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Wells Fargo’s Take On Streaming Is Bullish For Amazon Stock

Amazon could be a winner in the streaming wars, whether or not the industry grows as much as bulls expect. Here is why.

Amazon  (AMZN) - Get, Inc. Report is certainly best known for its e-commerce and cloud infrastructure businesses. But the company has been making inroads into the streaming space for the past several years, standing out as a key player in audio and video.

Today, the Amazon Maven looks at how Wells Fargo’s research team sees the sector, and what role Amazon may play in streaming going forward. We also explain why the bank’s view of the industry could be bullish for Amazon stock.

Figure 1: Prime Video logo.

Figure 1: Prime Video logo.

(Read more from the Amazon Maven: Amazon Stock: Why Wells Fargo Sees 20% Upside)

Amazon: winner in bull and bear cases

Wells Fargo has recently made a few interesting observations about the streaming space. The bank played “good cop, bad cop” and presented both the bull and bear cases for the industry.

Optimists at the research shop see “a market evolution that creates far more consumer dollars for video, just as the U.S. channel universe expanded through cable in the 1990s and [culminated] in a TAM expansion of sevenfold over about 30 years”.

This is a typical scenario of a growing pie, probably at the expense of traditional media (think of the cord cutting phenomenon, for example). It is not hard to see how Amazon would benefit from this market dynamic, as the rising tides should lift all boats.

But here’s the twist: even if the best-case scenario for the streaming industry does not materialize, Amazon can still benefit. This seems to be Wells Fargo’s opinion, expressed in this quote:

“The bear case sees more of a winner-take-most situation. [...] Internet and mobile-based industries tend to favor first movers, who become incumbents and are well capitalized to grow market share. [...] That case sets up well for Netflix [...], Apple and Amazon.”

The argument here is that, should the streaming pie fail to grow as many expect, “the big wigs” in tech and media are likely to push smaller players out. Amazon already has the brand recognition (although maybe less so in streaming) and the cash pile to win the content wars and come out of the inevitable industry consolidation phase as a top player.

Figure 2: US video streaming market share (Q2 2021).

Figure 2: US video streaming market share (Q2 2021).

Does it matter for AMZN stock?

Of course, a separate question is whether being a winner in the streaming space is something that could even benefit Amazon stock and its investors directly. From a P&L perspective, it is a stretch to think that the Prime family of streaming services can put much of a dent on the bottom line, considering the high content costs.

But as we explained a few months ago, streaming can be the hook that incentivizes consumers to sign up for Prime service — and this is good for Amazon’s much larger e-commerce division. Think of former CEO Jeff Bezos’ quote: “when we win a Golden Globe, it helps us to sell more shoes”.

So, one indirect (but arguably more meaningful) way to measure the success of Amazon’s efforts in streaming is to look at the company’s Prime user base. It has been growing at a very healthy pace of double since 2018, to 200 million, which is good news for AMZN bulls.

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What do you expect of Amazon’s streaming ventures: Prime Video, Music, etc.? Will the company be a market leader or laggard? And will it matter for the stock?

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Amazon Maven)