Yesterday morning, Amazon.com, Inc. (NASDAQ:AMZN) made the official announcement that the global launch of Prime Video was underway, which greets a tidal wave of buzz that has been building since November 17th when the Wall Street Journal first reported the online retail giant had a “massive global rollout” in the works.
In reaction, William Blair analyst Ryan Domyancic reiterates an Outperform rating on shares of AMZN without listing a price target.
How “massive” is the launch? Amazon Prime Video is available in over 200 countries, excluding China. Additionally, for the 11 countries that have a Prime program including shipping benefits and other extensive features, this feature will be part of the membership package. For those without a Prime offering, the service is still available in those countries for $5.99, with a 50% discount offer for the initial six months.
Domyancic asserts, “We believe the broader Prime Video product addresses an incremental 275 million households. These are households that have access to a broadband subscription but are not located in the 11 countries where Amazon offers a comprehensive Prime program. Assuming a monthly subscription fee of $5.99 and a 10% penetration rate, the rollout represents a $2 billion revenue opportunity for Amazon. We acknowledge the Prime Video is also building Amazon’s brand, which is not captured in this analysis.”
As far as the impact Prime Video will yield upon AMZN’s financial results, the analyst pays close attention to the two distinct types of content the giant creates that will be available to Prime Video subscribers: original and licensed content.
When assessing original content, the analyst opines, “We believe Amazon is expensing the cost of creating original content as incurred in the cost of sales line. Therefore, Amazon is generating leverage on its original content by distributing something it has already paid for to a larger audience. We expect Amazon to reinvest the leverage back into creating more content.”
With regards to licensed and purchased content, “We believe licensed content costs act as a variable cost and increase with more distribution,” Domyancic surmises.
According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, three-star analyst Ryan Domyancic is ranked #2,140 out of 4,274 analysts. Domyancic has a 75% success rate and gains 7.5% in his annual returns. When recommending AMZN, Domyancic earns 1.8% in average profits on the stock.
TipRanks analytics exhibit AMZN as a Strong Buy. Out of 36 analysts polled by TipRanks in the last 3 months, 34 are bullish on Amazon stock and 2 remain sidelined. With a return potential of nearly 24%, the stock’s consensus target price stands at $950.64.