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Prime Day Reinforces Amazon's Long-Term Potential

Even if sales were unchanged from last year, we think the Amazon sales event underscored the firm’s wide moat and potential for expanding profitability.

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In our view, these goals include (1) increased Prime memberships and third-party sellers (giving consumers fewer reasons to shop outside the Amazon ecosystem while strengthening its network effect), (2) gauging consumer demand and fulfillment center preparedness ahead of the holiday season (reducing the risk of the bottlenecks that affected last year's holiday season), and (3) extending the Amazon brand name through the Prime Day event, gift card sales, and other hardware-related promotions. On top of these goals, there was further evidence that Prime memberships continue to accelerate internationally--ChannelAdvisor noted that Amazon U.K. Prime Day same-store sales grew 12%--lending credence to our views that Amazon's European markets are establishing a foundation for profitable growth.

Our $800 fair value estimate is unchanged, as we estimate that Prime Day will have a more pronounced impact compared with a year ago (where management estimated 200 basis points of top-line benefit, or a little more than $400 million) when factoring in international markets and deals in the week leading up to the event. We also believe the event will probably add more than a few million members to a base of 70 million members globally (with more than 20% of members now coming from outside the U.S.) and top last year's 34.4 million total units sold by roughly 25%-30%.

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About the Author

RJ Hottovy

Sector Strategist
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R.J. Hottovy, CFA, is a consumer strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He is responsible for consumer discretionary and staples research. He has covered the consumer sector as an analyst and director of global consumer equity research for Morningstar since joining the company in 2008, and specializes in a broad range of consumer categories including restaurants, footwear and apparel retailers, consumer electronics retailers, fitness clubs, home improvement and furnishing retailers, and consumer product manufacturers.

Before joining Morningstar, Hottovy was a director and senior stock analyst for Next Generation Equity and an analyst for William Blair & Co., specializing in a wide range of retail and consumer product companies. He also spent two years at Deutsche Bank, covering waste management, water utilities, and equipment rental stocks.

Hottovy holds a bachelor’s degree in finance and a second degree in computer applications from the University of Notre Dame, where he graduated magna cum laude. He also holds the Chartered Financial Analyst® designation and is a member of the CFA Institute and the CFA Society of Chicago.

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