Amazon mulling Prime price hike; shares now -4.7% AH


Amazon (AMZN) states on its Q4 CC it's thinking of raising Amazon Prime's price for U.S. subs (currently $79/year) by $20-$40/year.

The remark follows a 2013 in which Prime, from all indications, saw tremendous growth; Macquarie recently confirmed Amazon now has 20M+ Prime subs. Amazon's October decision to hike its free shipping minimum by $10 to $35 may have led to a late-year pickup in Prime sign-ups.

Though off their AH lows, shares continue trading lower in response to Amazon's Q4 miss and largely below-consensus revenue guidance. North American and international revenue growth rates of 26% and 13% Y/Y represent slowdowns from Q3 levels of 31% and 15%.

Price hikes or not, Amazon continues to spend aggressively: Fulfillment spend rose to 11.4% of revenue from 10.6% a year ago. Marketing spend rose to 4.4% from 4%, and tech/content spend rose to 7.2%  from 6.3%. On the other hand, gross margin rose to 26.5% from 24.1%.

Amazon Web Services remains a bright spot: Amazon's North American "Other" revenue (dominated by AWS) rose 16% Q/Q and 52% Y/Y to $1.17B.

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Comments (21)
  • Peter Larson
    , contributor
    Comments (642) | Send Message
     
    Death spiral.
    Amazon has "good" prime customers as well as abusive ones. Raising the price will just kill sales and traffic from the "good" customers.
    30 Jan 2014, 07:04 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2865) | Send Message
     
    They raise the Prime price I'll cancel mine within 5 minutes of getting that email.
    30 Jan 2014, 07:06 PM Reply Like
  • StepUp
    , contributor
    Comments (559) | Send Message
     
    Really??? you wont pay an additional $1.66 per month (assuming 20 raise) for free shipping and all the video content they offer plus all the Kindle benefits ect ect ect?

     

    Amazon Prime is a STEAL even without the free shipping.

     

    and to address the comment below:
    The Netflix debacle was not about the price increase. It was about the absolutely insane idea to spin off of the DVD division that would have forced customers to have two accounts and two queues - one for DVD's and one for streaming.
    30 Jan 2014, 09:13 PM Reply Like
  • fayrweather
    , contributor
    Comments (163) | Send Message
     
    Right, and the first time you have to pay shipping you'll be back
    31 Jan 2014, 01:32 AM Reply Like
  • Andrei Volgin
    , contributor
    Comments (624) | Send Message
     
    Free shipping is available on all orders if you are willing to wait a couple of extra days. I don't argue that Prime is convenient, but how many people need something urgently 20 times a year? I am sure there will be many who would quit.
    31 Jan 2014, 01:40 AM Reply Like
  • $vix
    , contributor
    Comments (654) | Send Message
     
    No I wouldn't pay. I won't eve pay for prime. Nearly every vendor I have bought from on the Internet offers free shipping......for free. Most don't charge sales tax and nearly every vendor offers far better pricing than amazon. I saved over $500 on last weekends purchases alone by avoiding amazon and shopping elsewhere.
    Hulu and crackle offer free streaming .... For free and collectively they are far better than amazon. Netflix has better quality, service, selection and user interface.
    No reason to shop amazon unless you wish to overpay.
    31 Jan 2014, 02:48 AM Reply Like
  • Mike Maher
    , contributor
    Comments (2865) | Send Message
     
    The streaming really isnt that good - there's not a whole lot on there I watch, but I'm young enough that I torrent most of everything. I dont have a kindle, so theres no benefit there either.

     

    As for the shipping - there isnt a terrible amount of stuff I have to have in 2 days that I order online. Since I only have to spend what, $35 to get free shipping for 3-5 days, thats not a huge incentive to spend extra dollars for prime. I have it because I got suckered into a free trial and never canceled, and it lets me wait to the last minute to order books for class, or xmas, or birthdays. But its not a necessity by any means.
    31 Jan 2014, 12:59 PM Reply Like
  • PSound
    , contributor
    Comments (305) | Send Message
     
    Without free shipping, I would dump both the corporate (business) and personal Prime accounts.
    1 Feb 2014, 08:48 AM Reply Like
  • Johnwoods41
    , contributor
    Comments (177) | Send Message
     
    Netflix raised prices, anyone remember what happened ?
    30 Jan 2014, 07:21 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2865) | Send Message
     
    Yea they didnt raise prices $20 tho
    30 Jan 2014, 07:29 PM Reply Like
  • andymajumder
    , contributor
    Comments (111) | Send Message
     
    That's $20 annually, that's 1.66 a month, much less than any starbucks coffee, nobody's going cancel because of that..
    30 Jan 2014, 09:36 PM Reply Like
  • Andrei Volgin
    , contributor
    Comments (624) | Send Message
     
    According to your logic, they should raise price by $20 each month. And each time you would say, "it's less than Starbucks coffee, so nobody is going to cancel."

