Amazon shared plans to add limited advertisements to shows and movies on Prime Video in 2024.
It looks to introduce an ad-free tier to Prime Video for an additional $2.99/month for U.S. Amazon Prime members, followed by a global rollout in 2024.
Wedbush analyst Scott Devitt reiterated Amazon.com Inc
Devitt thinks the impact of a worldwide rollout is in the range of $6.6 billion - $8.0 billion of incremental revenue.
The ad-free offering ($2.99/month) represents a ~20% hike to the monthly Amazon Prime subscription price in the U.S. ($14.99) or a ~26% increase on the annual fee ($139).
Over time, the analyst assumes that Amazon can implement similar 20% - 26% increases over local subscription prices in international markets for the ad-free tier.
In 2Q23, Amazon generated $9.84 billion in Subscription revenue, equal to $39.6 billion annually.
Assuming 80% is associated with Amazon Prime and standalone subscriptions of Amazon Prime Video, roughly $31.6 billion of Amazon's subscription revenue will likely grow ~23% (assuming a 50/50 split between annual and monthly subs), implying $7.2 billion of incremental revenue.
The opportunity is a material operating margin driver in 2024-2025 as the company directly monetizes its content investments and offsets a more significant share of streaming costs.
Devitt projects Q3 revenue of $142.01 billion vs. consensus $132.57 billion. He estimates EPS of $0.61 vs. consensus of $0.55.
Telsey Advisory Group analyst Joseph Feldman maintained Amazon.com with an Outperform and a $160 price target.
Feldman likes Amazon's move to generate incremental revenue by raising its Prime membership fee for some while fueling the growth of its advertising business.
For members more focused on faster product delivery, the unchanged Prime membership fee should serve the purpose.
For members who are heavy consumers of video, the ad-supported and ad-free options are standards in the industry, including Netflix, Inc
The analyst does not expect much churn in membership, if any, related to this change.
Instead, he sees incremental revenue and reinvestment in new content. Broadly, Feldman continues to believe Amazon's ecosystem (driven by Prime members) should enable the company to remain a share gainer across multiple industries.
The focus on newer (and significant) opportunities and initiatives-grocery, health/pharmacy (Amazon Clinic and RxPass), fashion, home, private brands, third-party, same-day delivery, advertising, Amazon Business, and Amazon Logistics-should make Amazon more valuable and allow the company to touch more facets of members' lives.
Feldman projects Q3 revenue of $141.95 billion and EPS of $0.57.
Price Action: AMZN shares traded higher by 1.70% at $131.24 on the last check Monday.
