Amazon Prime Added More Than 1 Million New Customers in December

Amazon.com's growing Amazon Prime service is a catalyst and differentiator that should boost revenue and earnings.

Jan 4, 2014 at 12:00PM

In what is a major win for Amazon.com (NASDAQ:AMZN), the online retailer said in a press release that it signed up more than 1 million new customers for Amazon Prime in the third week of December alone, adding to its approximate 16.7 million members it had after the first week of that month. The final numbers for new signups in December haven't been released yet, but it looks good for Amazon heading into 2014.

According to a report from Consumer Intelligence Research Partners, Amazon Prime members spend "$1,340 per year, compared to $708 per year for non-Amazon Prime customers," accounting for "56% of US product sales."

The $632 spread would account for more than $632 million in new sales if the differential between Amazon Prime and regular Amazon customers holds. That's a huge catalyst, and one that should continue to grow in the years ahead. And these numbers are low, considering they don't take into account the busy last week before Christmas.

That's good news for Amazon investors, as it is definitely a nice moat that differentiates Amazon from its competitors. Amazon Prime costs $79 per year and offers those signing up for the service free two-day shipping, along with access to streaming-video content.

UPS debacle
United Parcel Service (NYSE:UPS) was probably the biggest victim of Amazon.com's success, taking a big beating in the press as it scrambled to meet the promised delivery of packages by Amazon to customers. It wasn't able to do so, and has suffered a public-relations disaster as a result.

This could have a dramatic impact on the company over time, as an Amazon spokeswoman said to CNET that the online retailer "is reviewing the performance of the delivery carriers." What is troubling for UPS is the shipping issues were related to its inability to process air deliveries quick enough, which could play into the hands of one of its major competitors, FedEx (NYSE:FDX).

Since Amazon cited UPS very specifically, the implication is the online retailer wasn't happy with the results, as it asserted packages were processed and orders sent out on time from its own fulfillment centers. The inability to deliver on time cost Amazon, as it had to refund consumers on the shipments affected by the situation, as well as offer a $20 gift card to customers.

FedEx as an alternative
Since FedEx wasn't targeted much in the media, it comes out somewhat unscathed from the Christmas delivery issues, although Yankee Candle said FedEx didn't do a great job for it. Nonetheless, it appears at this time it may have been an isolated incident as communicated by FedEx, which could bolster the company's image compared with UPS.

Also, Amazon is obviously a far more lucrative partner for FedEx, and any significant business it may receive as a result of dissatisfaction with UPS is something that needs to be watched.

Adjustments
There is no doubt Amazon and other retailers, along with delivery companies like FedEx and UPS, will work on ways to make shopping a better experience for consumers during the busy holiday season. In the near term, even with the public relation challenges, the huge volume of deliveries should generate strong numbers for the delivery companies, as the number of shipments easily surpassed expectations.

As for Amazon Prime, I really like what the company is doing with it and the long-term success it appears to be heading for. This will definitely be a major part of the ongoing success story of Amazon as it battles it out in the competitive Internet retail marketplace. 

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Gary Bourgeault has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, FedEx, and United Parcel Service. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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