     

    It does not work this way. When price goes up, demand goes down.
    31 Jan 2014, 01:42 AM Reply Like
  • hubbs21
    , contributor
    Comments (2) | Send Message
     
    Split Prime into Prime Shipping and Prime Entertainment
    30 Jan 2014, 08:02 PM Reply Like
  • Hendershott
    , contributor
    Comments (1831) | Send Message
     
    Free shipping isn't free?
    30 Jan 2014, 08:45 PM Reply Like
  • Jeffry Chmielewski
    , contributor
    Comments (642) | Send Message
     
    They have no choice but to raise the Prime Fee. They are basically bleeding out a slow death. Look at cash flow quality. It is abysmal. Accounts Payable up 5.1bn in quarter... almost as much as operating cash flow. They have no choice but to raise the fee. They are running out of money.
    30 Jan 2014, 08:47 PM Reply Like
  • Weighing Machine
    , contributor
    Comments (909) | Send Message
     
    Yeah but the problem is that wal marts shipping has gotten faster/cheaper and in some cases their pricing is better. I have netflix. So maybe I don't need prime anymore...
    30 Jan 2014, 10:38 PM Reply Like
  • Andrei Volgin
    , contributor
    Comments (624) | Send Message
     
    If $AMZN raises Prime price, it gains $20m for each 1m customers who stay, and loses $1.2bn for each 1m customers that leave. In other words, Amazon can afford to lose only 1 customer out of 60 to keep the revenues steady.

     

    Who is willing to bet that they will lose more than 1.5% of Prime members if they raise the price by 25%?
    31 Jan 2014, 01:09 AM Reply Like
  • cyansmiles
    , contributor
    Comment (1) | Send Message
     
    that is not exactly true. First of all the nexflix, yeah... it hurt at first, but 2 years later, it is stronger than it ever was. Also, if amazon loses a prime member, they dont necessarly lose the customer. I do agree that having prime makes it easy to buy stuff ... you dont think about shipping (or tax in some cases)... so I buy a lot of stuff... but in reality, most of the stuff I buy is low cost stuff. I get the better end of the deal. They only make money on high dollar stuff. Also, they have a low profit margin anyways. So back to your analogy, yeah, they might lose money at first, but if they can keep building on the client base the way they have, if they can keep making new products, if they can stay one step ahead of the spider (as they say), they will not only survive, but they will keep growing. I will say, they will lose a large amount of clients at first, the stock will drop off 30-50% (at first), and people will freak out... but they will recover, and they will recover strong. I just might take a year or two. Honestly, if I had a say in it, I would say, drop it $20 to $59. It might double members... but I am being selfish when I say that, because they would lose money not make it. I would get an extra $20 pizza out of the deal (or whatever).
    31 Jan 2014, 02:00 AM Reply Like
  • PeteCal
    , contributor
    Comments (90) | Send Message
     
    I won a year of prime in Dec. My wife used it three times so far to watch movies. I tried it to buy something but that merchant didn't participate so I was looking at $6 shipping and $5 item. I bought it on ebay instead.

     

    Prime does nothing for me. They can charge whatever they want.
    31 Jan 2014, 10:23 AM Reply Like
  • dm33
    , contributor
    Comments (16) | Send Message
     
    Since I've paid for prime, my spending on Amazon has increased tremendously. Starting tomorrow, they're now going to charge sales tax. Raising prime price will reduce the advantage. I won't pay that much more for Prime. I will shop elsewhere and Amazon will lose a large portion of my business.

     

    Prime, like the Kindle fire, is meant to be a loss leader to get you to buy things from Amazon. If they raise the price its not only the revenue from Prime, but the lost sales from Prime customers that will affect the bottom line.

     

    I tend to think Amazon is too smart to do that and very focused on increasing sales. They might break out other benefits from Prime. If they do raise the price for prime, it seems like an act of desperation from a company otherwise focused on increasing sales.
    31 Jan 2014, 11:34 AM Reply Like
  • Matthew Davis
    , contributor
    Comments (4747) | Send Message
     
    I can understand a small bump up, like $5-10 but $20-40 you are talking Netflix crazy now. That's insane, if they could never had made a profit doing it at $79 then why did they do it in the first place? $20-40 is too extreme they suck if they do this. I have already cancelled my Ebay, Paypal and Netflix accounts, they will be next.
    1 Feb 2014, 10:27 AM Reply Like
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