Amazon AMZN continues to explore ways to bolster its Prime program on the back of its streaming service, Prime Video, in this downturn situation.
Reportedly, the e-commerce giant is in the early stages of planning an ad-supported tier for Prime Video. The company might give Prime subscribers the option to pay more for an ad-free alternative if it introduces ads in Prime Video.
Per the reports, advertisers are eagerly waiting for Amazon to execute this plan and have shown more interest in premium movies and popular content having a huge viewer base.
Also, the company has approached Warner Bros. Discovery and Paramount Global to introduce the ad-based tiers of the latter two on Prime Video Channels.
Amazon.com, Inc. Price and Consensus
Amazon.com, Inc. price-consensus-chart | Amazon.com, Inc. Quote
Amazon to Benefit
The latest Amazon plan is expected to drive its top-line growth primarily through execution.
Moreover, it will aid the company in countering the impacts of rising inflationary pressure that has led to a slowdown in customers’ discretionary expenses, which, in turn, has hurt the rate of new sign-ups in the streaming industry.
The extra charges customers would pay for the ad-free alternative of Prime Video will likely contribute well.
Further, the ad revenues that it will generate from Prime Video will drive the company’s overall ad revenues, thus strengthening its ad business, which has been acting as a key catalyst.
In first-quarter 2023, Amazon generated $9.51 billion in sales from advertising services, which increased 21% year over year.
Growing ad revenues will then accelerate Amazon’s overall revenue generation as well as the financial performance of the company. This, in turn, will instill investor optimism in the stock.
For 2023, the Zacks Consensus Estimate for net sales is pegged at $560.37 billion, reflecting growth of 9% from 2022.
Amazon has gained 44% on a year-to-date basis, outperforming the industry’s growth of 29.8%.
Amazon’s strong contenders in the streaming market — Netflix NFLX and Disney DIS — have already introduced their respective ad-based tiers.
Late last year, Netflix launched its ad-supported plan, namely Basic with Ads, in the United States, the United Kingdom, France, Germany, Italy, Australia, Japan, Korea and Brazil.
Notably, Basic with Ads is $13 less than Netflix’s Premium plan, nearly $9 less than the Standard plan and $3 less than the Basic plan.
Meanwhile, Disney unveiled the ad-supported Disney+ plan in December 2022 in the United States, with more than 100 advertisers. The ad-supported plan includes Disney+’s exclusive originals and library content.
The plan also supports up to seven profiles per account and streaming on up to four supported devices simultaneously.
In addition, other major streaming services that offer ad-supported options include Hulu, HBO Max, Paramount+ and Peacock.
Zacks Rank & A Stock to Consider
Currently, Amazon carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
A better-ranked stock in the retail-wholesale sector is Rush Enterprises RUSHA, carrying a Zacks Rank #2 (Buy).
Rush Enterprises has gained 9.7% on a year-to-date basis. The long-term earnings growth rate for RUSHA is currently projected at 15%.
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