When Amazon.com releases its quarterly results on Thursday, a key question will be whether the company will finally raise the price of its Prime product delivery and media streaming service.
The company has several reasons for doing this, analysts say. Amazon has had to pay higher wages and bonuses to attract workers amid a tight labor supply.
Amazon predicted an operating profit of between zero and $3 billion for the last quarter and analysts estimate something closer to $2.5 billion, according to research firm FactSet.
The market expects a price increase soon for Prime. The service’s annual subscription in the US last went up four years ago, from $99 to $119. Four years before that it was $79.
“It’s about time,” said Michael Pachter of Wedbush Securities. “Shipping costs have increased, period.”
Mark Mahaney, an analyst at Evercore ISI, said the Prime’s price hike is easily justified by more expensive fuel, more expensive road transport, as well as the product’s own inflation.
Subscribers — more than 200 million worldwide, including most US homes — will agree to pay more because they want fast delivery, the analyst said. This is potentially worth billions of dollars to Amazon’s bottom line.
“They have pricing power because the value proposition is so strong,” Mahaney said.
Rival Netflix has been raising its prices in the US for a few weeks now.
Amazon declined to comment on Prime pricing. In October, Chief Financial Officer Brian Olsavsky said the retailer didn’t have any raises to announce, but “we’ve always looked at it.” He cited the Prime value and the time since the last reset as points to consider.
Among the factors he did not highlight is reliability.
Three people who worked at Amazon said the company would think twice about raising the subscription fee until its operation returns to normal, pointing to some delays in shipping products.
The company hasn’t added a big benefit to Prime recently and has yet to achieve the one-day delivery capability it promised nearly three years ago.
“Given all the logistical challenges of the fourth quarter, raising the price of Prime doesn’t seem appropriate,” said Scott Jacobson, a former senior executive at Amazon who now works for Madrona Venture Group.
Source: CNN Brasil
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