Amazon Prime membership growth is a positive for the company
Why Amazon's stock has soared over the last month (Part 8 of 10)
Amazon Prime membership program grows rapidly
Amazon (AMZN) Prime is a $99-per-year membership program from Amazon. By using this program, Amazon’s customers get the benefit of free two-day delivery for goods they order from Amazon. Plus, customers get free access to a video streaming service for selected videos.
To attract more subscribers to join Prime, Amazon had even made Prime subscriptions free for one year along with the purchase of a Fire smartphone . This strategy gives Amazon an edge over eBay (EBAY), which doesn’t offer this kind of program.
During the 4Q14 earnings call, management mentioned that Prime membership worldwide grew by a year-over-year rate of 53%. This is impressive, considering that Amazon had raised the annual membership of its Prime program from $79 to $99 one year back.
Amazon manages high customer satisfaction for Prime members
More encouraging for Amazon is the customer satisfaction through its Prime service. According to a survey conducted by Reuters and Ipsos, 96% of Prime customers are happy with Amazon’s Prime service. The high satisfaction also comes from initiatives that Amazon has taken for same-day delivery and even Sunday delivery of goods.
The same-day delivery market has huge growth potential, which Amazon is trying to tap. According to a report from Business Insider’s BI Intelligence research service, and as the chart above shows, the US same-day delivery market could grow from $0.10 billion in 2014 to $4.03 billion in 2018 at a compound annual growth rate of 150%.
However, the Reuters report also mentioned that 10% of the approximately 1,700 surveyed Prime customers reported that their packages arrived late between November 1 and December 31. Amazon also faced criticism in the past about late deliveries through delivery companies UPS (UPS) and Fedex (FDX), especially during the Christmas season. The order pile-up during Christmas and bad weather played a role in that problem.
You could get exposure to Amazon by investing in the Consumer Discretionary Select Sector SPDR (XLY), which has 6.3% exposure to Amazon.
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