Morgan Stanley Applauds Amazon's Ability To Grow Wallet, Prime

• Shares of Amazon.com, Inc. AMZN has risen 61.39 percent, year to date, rising over 7 percent over the past three days, following the stock market dip of August 24.
• Morgan Stanley’s Brian Nowak has maintained an Overweight rating and price target of $740 on Amazon.
• Morgan Stanley’s AlphaWise eCommerce data indicates global subscriber growth strength for Prime, which Nowak expects to translate into “continued higher retail gross profit dollars per customer.”

Nowak expressed positive surprise related to the company’s retail gross profit per dollar/customer growth, which has grown consistently for the past three consecutive quarters at about 19 percent, year on year.

Nowak attributed this growth to the company’s “growing share of wallet and the growth of Prime…as Prime users spend ~20 percent more than non-Prime users.”

In addition, the AlphaWise survey pointed to continued growth of Prime in the US, UK and Germany, with members growing 53 percent year on year in 2014. There was 9 percent sequential growth in Prime subscribers from 4Q14 to 1Q15, with higher growth outside the US than within it.

“The US remains the largest market, but we are particularly encouraged by Germany and the UK where Prime consumer awareness is rising and churn is falling,” the Morgan Stanley report said, while adding that this was despite a more than 60 percent increase in price announced in February 2014.

Nowak believes that Prime Instant video has played a major role in the international member base growth for Prime. Prime Instant video was rolled out in the UK and Germany in April 2014, which Nowak mentioned helped drive faster subscriber growth and “increased stickiness.”

Prime Instant video is likely to continue as a tailwind, given the recent report regarding Amazon’s plans to launch the service in Japan in September 2015.

“This Prime traction creates more sustainability for AMZN’s retail gross profit per customer growth…and a larger margin of safety for AMZN to continue delivering higher company-wide profitability and Street beats,” Nowak stated.