Pt. I: Amazon Prime vs. Netflix & Disney+. Pt. II: Is Amazon Sitting On AWS 2.0?

Pt. I: Amazon Prime vs. Netflix & Disney+. Pt. II: Is Amazon Sitting On AWS 2.0?

When compared to Netflix and Disney+, Amazon Prime is the most durable revenue stream of the three. We cover Prime’s attributes and where we believe leverage points exist, including Amazon’s strategic investment in “COVID-proofing” its distribution and customer-facing operations. There could be an AWS-like opportunity if Amazon decides to commercialize its COVID response.

Part I

Disney+ (tkr: DIS), has the best video content IP portfolio of the three companies when you consider its assets which include Disney live action movies, Disney animated features, Marvel Studios, Pixar, Lucasfilm, Fox and episodic content created exclusively for the Disney+ direct-to-consumer offering. Disney+ is the primary threat to Netflix (tkr: NFLX), purely from a video content standpoint. However, Amazon Prime (tkr: AMZN), is growing faster than Netflix. Prime has approximately 150 million subscribers globally (compared to 183 million Netflix subscribers) and offers a variety of products and services under the “Prime” umbrella. Our bet is that as the COVID depression rages on Prime will emerge as the stickiest of the three services among consumers.

Prime subscribers are loyal to the service for a variety of reasons including:

  • Shipping: “Free” and expedited shipping – Prime’s linchpin;
  • Groceries: Amazon Go, WholeFoods, Amazon Fresh. Groceries are a $682 billion category in the U.S. It is early days for Amazon in the groceries category, particularly within e-commerce;
  • Alexa Voice Deals: Prime members can shop with Alexa and receive an additional discount on select deals;
  • Twitch Prime: Users receive free game content every month (Amazon acquired Twitch for $970 million in 2014). Twitch has room to scale. Twitch will be the primary competition for Google Stadia in our view;
  • Books (Prime Reading), Video (Prime Video) and Music (Prime Music).
  • Prime Video Channels: Amazon’s strategy of making 3rd party video subscriptions available for purchase on Amazon has upside potential as smaller SVOD players (DAZN for example) seek to extend their reach with a global partner. HBO, Showtime, CBS and Starz currently leverage Amazon’s reach.

Part II

We believe Amazon has a significant opportunity to scale Prime membership. At the front-end of this is Amazon’s investment in COVID-proofing its distribution and customer-facing operations:

  • Amazon’s edge in shipping increases in value as COVID persists and as the threat of other pandemics loom. Amazon plans to invest Q2’s operating profit and a bit more (approximately $4 billion through June 2020) in “COVID-proofing” its distribution and customer-facing operations. This investment includes protective equipment for employees ranging from face masks, thermal cameras, thermometers and the like. In addition, Amazon is building proprietary testing capability. The potential exists for Amazon to turn this capability outward as a commercialized service offering much like AWS (or as part of AWS) – especially as it pertains to any proprietary software-based testing capability at scale that Amazon may develop.
    • Consumers that did not plan to subscribe to Prime may now consider the offering if they plan to purchase more goods and services online given the COVID pandemic. This may be more true now given Amazon’s proactive COVID investment. Read more about Amazon’s COVID response HERE.
Amazon COVID Testing Lab