It has already been well documented how Amazon (AMZN) has benefited from COVID-19. The shift to e-commerce, a trend that was already in place before the viral outbreak, has accelerated with many people venturing into online shopping for the first time.
But e-commerce is just one of several industries to experience rising demand due to the pandemic. The stay-at-home measures have resulted in a significant boost to the streaming industry.
Needham analyst Laura Martin reminds investors that under Amazon’s all-encompassing umbrella it also operates its own streaming business; Amazon’s Prime service also includes its Netflix equivalent Prime Video.
At the start of 2020, Amazon counted 150 million Prime members (up 50% year-over-year), who on average pay $119 per a year for the service, which works out as ~$10 a month.
According to a recent Diffusion group survey, 80% subscribe mainly for the free shipping service. The remaining 20% use the service for its media offerings such as Prime Video, Twitch and music.
When calculating Amazon’s Prime Video’s valuation, Martin makes use of streaming leader Netflix to compare the two services.
“Amazon Prime's pricing is comparable to NFLX's at $9-10/month and we believe AMZN loses less money than NFLX does on its video subs. We calculate that Amazon Prime is worth nearly $200B, or 12% of AMZN total EV. Stand alone, we calculate that Prime Video is worth nearly $40B, or about 2% of AMZN's total EV, based on NFLX current per sub valuations.”
While Netflix is currently the industry’s undisputed leader, Amazon Prime Video sits in second place. With 150 million Prime subscribers receiving Prime Video as part of the overall package, Martin points out Amazon’s inherent advantage, as cord cutting becomes more prominent over the next few years.
“We believe that Prime Video’s TAM (total addressable market) includes any household that subscribes to Amazon Prime for free shipping. Prime Video’s tie-in with other Prime services brings in new subscribers and lowers churn,” the 5-star analyst opined.
Accordingly, Martin keeps a Buy rating on Amazon shares, alongside a $3,700 price target. What does it mean for investors? Upside of 13.5% from current levels. (To watch Martin’s track record, click here)
Overall, Amazon has received 39 reviews from Wall Street analysts over the last 3 months, and barring 1 Hold rating, the rest rate the stock a Buy. The average price target stays close to Martin’s model, and at $3,725.59, represents possible upside of 14.5% over the next 12 months. (See Amazon stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.