, Inc. Rides High On Prime Subscriptions: Munster

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Amazon shares moved higher today following a report that growth of its Prime service remains strong despite the large user base it has attracted. The report is interesting as it takes a different angle than most of the bullish reports we’ve seen, which tend to focus on growth in the cloud segment, Amazon Web Services.

Amazon Prime estimated to have 60 million users

In a report dated Jan. 20, Piper Jaffray analyst Gene Munster said interest in Amazon’s Prime service appears to remain strong even though he estimates that it already has about 60 million users. He cited his index of Google search terms for this view, adding that interest appeared to be especially strong during September and December.

He notes that currently the online retailer doesn’t disclose much data regarding its Prime service, although we do know that in the third week of December 2013, it added 1 million subscribers. Also in 2014, the company recorded a 53% growth rate in paid membership, and during the holidays in 2014, over 10 million shoppers tried Prime. Further, Amazon added 3 million subscribers in the third week of December, which the analyst pointed out was triple compared to two years ago.

Over the 2015 holiday season, he believes Amazon added between 8 million and 9 million Prime subscribers, which beat his expectation of between 6 million and 7 million. And despite the large user base, the online retailer managed strong growth in Prime that came up only a little short of the 10 million subscribers that were added in December 2014.

Munster estimates that Amazon Prime drove about $800 million in incremental free cash flow during the fourth quarter, which would make it about 13% of the total free cash flow generated. In the long term, he expects the large Prime user base to boost units by more than 20% in the coming years, which would be greater than the current expectations for unit growth in the high teens.

Amazon to report earnings next week

Amazon joins several other major tech companies in reporting its December quarter earnings results on Jan. 28. The consensus estimates are earnings of $1.64 per share and $35.99 billion in revenue for the fourth fiscal quarter. Munster is expecting revenue of $35.645 billion and earnings of $1.74 per share. He continues to rate the company’s stock at Overweight with a $800 price target.

Amazon shares were up 2.4% at $585.50 per share as of this writing and still rising. Analysts expect the company’s stock to stay hot this year after going on a huge tear last year.

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