We all know that streaming video is an increasingly cutthroat environment. With multiple platforms out there eager to land viewers, and viewers only having so much cash to shell out for entertainment, platforms have to get creative—or just vicious—to survive. E-commerce giant Amazon (AMZN) recently demonstrated its own willingness to succeed, and its plan drove its stock down modestly in Tuesday afternoon’s trading session.
It’s no surprise that Netflix (NFLX) is Amazon’s biggest streaming rival, and Amazon is working to undercut Netflix by focusing on advertising rates. Reports note that Amazon is dropping advertising prices, making Prime Video a more attractive prospect to advertisers.
Amazon’s arrival into the ad-supported space has already forced its competitors to lower prices due to the sheer size of Amazon’s ad inventory. There are just too many ad spots available to advertisers to justify charging them a premium. Moreover, Amazon has other revenue sources that allow it to fund a penetration strategy, which it seems to be doing with the lower prices.
Twitch Is a Losing Proposition
Meanwhile, one of Amazon’s other properties—streaming platform Twitch—is apparently a losing deal for Amazon right now. Amazon shelled out around $1 billion for Twitch back in 2014, and it has yet to see much profit.
Worse, reports note that user growth is starting to slow down—eventually, everyone who wants to be on Twitch will be on Twitch—and that means it’s approaching its maximum revenue potential. Thus, Amazon will likely be forced to start cutting jobs and other expenses in a bid to achieve profitability. While the platform is certainly attractive, the unreliability of it as a business venture is starting to raise concerns.
Is Amazon a Buy, Hold, or Sell?
Turning to Wall Street, analysts have a Strong Buy consensus rating on AMZN stock based on 39 Buys assigned in the past three months, as indicated by the graphic below. After a 35.53% rally in its share price over the past year, the average AMZN price target of $225.46 per share implies 24.56% upside potential.
