Deconstructing Amazon Prime: Loss Leader or Value Creator?
aswathdamodaran.substack.com
Update (October 17, 2017): One of the things that I enjoy most about posting my valuations online is the feedback and how much I can use that feedback loop to improve my valuation. There are three changes that I have made to my Amazon valuation, though the end number that I get is not that different. First, as many Prime members outside the US have pointed out, the cost of Amazon Prime is less than $99/year in many countries, ranging from $22/year in Italy to just over $50/year in Germany to only $8/year in India. That lower annual cost will bring down the value of a member (existing and new). To allow for that, I have replaced the $99 annual fee that I had used in my valuation with $93.78, a weighted average of the fees, allowing for the one quarter of Prime customers in the US who have monthly subscriptions (and pay more) and the 20% of customers outside the US (my estimate), who pay, on average, about $50/year. Second, as some of you have noted, my operating margin was computed prior to just shipping costs and that I am double counting the customer service and media costs, which should also be added back. That increases my operating margin to 12.11% from 9.19% and I will assume that it improves to 13% over time. Third, and this was entirely my mistake, my value per existing member did not factor in the drop out rate and that has been fixed.
Deconstructing Amazon Prime: Loss Leader or Value Creator?
Deconstructing Amazon Prime: Loss Leader or…
Deconstructing Amazon Prime: Loss Leader or Value Creator?
Update (October 17, 2017): One of the things that I enjoy most about posting my valuations online is the feedback and how much I can use that feedback loop to improve my valuation. There are three changes that I have made to my Amazon valuation, though the end number that I get is not that different. First, as many Prime members outside the US have pointed out, the cost of Amazon Prime is less than $99/year in many countries, ranging from $22/year in Italy to just over $50/year in Germany to only $8/year in India. That lower annual cost will bring down the value of a member (existing and new). To allow for that, I have replaced the $99 annual fee that I had used in my valuation with $93.78, a weighted average of the fees, allowing for the one quarter of Prime customers in the US who have monthly subscriptions (and pay more) and the 20% of customers outside the US (my estimate), who pay, on average, about $50/year. Second, as some of you have noted, my operating margin was computed prior to just shipping costs and that I am double counting the customer service and media costs, which should also be added back. That increases my operating margin to 12.11% from 9.19% and I will assume that it improves to 13% over time. Third, and this was entirely my mistake, my value per existing member did not factor in the drop out rate and that has been fixed.