How Amazon Prime Could Reach 100 Million Members by 2018
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As an investor interested in Amazon.com (NASDAQ: AMZN) stock, you probably already know the importance of Prime to the company. It has been well documented that Prime members spend more on Amazon than non-members, and the company is doing just about everything it can to grow its Prime membership base.
Morgan Stanley analyst Brian Nowak estimates Amazon already has 60 million Prime members worldwide, 41 million of which live in the United States.An expansion into new countries and ongoing investment in Prime's Instant Video benefits, in particular, could boost its member count to 100 million by the end of 2018.
Current expansion plans for Prime
Amazon already offers Prime (in some form) in seven foreign countries. But not all Prime memberships are created equal. Prime in Japan, for example, includes the option to schedule the exact time of their delivery, while Prime members in France lack access to Instant Video and have to pay a nominal $0.01 fee for shipping.
But Amazon is planning a significant expansion to Prime Instant Video, bringing the streaming service to France, Italy, and Spain by the end of the year. Amazon is also planning to launch Prime, including Prime Instant Video, in India.
Prime Video is one of the keys to driving adoption of the service. During the fourth quarter 2015 earnings call, CFO Brian Olsavsky told analysts, "When Prime Video is used by our Prime members, it drives adoption and retention, higher free trial conversion rates, and higher renewal rates for subscribers."
As such, the company is focused on growing the number of hours its subscribers spend streaming video. During the fourth quarter last year, Prime members spent twice as much time watching Amazon's streaming service than the year before.
Ramping up spending on Instant Video
During the second quarter 2016 earnings call, Olsavsky said, "We're doubling the investment rate in the second half of the year versus last year's second half, and we're tripling the Amazon Originals content."
Original content will become increasingly important for Amazon as it expands worldwide since it can easily acquire the global rights for it. Netflix(NASDAQ: NFLX) has adopted a similar strategy to support its global expansion as well. Negotiating streaming rights by region can be cumbersome and costly as various mediums increasingly compete for quality content.
Competing with Netflix
Amazon will have to compete with Netflix in order for its plans to expand Prime Video globally to pay off. The good news is it has already proven that it is capable of growing a customer base in the U.S. despite Netflix's huge presence in the country.
At the end of last quarter, Netflix reported 47.1 domestic streaming subscribers. That's only slightly more than Nowak's domestic Prime subscriber estimate of 41 million. Netflix has a significant lead on Amazon internationally, however. It sports over 36 million international subscribers, and it has a head start on Amazon in nearly every country.
Netflix is investing in local programming for several key countries, including France, Germany, Spain, and Japan -- four of the markets where Amazon currently operates Prime. That ought to compel Amazon to do the same, and indeed, it's already developing original content in Japan.
While Amazon will have to battle Netflix in its various expansions, Prime membership growth has plenty of opportunity to reach 100 million by the end of 2018.
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Adam Levy owns shares of Amazon.com. The Motley Fool owns shares of and recommends Amazon.com and Netflix. 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.
