With a market cap of $1.7 trillion, Amazon.com (AMZN -0.86%) is already one of the biggest companies in the world. But instead of resting on its laurels, the e-commerce giant is investing in new opportunities that synergize well with its tremendous scale and captive audience.

Let's explore how Amazon can use Prime Video to boost its profile in direct-to-consumer streaming and compete with rivals like Netflix (NFLX -0.72%)

Streaming is the future

The coronavirus pandemic dramatically boosted demand for at-home entertainment, and some of these changes may be permanent. According to a Hub Research study, the number of Americans watching more TV than before the pandemic has risen from 69% in July 2020 to 77% in February 2021. This data suggests some home-entertainment trends could be accelerating, even as the economy normalizes. 

Flaming stock chart growing

Image source: Getty Images.

On-demand streaming is driving much of the growth in TV viewership, with the percentage of people surveyed who added at least one subscription increasing from 28% to 44% in the period. Amazon's Prime video service is well-positioned to succeed in this market because of its synergy with Amazon's e-commerce marketplace. Outgoing CEO Jeff Bezos noted in his most recent letter to shareholders that Amazon Prime now has more than 200 million subscribers (a 33% jump from a reported 150 million subscribers in January 2020).

For just $12.99 a month, Amazon Prime offers a robust streaming service along with its various other services, including e-commerce perks such as expedited (and often free) shipping of goods purchased on the site. That makes it a great deal in comparison to pure-play streaming services from the likes to Walt Disney's Disney+ and Netflix, which only offer streaming.

These synergies also give Amazon a competitive advantage over e-commerce subscription services like Walmart+ that offer free shipping of goods purchased but don't include any streaming services (at least not yet). 

Amazon has deep pockets and critical success 

Amazon Prime has positioned itself as the streaming service of choice for consumers who want bang for their buck, but it can also compete with its rivals on original content. Management increased spending on video and music content to $11 billion in 2020 -- that's up 41% from the prior year, and just under the $11.8 billion Netflix spent in the same period. So far, the extra spending is making an impact. 

For instance, Coming 2 America, which Amazon purchased from ViacomCBS-owned Paramount Pictures for $125 million, topped Nielsen's streaming ranking from March 1 to March 7. And the company's in-house production and distribution company, Amazon Studios, is also earning critical success, winning two Oscars for Sound of Metal in April. The studio is still playing catchup to Netflix, which won seven Oscars in the latest competition, but the extra investment in content should help it gain notice among movie fans who might not have thought to subscribe. 

Is the stock a good deal?

With a forward price-to-earnings (P/E) of 63, Amazon stock is more expensive than Netflix, which trades for 49 times forward P/E. But Amazon deserves a premium valuation because its diversified business model unlocks synergies that its rival can't replicate. And as Amazon boosts content spending, it can evolve from a side perk within Amazon Prime into a viable contender for Netflix's crown in direct-to-customer streaming.