Amazon’s Subscription Revenue Growth Explained
Subscription revenues up 53%
Amazon’s (AMZN) Retail Subscription segment, which includes Prime subscription fees and sales of digital products and services such as music and e-books, has maintained strong double-digit growth over the last several quarters.
The segment posted 51% growth in 2Q17, leading to revenues of $2.2 billion. Excluding foreign exchange impact, the growth was 53%, implying faster growth rate than 52% registered in 2Q16.
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Impact of Prime on subscription business
Amazon’s Prime program, whose standard charges are $99 a year or $11 a month, is a major contributor to Amazon’s Retail Subscription segment. As such, growth in this segment indicates growing adoption of Prime membership by Amazon shoppers.
The strong increase in Retail Subscription sales in the latest quarter can be attributed to the measures Amazon has taken to make Prime membership more accessible. For example, Amazon has rolled out discount Prime plans for students and people receiving government benefits.
US Prime membership
Amazon doesn’t say how many consumers are enrolled in its Prime program. However, independent studies have shown that Prime adoption is on the rise in the US (SPY). According to Consumer Intelligence Research Partners (or CIRP), there were more than 80 million Prime subscribers in the US in 1Q17, up from 58 million in 1Q16, as shown in the chart above.
Prime subscribers enjoy a variety of benefits. Amazon has added to the entertainment element of its Prime subscription to make the program more appealing. The Prime program is one of the tools Amazon is employing to tackle competition from its e-commerce rivals such as eBay (EBAY), Walmart (WMT), and Target (TGT).