Amazon (NASDAQ: AMZN) likes to play it close to the vest when it comes to disclosing the popularity of its Prime membership program. Most recently, Amazon said it added "tens of millions" of new Prime subscribers in 2016. It also released some new data that helped analysts make a better guess at how many subscribers Amazon has.
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In 2014 and 2015, Amazon gave growth statistics for Prime, but neglected to do so in 2016. That may lead some investors to think Prime isn't growing like it used to.
But a survey from Raymond James earlier this year indicated that, not only is Prime adoption still growing at a rapid pace in the U.S., but it still has plenty of room to keep growing. Forty-four percent of respondents said they have a Prime subscription and plan to keep it. That's up from 33% at the end of 2015. Notably, it's an acceleration from the 9 percentage point increase from 2014 to 2015.
Image source: Amazon.
Still plenty of growth left in the U.S.
In his 2016 letter to shareholders, CEO Jeff Bezos wrote, "We want Prime to be such a good value, you'd be irresponsible not to be a member." Unless 56% of the country are irresponsible consumers (okay, maybe), Prime still has a long way to go before it reaches saturation. As Amazon broadens its scope, it adds more benefits to Prime, which should lead to further adoption of Prime.
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In 2016, Amazon continued to improve Prime. It reached 50 million items eligible for two-day shipping with Prime. It added 18 cities for Prime Now, it's two-hour delivery service. And it added new benefits like Prime Reading (free ebooks), Audible Channels for Prime (original audible series), Twitch Prime (various benefits on Twitch), and more. The latter benefits are aimed at converting loyal members of its subsidiary properties, Audible and Twitch, into Prime members -- a smart strategy.
Amazon also has an opportunity to grow Prime by improving its current benefits. Eighty-eight percent of Prime members said they use it for two-day shipping, the original benefit of Prime. Just 44% say they use it to stream videos, and even fewer use benefits like Prime Music and Prime Reading.
Prime Video has improved tremendously since its launch in 2011, recently winning acclaim for its original series and films. As content improves across all three channels, adoption should climb along with it.
Spinning the flywheel
Amazon sold $80 billion worth of stuff in North America last year, up 25% from 2015. The growth of Prime was certainly a factor in that growth, as it encourages consumers to shop on Amazon versus its competitors, even if it doesn't offer the lowest price. Prime makes Amazon more convenient than it already is. The RBC survey also found that 52% of online shoppers begin their search on Amazon.com, indicating the impact of Prime.
Prime membership also feeds Amazon's fulfilled by Amazon (FBA) program. The more people using Prime and going to Amazon.com to start their product searches, the more third-party merchants want to be in its marketplace. By the same notion, Prime fuels Amazon's advertising business.
As product selection improves, shoppers are more likely to find everything they need on Amazon. From loyal Amazon customers to people who shop around for the perfect product, a growing marketplace of items will help Amazon attract more members to Prime. Prime grows, and the flywheel keeps spinning.
With less than half the country subscribed to Prime, Amazon has a long way to go before the flywheel stops spinning. Investors can expect solid sales growth as Amazon continues to invest in improving the membership program, and more merchants join Amazon's marketplace.
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