Amazon Flexes Its Pricing Muscles: The Cost of Its Prime Service Will Increase to $139 a Year

From a Wall Street Journal story by Dan Gallagher headlined “Amazon Flexes Its Pricing Muscles”:

Give Amazon this much–-they know how to cushion a blow.

The tech titan’s fourth-quarter results and accompanying forecast on Thursday weren’t great on the surface—at least for those worried about the massive company’s ability to continue growing at a supercharged rate.

Fourth-quarter revenue grew 9% year over year to $137.4 billion. The company also projected growth of 3% to 8% year over year for the first quarter, below the 11% expected by analysts.

Taken together, the two quarters would represent Amazon’s weakest period of growth since mid 2001…. Online stores—the company’s largest operating segment—saw revenue fall for the first time since it began reporting results for that unit in 2016.

But in what may represent a new, more mature phase for the 27-year-old enterprise, Amazon showed strength on the bottom line. Operating income for the fourth quarter came in at nearly $3.5 billion—51% above Wall Street’s targets.

And most notably, Amazon is raising the price of its Prime service for the first time since 2018. The annual price for U.S. customers will go up 17% to $139….Amazon also showed pricing stability in its crucial cloud segment; AWS operating income jumped 49% year over year and exceeded the unit’s revenue growth of 40%.

Investors cheered the price increase and earnings, sending Amazon’s share price up 13%. The stock was certainly due for some relief; Amazon shares have lagged behind other major techs over the past several months on concerns about slowing growth and rising costs. And the stock was hit nearly 8% in Thursday’s painful tech rout that was triggered by Facebook parent Meta Platforms.

At around 60 times forward earnings, Amazon shares are still expensive for a business growing at only a single-digit rate. The company therefore will remain under some pressure to pick up the pace. Analysts currently expect Amazon’s full-year revenue growth to come in around 12%, with sales projected to accelerate in the second half of the year.

But such growth gets harder for a business that will soon cross $500 billion in annual sales. And Amazon has a strong enough position to bring up its prices while still delivering value. Note that the new monthly price of $14.99 for Prime is 25% below the most expensive streaming plan from Netflix—which doesn’t come with a free shipping service, digital-music access and other bells and whistles. Prime has proved sticky precisely because Amazon throws so much into it. It’s a good bet that few customers will want to wait longer for their stuff—and have less to watch while they do.

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