Amazon Prime Growth Is 'Surprisingly Strong,' Gene Munster Says

• Amazon.com, Inc. AMZN shares have surged 96.66 percent over the past year, reaching a high of $693.97 on December 29.
• Piper Jaffray’s Gene Munster has reiterated an Overweight rating and price target of $800 on the company.
• Munster mentioned that the growth rates for Amazon Prime were “surprisingly strong,” despite the large user base the service has acquired.

Analyst Gene Munster noted that growth in interest in Amazon Prime continued to be strong throughout 2015, especially during September-December.

The company is likely to have added 8-9 million Prime subscribers during the entire holiday season, well ahead of the estimate of 6-7 million, although lower than the 10 million added in December 2014.

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Prime is expected to have driven about $800 million in incremental free cash by itself during the December 2015 quarter.

According to the Piper Jaffray report, “Longer term, a strong Prime base should drive unit growth >20 percent over the next couple of years, above investor expectations of high teens unit growth.”

Prime is also expected to drive profitability through its subscription revenue stream and lower retargeting costs.

“We believe an average Prime user generates 3x-4x more GMV than a non-Prime user; therefore, as Amazon converts users into Prime users, it receives a tailwind from engagement. We believe this sets up Amazon well for gross profit and operating profit trajectory in 2016 and beyond,” Munster added.