Video Streaming with a Side of Free 2-Day Shipping


Amazon ( AMZN ) is rumored to be rolling out an unlimited video streaming service for Amazon Prime customers that will rival that of Netflix ( NFLX ).

Amazon Prime is a shipping program where customers pay a fixed annual fee (currently $79) to get free two-day shipping for most products sold. This service is cheaper than Netflix's Watch Instantly service which cost $95.88 per year.

This decision should further popularize Amazon's Prime service and attract more consumers to its online shopping platform. The customer draw towards Amazon's shopping service should help the company gain market share from online retail competitors like eBay ( EBAY ) as well as traditional brick and mortar players Wal-Mart ( WMT ), Costco ( COST ) and Best Buy (BBY).

We have a $181 price estimate for Amazon stock, roughly 7% above market price.

See our full analysis and $181 price estimate for Amazon

Upside to Amazon's Retail Shopping Market Share

Amazon Prime has been well-received by customers and successful in attracting business to its online shopping platform. Amazon recently expanded its free shipping program to offer same day delivery for an additional monthly fee of $6 to Amazon Prime customers. 'Subscribe and Save' is another such program that offers discounts to regular shoppers.

These initiatives have helped Amazon gain share in the online retail market. Its share in U.S. online electronics & general merchandise (EGM) market, for example, has increased from around 2.5% in 2006 to 6.5% in 2010, and we anticipate a further increase to 13.5% by the end of our forecast period.

Amazon's new free online streaming service for Prime customers seems targeted to generate a spike in customer adoption of the program. Amazon can leverage the ensuing increase in Prime service subscription towards an acceleration of online retail market share gains.

To highlight the sensitivity of Amazon's equity value to U.S. EGM market share, we estimate 18% upside to our $182 price estimate if Amazon's new offering sparks market share gains towards 20% by the end of our forecast period (vs. our base 13.5% estimate).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AMZN , COST , EBAY , NFLX , WMT



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