's not known exactly how many Prime members Amazon has, but Macquarie analyst Ben Schacter recently confirmed with Amazon that it had more than 20 million members.

Shares of Amazon were higher in Friday pre-market trading, gaining 0.8% to $374.50.

Amazon's Prime members are the company's most valuable, with most of them spending a good chunk of money, buying goods and services from the Seattle-based online retailer. "For example, 15% of members who have subscribed for less than one year reported spending more than $1,000 a year, compared to 82% of members that have subscribed for three or more years," Bartley wrote in his note.

Though an extra $20 a year for two-day shipping and an enormous amount of television shows and movies may not seem like much, especially when compared to Netflix's (NFLX) $7.99-a-month streaming service, Bartley believes there will be some churn in the service. This, he noted, will be in the "middle to high teens, which would make the price increase revenue accretive to Amazon. Churn of lower-spending members and higher Prime pricing should also help profit margins."

In comparison, Netflix has over 33 million streaming subscribers, but does not offer any benefits to customers outside of content, whereas Amazon Prime offers two-day shipping for goods.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,905.67 -137.23 -0.81%
S&P 500 1,955.61 -16.68 -0.85%
NASDAQ 4,442.1840 -51.2060 -1.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs