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What Amazon needs to keep going strong

Althea Chang
Big Data Download
What Amazon needs to keep going strong

Revenue growth may be one key metric investors will keep an eye out for when Amazon.com reports earnings, but Amazon Prime shipping subscribers are a major driver of the online retailer's revenue growth, and it's another measure worth paying attention to, according to one analyst.

The problem is that Amazon (AMZN) is reluctant to disclose its subscriber numbers or subscriber growth, said Colin Sebastian, Internet analyst at Baird Equity Research.

There are about 10 million Amazon Prime subscribers, according to Sebastian's estimates. And those subscribers spend three to four times more than the typical Amazon customer, he said on "Big Data Download."

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"That makes them more valuable from a long-term value perspective. It also means those consumers who are loyal tend to start their shopping on Amazon instead of sites like Google or Yahoo! or even bricks-and-mortar stores," Sebastian said.

The total number of items listed on Amazon grew by nearly 10 percent in the second quarter compared with the first quarter, according to Baird's quarterly survey of products on Amazon. Yet the percentage of items on Amazon listed as Prime eligible held steady at just 10 percent, according to Baird.

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Increasing the number of Prime-eligible products offers a huge opportunity for Amazon, according to Sebastian, particularly when the company receives inventory from third-party sellers and takes care of the shipping, a service called Fulfilled by Amazon.

"This is important because it improves the overall experience for customers,” he said. “In terms of Prime subscriptions, it also has significantly increased the number of products that...qualify for Prime shipping. And that in turn, in a virtuous cycle, drives prime subscriptions," Sebastian explained.

-- Baird makes a market in Amazon's shares.

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