Check out the latest Amazon.com earnings call transcript.

Back in August, the SEC wrote a letter to Amazon.com (NASDAQ:AMZN) CFO Brian Olsavsky asking him to, among other things, disclose the percentage of revenue generated by Prime members in the company's quarterly reports going forward. The SEC was leaning on a new accounting rule that went into effect this year, requiring businesses to disclose which products, sales channels, or geographic locations are driving a company's top line.

After Amazon announced it reached 100 million Prime members earlier this year, the SEC noted Amazon's management seems to think that's an important revenue driver for the company. As a result, the Commission formally requested Amazon to disclose more information about Prime.

Unsurprisingly, Amazon declined the request. The percentage of net revenue from Prime members isn't "meaningful or useful information," management responded.

Here's why Amazon doesn't think it needs to disclose more information about Prime, why it doesn't want to, and why it might have to in the future.

A truck with the Amazon Prime logo on the trailer.

Image source: Amazon.

The official reasons Amazon provided the SEC

The top reason Amazon says percentage of net sales from Prime isn't a meaningful metric is that more and more of its sales are coming from third-party merchants. Amazon records third-party sales on a net basis. So, if Amazon shoppers shift to more items sold by third parties, it could result in a decline in net sales for the company. That said, it ought to drive an increase in net profits.

An increasing number of products are becoming Prime-eligible thanks to Amazon's Fulfilled by Amazon service. The service enables third-party merchants to rely on Amazon's warehouse and shipping capabilities to make sure their products show up on customers' doorsteps within the requisite two days for Prime shipping. Amazon discloses revenue from FBA as part of its third-party seller services line item.

Management also notes that the percentage of net sales coming from Prime members could be impacted by a number of factors completely unrelated to the health of the Prime program. For example, if Amazon Web Services sales performed better than expected, the percentage of sales from Prime members would be lower than anticipated.

Additionally, Prime members may pay a subscription fee for access to services other than two-day shipping, which don't generate net revenue. Access to digital services like Prime Video and Prime Music may be worth the annual fee alone for some customers. Disclosing the net revenue generated by Prime members on a quarterly basis won't reflect this.

Finally, now that Amazon offers monthly memberships, customers have more options to shift into and out of Prime as they see fit. Members may sign up just for Prime Day in July or just for the holidays in November, and they'll cancel their membership a month later. Such activity can skew the percentage of net revenue from Prime members for certain periods.

Amazon also points out that it currently reports the sales of its subscription services. That revenue is primarily driven by Prime membership fees, which give a better indication of the health of Prime membership, in management's opinion, than disclosing net revenue derived from Prime members.

Amazon should avoid reporting Prime numbers

Amazon's arguments are pretty flimsy, but it's hard to blame management for trying to avoid reporting any additional information about Prime.

Amazon is happy to give periodical updates on Prime when it reaches a milestone, but if it had to report numbers quarterly, it could open the door for it to have a bad quarter. That could put unneeded focus on short-term Prime membership growth.

Apple (NASDAQ:AAPL) recently changed its quarterly reports, removing unit sales from its major product lines. Management said unit sales aren't "representative of the underlying strength of our business." In reality, Apple is facing a saturated smartphone market, and unit sales growth is stagnating. Management would much rather focus on more positive and influential things like long-term revenue and profit growth.

Amazon's refusal to report more details on Prime is similar to Apple's decision to remove unit sales from its report. Anyone who wants to see the health of Prime on a quarterly basis can do some back-of-the-envelope math on its reported subscription services revenue. That ought to suffice.

The SEC may gain more power next year

The SEC will continue trying to enforce the new accounting rules, and as it racks up wins, it may come back to big tech companies like Amazon. "After a reasonable transition period you can expect closer scrutiny," said Brian Lane, a former SEC corporation-finance director quoted in The Wall Street Journal [subscription required].

Overall, additional transparency when it comes to Amazon's Prime members wouldn't be terrible for investors. Amazon's current reporting metrics indicate the membership program is still growing quickly. Disclosing more Prime-related numbers could cause increased scrutiny in the short term among analysts, but investors shouldn't see much impact.