Macquarie Notes Two Important Catalysts Forthcoming for Amazon (AMZN)

Macquarie analyst Ben Schachter sees two important catalysts coming for Amazon.com (NASDAQ: AMZN). The firm reiterated its Outperform rating and price target of $430.

The two are the importance of Prime growth and the AWS breakout.

1. Prime Growth. The most important number that we heard anywhere in the last 12 months is 53%. 53% is the growth of worldwide paid Prime memberships in 2014 (50% in the US)

• 20-25% of all US households are currently Prime, and it is still growing rapidly. Given that we know AMZN had at least 20mm members as of the end of 2013, 53% growth means that there are a minimum of 30.6mm and likely closer to 40mm Prime members worldwide.
  • Assuming that ~75% of members are in the US, then ~20%-25% of all US households are already Prime. As this number continues to grow, this will have significant competitive implications and even serious socio-economic impacts. What happens when 50% of all US homes are Prime?
• By 2020, ~50% of US households could be Prime. Assuming a US Prime CAGR of 12% from 2015-2020, we estimate that 40%-52% of US households will be Prime members. That has far-reaching implications.
• Notably, 10mm+ people tried Prime for the first time just in 4Q’14. Many of these would be on trial accounts. So while not all convert to paying members, many that will were not counted in the 53% growth number.
• Prime Features to Grow, incl. telco? In ’14, AMZN added nearly a dozen new features to Prime. Given the ramp in Prime members, we expect AMZN to double-down on Prime investment, including more video and potentially significant new benefits such as linking Prime with a new phone offering (MVNO?).

2. Impending release of AWS data. This could be any day before 1Q earnings. AMZN is choosing to release this data. It is NOT an SEC requirement. We expect AMZN to provide AWS sales, operating expenses, total assets, PP&E, and depreciation

For an analyst ratings summary and ratings history on Amazon.com click here. For more ratings news on Amazon.com click here.

Shares of Amazon.com closed at $385.37 yesterday.

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