U.S. Markets closed

Here’s what Prime Day means for Amazon’s earnings

Investors are likely to hear a lot about Prime Day when Amazon (AMZN) reports Q2 earnings on Thursday after the closing bell. But analysts have already gotten to work examining how Amazon’s future earnings and business performance will be affected by Prime Day, a massive, one-day sale just for Prime members.

While Amazon doesn’t break out Prime Day’s sales, many analysts have estimated how much money it made from the event based on clues from the online retail giant.

For example, Amazon recently said the number of orders was 60% up this year. In a note from July 7, JPMorgan’s Doug Anmuth estimated that 2015’s Prime Day sales were $400 million. That would mean Amazon sold more than $600 million dollars worth of goods this year, if Anmuth’s estimate is accurate.

Other analysts, from firms such as Morningstar and FBIC, told CNBC they estimated this year’s sales to be around $500 to $600 million. Forrester Research analyst Sucharita Mulpuru even told CNBC that sales could have been as high as $1 billion. 

It’s important to note that sales from Prime Day won’t affect Amazon’s Q2 earnings directly, since the second quarter runs from April to June. However, Prime Daywill directly influence the all-important guidance part of the call.

“Amazon’s devices were a key focus of the Prime Day Event,” according to Pacific Crest. Amazon itself stated that Prime Day was the “biggest day ever for Amazon devices globally,” with the company selling three times as many Amazon devices than it did on Prime Day in 2015. That spike in the sale of Amazon-branded devices like the Kindle will boost the company’s revenue.

Just as importantly, the successful sale of so many Amazon devices will help expand Amazon’s ecosystem, allowing it to sell more apps and eBooks.

Prime Day could continue to help bolster Amazon’s earnings for many quarters to come. In fact, Anmuth goes so far as to say that “the true benefits of Prime Day are much farther reaching” than one day of impressive sales.

Instead, the main benefit comes from the people who sign up for Prime subscriptions. For consumers to take advantage of Prime Day deals, they need to be a member of Amazon Prime, which generally comes with a $99 yearly fee. Research from CIRP has shown that Amazon Prime subscribers spend a lot more on Amazon than non-prime members — with the former spending $1200 a year, vs. the latter spending $500 a year. 

It’s true that someone could just sign up for a 30-day free Amazon Prime trial to take advantage of Prime Day, but a separate report from CIRP given to CNBC noted that 73% of people who use that free trial end up getting a full membership.

This $99 yearly fee, combined with the increased number of purchases, produces a great deal of revenue for Amazon. In fact, research firm Cowen and Company estimates that nearly half of Amazon’s sales come from Prime members. This ratio is likely to continue to grow in the coming quarters, as more and more people sign up for Prime.

Deutsche Bank is also expecting the second half of the year to be very strong for Amazon. However, Q2 earnings are likely to only meet expectations, and with Amazon shares near 52-week highs, the stock isn’t likely to soar for a while. If there is weakness in the stock, though, Deutsche does recommend buying.

Amazon’s sales are likely to be slightly affected by the pound weakening, but not significantly enough to change Deutsche’s $900 price target. For the bank, the focus remains on Amazon’s core businesses, such as Prime and Amazon Web Services, with the former boosting earnings for many quarters to come.

Rayhanul Ibrahim is a writer for Yahoo Finance.

Read more:

From biomass to nuclear: The evolution of American energy usage since 1776

America’s big companies are about to repeat a financial crisis-era losing streak

As the stock market hits new highs, Wall Street is getting more skeptical

These trillion-dollar categories are driving Amazon’s growth