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Morgan Stanley: Amazon's US subscription growth falling flat

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Morgan Stanley: Amazon's US subscription growth falling flat

Amazon.com Inc.'s U.S. Prime subscription growth fell flat in its fiscal fourth quarter, a signal that the service's growth might be plateauing, according to a Morgan Stanley note distributed to clients Dec. 13.

The Morgan Stanley note is based on an AlphaWise survey, which included 1,000 online interviews with U.S. adults in early to mid-August. About 40% of respondents to that survey said they are Prime members, even with the results of a similar survey a year ago, according to the note. However, it is a different story with Amazon Prime's global subscriptions, which grew 59% year over year in the fiscal third quarter.

"In our view, U.S. Prime sub [subscription] trends will be important to monitor, as these data are the first evidence of potential Prime penetration limits in [Amazon's] oldest market," the analysts wrote.

That means to grow, Amazon will need to penetrate markets outside of its normal target demographics, the analysts said. Amazon is trying to attract lower-income consumers by offering monthly payment subscriptions, which helped drive new members in the fiscal third quarter, and it is also offering a 45% Prime discount to those on government-assistance programs, which it offered in June. Amazon is also trying to reach an older market, notably through a push into pharmacy, the analysts said.

Prime retention rates, however, remain high. Customers who said they are "extremely likely" or "very likely" to renew their Prime membership rose 1,100 basis points from the same time last year, according to AlphaWise's August survey.

Within Amazon's e-commerce platform, grocery is of growing importance, the analysts said. Of those using Prime Now, a service where Prime members can order same-day delivery in certain markets, 48% are ordering grocery products, higher than the percentage that are using the service for traditional e-commerce.

Under-penetrated markets on Amazon's e-commerce platforms include home improvement, auto parts, groceries and industrial/commercial supplies. Growing those categories is important to Amazon maintaining its 20% or more North American revenue growth, the analysts said.