How manyAmazon Prime members are there?
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It's one of the most vexing questions for analysts and investors alike. Amazon refuses to make those numbers public so we're left to use the best estimates of research groups, namely RBC Capital Markets and Consumer Intelligence Research Partners (CIRP), which have provided several estimates over the years, using surveys of Amazon customers.
According to CIRP, which released its latest assessment of Amazon Prime members about a month ago, the subscriber service now counts 40 million domestic members who spend on average $1,500 on the site. The most recent numbers from CIRP have now been repeated dozens of times in the financial media, gaining a gospel-like status, but there's a problem. The numbers just don't add up.
A closer look at Prime
In 2014, Amazon brought in about $50 billion in revenue from selling media and merchandise on its website in North America. Considering Canada has a population about 10% the size of the U.S. and shopping patterns between the two countries are fairly similar, we can make an assumption that 10% of that revenue came from north of the border, leaving $45 billion in retail sales from the U.S. for the year.
If CIRP's numbers are to be be believed, then Amazon's current base of Prime subscribers would deliver $60 billion in revenue per year (40,000,000 * $1,500). Clearly, that didn't happen last year, but Amazon did not begin the year with 40 million subscribers. The company itself told us that Prime membership grew by 50% in the U.S, meaning it would have begun with about 27 million Prime members if CIRP's current estimate is correct.
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So, even if we assume that Amazon had an average of 30 million Prime members during 2014, since membership adds are weighted toward the end of the year and the holiday season, Prime members would have still accounted for all of Amazon's domestic sales, based on 30 million customers spending an average of $1,500, which would be impossible.
Acccording to CIRP's research, Prime subscribers make up 45% of Amazon's customers, but spend more than twice as much as non-members, who spend on average $625. Based on those numbers, about two thirds of domestic retail sales last year come from Prime subscribers, or $30 billion, and one third from non-members, or $15 billion.
So how many Prime subscribers are there?
A survey from RBC Capital Markets produced much different results on average spend by Prime subscribers, finding that Prime members spend $538 a year against $320 annually by non-Prime members. The lesson in the vastly different numbers may be that third-party research on Amazon isn't very reliable.
Perhaps then, the best way to estimate the number of Prime subscribers is to go straight to the source itself as Amazon has revealed some useful details. A year ago, Amazon confirmed that it had over 20 million Prime members worldwide. Considering that a majority of Amazon's sales come from the U.S., and the company only offers Prime in a handful of other countries, only two of which have Prime Instant Video, it's safe to assume that the vast majority of Prime members reside in the U.S.
Since Amazon tends to announce figures when it reaches major milestones, I would guess that Amazon's statement that it has at least 20 million member means that it has between 20 and 25 million, since 25 million would be the next headline figure to brag about.
So, it seems fair to conclude that Amazon had around 20 million domestic Prime subscribers at the beginning of the 2014. After 50% growth last year, it would now have 30 million domestic subscribers. Pinning down a number on average spend is a little trickier, but if CIRP's figures are correct that 45% of Amazon's customers are Prime members that contribute twice the revenue of non-Prime members then that would mean Prime subscribers spend an average of $1,000 a year.
Do we need an exact figure?
We don't need to know how many Amazon subscribers there are to get a sense of its impact. The program is clearly driving customer loyalty and increased spending on the website, and with its recent win in the Golden Globes, Amazon has proven it's no slouch in original video either, which is only likely to drive further Prime membership. Factor in its 53% growth rate and single-digit churn, and Prime's prospects may be the best reason to bet on Amazon's future.
The article Sorry, but CIRP's Amazon Prime Numbers Are Too Good To Be True originally appeared on Fool.com.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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