Amazon (AMZN) – Get the Amazon.com, Inc. report is certainly best known for its e-commerce and cloud infrastructure businesses. But the company has made inroads into the streaming space in recent years, establishing itself as a key player in audio and video.
Today, Amazon Maven takes a look at how Wells Fargo’s research team sees the industry and what role Amazon could play in streaming going forward. We also explain why the bank’s view on the sector could be bullish for Amazon stocks.
(Learn more about Amazon Maven: Amazon Stock: Why Wells Fargo Sees a 20% Rise)
Amazon: winner in the cases of the bull and the bear
Wells Fargo recently made some interesting observations on the streaming space. The bank played the role of the “good cop, bad cop” and presented both the bullish and bearish arguments for the industry.
Optimists at the research workshop see “a market shift that creates many more dollars for consumers for video, just as the universe of American channels grew on cable in the 1990s and [culminated] in a TAM expansion of seven times over about 30 years ”.
This is a typical scenario of a growing pie, likely to the detriment of mainstream media (think the cord-cutting phenomenon, for example). It’s not hard to see how Amazon would benefit from this market momentum, as rising tides are expected to lift all boats.
But here’s the twist: Even if the best case scenario for the streaming industry doesn’t materialize, Amazon can still benefit. This seems to be the opinion of Wells Fargo, expressed in this quote:
“The bear case is more of a winner-takes-most situation. […] The Internet and mobile industries tend to favor early adopters, who become incumbents and are well capitalized to increase their market share. […] This case is preparing well for Netflix […], Apple and Amazon.
The argument here is that, if the streaming pie doesn’t progress as many expect, the “big wigs” of tech and media are likely to push the smaller players out. Amazon already has the brand recognition (although perhaps less streaming) and the cash flow to win the content wars and break out of the inevitable phase of industry consolidation as a major player.
Is this important for the stock of AMZN?
Of course, a separate question is whether being a winner in the streaming space is something that could even directly benefit Amazon stocks and its investors. From an income statement perspective, it is a stretch to think that the Prime family of streaming services can significantly reduce the bottom line, given the high content costs.
But as we explained a few months ago, streaming can be the hook that gets consumers to sign up for the Prime service – and that’s good for Amazon’s much larger ecommerce division. Think of the quote from former CEO Jeff Bezos: “When we win a Golden Globe, it helps us sell more shoes.”
So an indirect (but arguably more meaningful) way to measure the success of Amazon’s streaming efforts is to look at the company’s Prime user base. He was growth at a very healthy pace to double since 2018 to 200 million which is good news for AMZN sires.
What do you expect from Amazon streaming activities: Prime Video, Music, etc. ? Will the company be the market leader or lagging behind? And is it important for the stock?
(Disclaimers: This is not investment advice. The author may be a buyer of one or more of the stocks mentioned in this report. Additionally, the article may contain affiliate links. These partnerships do not influence editorial content. Please support Amazon Maven)