AMZN Stock: Why Amazon.com, Inc. Is Primed For Growth This Holiday Season

  • Amazon is off to a good start this holiday season. The recent launch of The Grand Tour has seen huge success.
  • Amazon is in talks with major sports leagues to live telecast sporting events.
  • Amazon expects its video content will boost prime subscription which can be a growth driver for Amazon stock.

Amazon (NSDQ:AMZN) is off to a good start this holiday season, with many analysts expecting it to report record sales during Black Friday and Cyber Monday. According to Fortune, Mobile orders on Amazon on this Thanksgiving day are likely to surpass Thanksgiving day and Cyber Monday orders placed last year. The Seattle-based online retailer is also busy on the M&A front. The company is reportedly in the process of acquiring Souq.com, also known as the "Amazon of the middle east". But it is not only on the eCommerce front that Amazon is making its moves. Amazon is also targeting the sports live streaming and video content market, which again is likely to boost its eCommerce sales.

On A Grand Tour

Amazon started the holiday season with the launch of The Grand Tour. The Grand Tour is an Amazon original show hosted by Jeremy Clarkson, Richard Hammond, and James May, formerly the host of the highly watched Top Gear . Top Gear was about the latest automobiles and their performance meeting the claims. The show had an 8.8 rating on IMDB.  And by the looks of it, the three hosts are continuing their stellar performance in their new avatar. While it is too early to call The Grand Tour a hit show, it did get rave reviews for its first few episodes. The Grand Tour currently enjoys a 9.0 rating on IMDB. (Also Read: Why Amazon.com Inc. (AMZN) Stock Is A Strong Buy Going Into The Holiday Season?)

Betting On Sports

Amazon is also showing a keen interest in live streaming of sporting events. According to a recent post on Wall Street Journal, the company is in talks with major sports leagues including MLB, NFL and NBA to buy their live streaming rights. Amazon has also approached other sports leagues including World Surf League, Major League Lacrosse and the National Lacrosse League.

This is not all, Amazon has also reportedly approached the traditional TV networks about the broadcasting rights they are not using. It has approached Univision Communications Inc for its Mexican Soccer League rights and Disney for Russian Hockey and other "leftovers" which it doesn't air. The company is also competing with ESPN, Twitter and Facebook for the live streaming rights for the Indian Premier League, one of the largest sporting events in India with a viewership much higher than that of MLB, NFL and NBA. Amazon is planning to offer these events as an exclusive premium bundle to Prime subscribers.

Driving Towards Prime

The main reason for Amazon aggressively spending on original content is to drive its prime subscription numbers. The Grand Tour is only available to Prime subscribers. And this strategy might be already working. Amazon reported that on 18th November - the day The Grand Tour debuted - the company sold a record number of Amazon Prime subscriptions, topping all other days, save the Prime Day super-sales. While the company didn't provide any exact number, Amazon said that  “millions” of viewers streamed the show in the countries where it is currently available - US, UK, Germany, Austria, and Japan. Riding on this success the company plans to launch the show in 200 countries by December.

The same is the reasoning behind bidding for live streaming of sporting events. Sports has a passionate following, more than any other events. While more and more people are doing away with their cable connections and switching on to streaming services like Amazon Prime, many are still forced to keep their relatively pricey cable bundles only for watching their favorite sports. The streaming services offer a variety of shows and movies, but not much of sports content is available. By acquiring the rights to stream these sporting events, Amazon is hoping to onboard these fans onto its prime subscription.

Why Prime Is A Big Deal For Amazon?

Prime membership offers a variety of services to the subscribers including free two-day shipping, free ebook rentals and access to Amazon Prime video service which has thousands of titles in its library. Amazon offers Prime subscription in two formats: an annual one-time charge of $99 or 12 monthly installments of $10.99. Amazon recently announced that it had crossed 50 million in subscription numbers, netting Amazon almost $5 billion in subscription fees. But the subscription fee is not the only benefit that Amazon is getting.

The free delivery and other offers entice the subscribers to buy more products from Amazon instead of going to other eCommerce channels or retail stores. According to a latest survey Prime members tend to spend more on Amazon than non-prime members. In a survey, it was found that Prime members spend an average of $1,200 on the online shopping platform, compared to $500 spent by non-prime members. That's a differential of 2.4x. Higher Prime numbers will lead to higher eCommerce sales. (Also Read: Is Amazon.com, Inc. (AMZN) Stock Headed For A Rally?)

Conclusion

Amazon opened the holiday season by launching The Grand Tour, an Amazon original show. Amazon is also reportedly in talks with major sports league to live stream major sporting events. The main purpose behind this move is to drive up its subscription numbers. The trick may be working for Amazon as the company sold a record number of Prime subscriptions on the day of the launch of The Grand Tour. Prime subscriptions not only bring in the subscription fees but also provides a catchment area for Amazon. According to a survey, a prime subscriber tends to spend 2.4x a non-prime subscriber on the online platform. However, Amazon should also be mindful of its content costs, which are already compressing the margins of other streaming services such as Netflix and Hulu. On the whole, rising Prime subscriptions will drive Amazon stock higher.

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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