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Amazon's Prime Day Is Coming Back Next Week — and It Matters More Than You Might Think

Three years ago, Amazon.com (NASDAQ: AMZN) debuted its first-ever Prime Day, and since then it's become a Black Friday of sorts for the company. The online event is essentially a massive sale that spans every major category of Amazon's website and offers hundreds of thousands of discounts. Some deals are limited in quantity and others are available only for a few minutes.

The event officially kicks off at 9 p.m. on July 10 and runs for 30 hours straight, and it's exclusively for Amazon Prime Members who pay the company's $99 annual fee to receive perks like free two-day shipping, Prime Video streaming, music streaming, and more.

Prime Day may seem like just a good way to drum up online sales during the middle of the summer, but there are two things that make the day particularly important to Amazon: The amount of sales it generates during the event and its ability to sell more Prime memberships.

Image source: Amazon.

The scope of Prime Day

Amazon is secretive about the number of Prime members it has and doesn't directly say how much it earns from Prime Day, but some educated guesses have been put forth. 

Event Estimated Revenue
Prime Day 2015 $400 million
Prime Day 2016 $500 to $600 million

Data source: Morningstar.

Morningstar analyst R.J. Hottovy estimated that Prime Day 2015 brought in about $400 million for Amazon, and that revenue jumped to $500 million or $600 million for Prime Day 2016.Some estimates have even placed the one-day sales total at $1 billion. 

Amazon's own press release last year said that customer orders on Prime Day 2016 jumped 60% from the year before, and added, "The second annual Prime Day was the biggest day ever for Amazon."   

The company also said last year that its Prime Day was the biggest ever sales day for its own devices and that it sold "hundreds of thousands" of its e-readers.  

Amazon sells many of its own devices at cost, or below, so those sales may not generate much direct profit for the company. But the real benefit comes from how Amazon's customers use those devices. Kindle e-reader and tablet owners are estimated to spend 30% more money on Amazon than non-Kindle owners, according to a 2013 report (the most recent available), and Amazon Echo owners spend 10% more on the site than they did before they owned the device, according to a separate report published recently. 

In short, not only does Amazon generate a lot of revenue on its Prime Day, but the company also sells tons of its devices on those days, which translate into more sales down the road. 

Increasing Prime membership is a big deal, too

Amazon doesn't announce how many new Prime Members are generated through its Prime Day events, but the company has indicated that the event does drive more people to sign up for its service. In 2015, the company said: "More new members tried Prime worldwide than any single day in Amazon history."

Customers can sign up for a 30-day trial membership in order to take advantage of Prime Day, but research shows that they're very likely to convert into paying members after the trial ends. About 73% of customers that try Prime end up paying for the service, according to Consumer Intelligence Research Partners (CIRP). 

Amazon likely isn't making any money from the Prime subscription fees (it's more likely losing money), but it more than makes up for it because of how much more Prime members spend on Amazon compared to non-Prime members. The average Prime member spends $1,300 a year on Amazon, compared to $700 for non-Prime members. 

A continued catalyst for more growth

There's no reason to believe this year's Prime Day will be any less successful than the previous two, which likely means that Amazon will add more members to its estimated 80 million U.S. Prime subscribers, and those members should continue to drive even more sales on the company's website.

Amazon's e-commerce sales accounted for 43% of all revenue generated in the U.S. online market last year, according to Slice Intelligence. The company is likely to add to that percentage this year as Amazon continues to add new members and they spend more money on its platform.

So while online shoppers may see Prime Day as an easy way to find a bargain, Amazon views it more like a massive investment that'll pay dividends for years to come.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.