Bernstein On Amazon Prime: User Adds Generate Profit Of $115/User/Year

While describing the three “dreamy” businesses that Amazon.com, Inc. AMZN has created, CEO Jeff Bezos listed Prime as one of these businesses.

Bernstein’s Carlos Kirjner maintained an Outperform rating on the company, with a price target of $1,000.

Prime Value

Pointing out that there was limited disclosure regarding Prime, Kirjner mentioned that the “dearth of reliable data” made it difficult to put a value on Prime with a high degree of conviction.

However, used a set of “plausible” assumptions, the analyst arrived at a rough estimate, “namely that a Prime conversion generates annual incremental operating profit of approximately $115/user/year.”

Kirjner estimates that at the end of 2015, there were 58-69 million subscribers for Prime, worldwide, including an estimated 8 million users on free trial.

Prime Instant Video

Bernstein’s user survey suggests that Prime Instant Video is the second most valued feature of the Prime service.

“In the US alone, at least ~60 percent of Prime users can be considered monthly users of Amazon Prime Instant Video. In the UK, that number is ~65 percent,” according to the Bernstein report.

In addition, Prime Instant Video usage appears to be meaningfully higher among recent Prime users in the U.S, which supports the management’s arguments that Amazon’s investments in streaming video drive growth for Prime.