Amazon (AMZN -1.64%) Prime's rampant growth has run out of steam. The online retailer's subscription service ended the first half of 2022 with 172 million members in the U.S., the same as six months ago, according to Consumer Intelligence Research Partners. The stagnation follows two years in a row in which the company added 30 million net new members.
Prime membership is extremely important to Amazon, with management calling it one of the company's three pillars. The question for investors is whether the first half of 2022 is merely a setback or the start of much slower growth for Amazon Prime.
A similar story
The pandemic fueled a surge in e-commerce sales and a spike in Prime sign-ups as well. Amazon also saw improved retention rates among existing Prime members, which can have a significant impact on net additions when subscriber numbers are so large.
The growth in Prime memberships echoes another big pandemic winner: Netflix (NFLX -3.92%). Netflix saw a surge in subscriber sign-ups at the start of the pandemic, but growth slowed in the back half of 2021. Netflix reported a surprise subscriber loss in the first quarter and an even bigger loss in the second quarter. Its outlook for the third quarter is well below its net additions from 2021.
While Amazon doesn't provide regular updates or exact subscriber numbers, management has commented about strong subscriber growth in the past. That includes the first quarter of this year when CFO Brian Olsavsky told analysts, "We also added millions more new Prime members during the quarter." A recent by survey by Consumer Intelligence Research Partners shows stagnating membership in the U.S., so such commentary may be conspicuously omitted when the company reports its second-quarter results later this month.
Interestingly, Netflix and Amazon's stories have another similarity. Both companies raised prices on subscribers earlier this year. Netflix increased its most popular plan by about 11%, while Amazon raised the price of Prime by 17%. Those on a monthly Prime subscription -- about half of members -- saw their bill increase by 25%. And while Netflix saw an increase in competition, so did Amazon, in a way. More shoppers are returning to physical stores, relying less on e-commerce than at the height of the pandemic.
The pull-forward combined with the price hike and return to in-store shopping may have led to higher cancellation rates for Amazon with lower sign-ups in the second quarter. The same combination impacted Netflix's first half.
Where does Amazon go from here?
If Amazon Prime growth did indeed stall in the second quarter, it might not take long for it to get back in gear. The company's Prime Day sales event moved back to the third quarter again this year. The event historically drives strong sign-ups. It's planning another Prime Day-like event in the fourth quarter as well.
This fall, Amazon will be the exclusive home of Thursday Night Football, which will keep millions of NFL fans subscribed through the winter, ensuring they have Prime for the all-important shopping season. On top of that, Amazon's increasing investment in other Prime Video content includes its integration of MGM Studios and its new Lord of the Rings series scheduled to premiere this fall.
What makes Netflix's subscriber slowdown concerning is the influx of competition and their continued subscriber growth. While Amazon also faced some new competition in recent years, its impact on Amazon appears to have been much more muted. Walmart's subscription service, Walmart+, has successfully attracted tens of millions of subscribers, but there's limited overlap between those customers and Prime members. Walmart+ members are joining for fuel perks and groceries, while Prime members are interested in free shipping and Prime Video.
Considering that e-commerce is expected to continue growing for years to come, this may be just a blip for Prime membership. As growth in Marketplace sales returns to normal, Prime sign-ups should show a more normalized growth rate as well. While investors shouldn't expect the gangbuster years of 2020 and 2021, Amazon still has room to grow Prime membership.
