Can Amazon outplay music streaming competition?

It looks like Amazon could be the latest player to get in on the action with on-demand music streaming services.

Amazon logo on the floor of Inc.
Source: Bloomberg

The e-commerce giant is reportedly set up to roll out its own music streaming service as early as this week.

This is speculated to be a feature that will be made available to Amazon Prime subscribers, its paid membership option, which currently also offers HBO titles available to Amazon Prime Instant video subscribers.

It’s also seen as a sweetener after the raise of Amazon Prime’s annual fee, from $79 to $99.

So how big of a threat is it to incumbents such as Spotify, Pandora and Deezer? Going by reports, Amazon’s service will have a relatively limited catalogue and lack many current hits due to licensing restrictions.

On that front, it might pose a threat, but one of Amazon’s advantages is the scale of its reach. It has about 244 million active customer accounts, of which around 20 million are Prime subscribers.

That means its total user base is larger than the reach of all competitions combined, Spotify claims it has 40 million users, Pandora has 77 million users, Deezer has 12 million active users, Taiwan’s KKBox has 10 million users, and the recently Apple-acquired Beats Music is reported to have 111,000 subscribers. This could be an important statistic in the ongoing land grab in the music streaming service industry.

Another interesting proposition is Amazon’s potential to integrate with its range of products, which span from its Kindle e-reader, online marketplace, and even its rumoured smartphone (in the making).

Amazon currently has a market consensus price of $419.08 (last night closed at $335.20), with expectations of earnings to rapidly pick up with a forward guidance of a PE ratio of 73.

The company could get an earnings boost if the service entices more users to take up the premium Amazon Prime membership, but fundamentally, despite robust revenue growth, it has weak operating cash flow and poor profit margins.

Ahead of the Singapore Open

The US markets saw their largest declines in three weeks, putting the brakes on the recent rally. S&P 500 was at 1943.89 (-0.35%), Dow Jones was at 16,843.88 (-0.60%) and NASDAQ at 4,331.93 (-0.14%).

This morning, the New Zealand central bank raised interest rates by 250 basis points to 3.25%, giving a lift to its currency. This is the central banks third hike this year and it has signalled for more tightening to come.

We’re calling for the MSCI Singapore to open -0.10 points at 373.35 points.

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