Amazon Luna: Great Idea, Challenging Business Model, Says Analyst

Not one to miss an opportunity to go down a lucrative new path, last week Amazon (AMZN) announced it is launching a cloud gaming platform, Luna.

Luna will launch at an introductory price of $6 a month with a tiered subscription structure, and the new service will go head to head with other big players’ services such as Google’s Stadia, Microsoft’s xCloud, and EA’s Origin Access.

Powered by AWS and integrated with its own live streaming platform, Twitch, the aim is to have the service accessible to any device with a screen. Although users playing on TVs will need to connect a FireTV box or a FireTV stick. Gamers using phones, tablets or PCs already online will be able to access the service without FireTV.

One thing the service won’t have at launch is much content. To start off, only 50 games will be available, and with one exception, all are catalog titles.

Wedbush analyst Michael Pachter calls the service a “brilliant offering with a challenging business model.” Although the analyst believes that at the right price, 1 billion gamers would consider paying for a games subscription service, Pachter points out the inherent problem the new service faces in satisfying both publishers’ and gamers’ needs.

“In order to be perceived as beneficial for publishers, subscriptions must yield greater revenues than game sales. In order to be perceived as beneficial for subscribers, subscriptions must be perceived as a better bargain than game purchases,” the analyst said. “These concepts are inherently in conflict with one another, making the decision to provide content difficult to sell to publishers; without sufficient content, a subscription offering is likely to fail. While we are skeptical, we expect Amazon to adapt its business model to ensure success over the long run.”

Overall, Pachter rates AMZN an Outperform (i.e. Buy) along with a $3,700 price target, which implies a 16.5% upside from current levels. (To watch Pachter’s track record, click here)

Amazon currently has Wall Street’s unswerving support. A full house of 37 Buys results in a Strong Buy consensus rating. With an average price target of $3,732.29, the analysts expect shares to be changing hands at a 17.5% premium over the next 12 months. (See Amazon stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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