Is Amazon ready to increase the price of Prime delivery? Wall Street thinks so

New Delhi: When Amazon.com Inc reports on Thursday how it performed during the holiday quarter, a key question will be whether the retailer will eventually raise the price of Prime, its fast-delivery and media subscriptions.

Analysts say the company has every reason to do so. Amazon had to pay higher wages and sign bonuses to attract workers in the labor shortage. He had to spend more on shipping as he could not get the products in the right warehouses. Even steel for construction projects costs more.

According to research firm FactSet, Amazon has forecast an operating profit of between $0 and $3 billion, with analysts estimating that it has landed at the high end of the range, at about $2.5 billion. Still, analysts expect a price hike for Prime soon. Annual fees for US customers increased from $99 to $119 four years ago, and from $79 four years ago to $119.

“It’s about time,” said Michael Pachter of Wedbush Securities. “Shipping costs have gone up, period.”

Mark Mahaney, an analyst at Evercore ISI, said the price hike would be straightforward: fuel is more expensive, trucking is expensive, and the cost of the freight itself is higher. Subscribers — more than 200 million globally, which includes most American households — will pay more because they want faster delivery, he said. This is potentially worth billions of dollars to Amazon’s bottom line.

“They have pricing power because the value proposition is so strong,” Mahane said.

Rival Netflix Inc. also raised its standard US rate weeks ago.

Amazon declined to comment on Prime’s pricing. In October, its CFO Brian Olsavsky said the retailer had no hikes to announce, but “we always look at it.” He cited the value of Prime and the time since Amazon’s previous growth as points to consider.

Among the factors they did not highlight: reliability. Three people who work at Amazon said the company would think twice before raising rates until its operations return to normal, pointing to some shipping delays. The company didn’t add a huge Prime benefit recently, and it hasn’t yet made the one-day delivery the default that it promised nearly three years ago.

“Given all the Q4 delivery challenges, raising the price of Prime does not seem appropriate,” said Scott Jacobson, a former senior manager at Amazon who is now at Madrona Venture Group.

The decision also boils down to math, he said. More valuable than fees is the way Prime changes customers’ behavior, prompting them to spend more on Amazon to get the most out of their membership. Will the additional subscription revenue outweigh any impact on dropout spending?

Amazon said it has worked to reduce how the pandemic and operational difficulties have affected customers. It said it has added major benefits in recent years, such as savings on drugs when paying without insurance, and it has accelerated distribution, adding popular programs to the stream.

Amazon’s latest challenges may come into focus on Thursday in its results, which stem from increased demand, ongoing labor and supply shortages, or both. The National Retail Federation said holiday sales rose 14.1% during November and December, breaking its earlier forecast.

At the tail end of Amazon’s US holiday peak, the Omicron version of COVID-19 has also risen.

“You’ve got to believe that Amazon has been hit hard,” Pachter said, agreeing to the company’s delivery uncertainties complicating the Prime hike.

“When I literally ordered (some) hot sauce to raise my price and it took nine days to get here, it would be a poke in the eye.”

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