Amazon Prime Membership Fees Hiked in US as Wages, Costs Rise

Amazon is raising the price of its Prime membership for the first time since 2018.

An annual membership will go up $20 from $119 to $139 and the monthly fee will go up $2 from $12.99 to $14.99, the company said Thursday.

Jamil Ghani, Amazon Prime vice president, said in a statement, that the price of Prime is increasing with "the continued expansion of Prime member benefits as well as the rise in wages and transportation costs."

For new members, the price change will go into effect Feb. 18. For current Prime members, the new price will apply after March 25 on the date of their next renewal.

Amazon announced on Thursday that it was raising the price of its annual US Prime subscriptions by 17 percent, as it looks to offset higher costs for shipping and wages that it expects to persist this year. Shares rose as much as 17 percent in extended trade as Amazon also beat profit expectations for the holiday season.

If shares increase on Friday by that much, it would be the stock's biggest percentage gain since October 2009 and grow founder Jeff Bezos' wealth by about $20 billion.

For the holiday quarter, Amazon earned $14.3 billion, double its net income from a year earlier. That included a pre-tax gain of $11.8 billion from its stake in electric car maker Rivian Automotive.

On the heels of a windfall from greater at-home shopping in the pandemic, Amazon has poured money into its operations to manage disruptions, most recently the Omicron variant of COVID-19. It has marketed signing bonuses to attract hundreds of thousands of workers in a tight labour market, and it has paid more for shipping because it could not get products into the right warehouses.

Chief Financial Officer Brian Olsavsky told reporters on a conference call that Amazon expected some members to quit, but retention loss "hasn't been large in the past." The annual fees last went up by the same amount four years ago, and four years before that.

Revenue per Prime member "did grow significantly during the pandemic," Olsavsky added.

With more than 200 million members globally, Prime is an incentive to consumers to direct more of their shopping to Amazon. That way, they make the most of their subscriptions. Revenue from such fees for the fourth quarter rose 15 percent to $8.1 billion.

The company announced no changes for Prime members outside the United States.

AD AND CLOUD BUSINESSES SOAR

Operational disruptions, lost productivity and inflationary pressures contributed to more than $4 billion in costs during the holidays, Olsavsky said. Labor-related challenges would continue, though to a lesser degree, this quarter, and the company's capital expenditures on infrastructure would rise in 2022, he told analysts.

Offsetting softer e-commerce trends, key cloud unit Amazon Web Services (AWS) performed better than expected.

"The one clear bright spot for the core business was the continued acceleration in AWS to help bolster a bottom line that was otherwise squeezed, if not for the boost it got from the Rivian investment," Insider Intelligence analyst Andrew Lipsman said.

With demand rising for gaming and remote work during the pandemic, AWS posted a 40 percent increase in revenue to $17.8 billion. Analysts had expected more than $17.3 billion, according to IBES data from Refinitiv.

The unit even won a key customer, announcing Thursday an expanded partnership with retailer Best Buy Co Inc. AWS has long sought rivals as its marquee clients, such as Netflix Inc, to show it is a trustworthy partner and not scooping up competitors' data.

Microsoft and Alphabet's Google recently forecast a positive outlook or results for their cloud businesses as well, though research firm Canalys said AWS stayed ahead. It won 33 percent of cloud infrastructure spend worldwide in the fourth quarter, versus 22 percent for Microsoft and 9 percent for Google.

Amazon also broke out ad revenue for the first time, reporting a 32 percent increase to $9.7 billion for the fourth quarter. That's bigger than the ad sales Alphabet's YouTube reported for the same period.

An Amazon official told reporters that the ability of brands to reach consumers across its ad properties was "largely unchanged" after Apple Inc's privacy tweaks to its operating system.

The changes made it more difficult for brands to target and measure ads on Instagram and Facebook, for instance, causing parent Meta to anticipate around a $10 billion hit this year and sending its shares down 26 percent Thursday.

Still, Amazon forecast first-quarter sales below Wall Street estimates, projecting between $112 billion and $117 billion, or to grow between 3 percent and 8 percent.

Analysts were expecting about $120 billion, according to IBES data from Refinitiv. © Reuters

February 04, 2022