July 15, 2024

Investors think Amazon Prime may raise prices in the US

2 min read
Gold closes high, cautiously following data from China and the US
Gold closes high, cautiously following data from China and the US

When Amazon releases its quarterly results on Thursday, the key question is whether the company will finally raise the price of its Prime product distribution and media streaming service.

Analysts say the company has several reasons for doing this. Amazon had to pay higher wages and bonuses to attract workers in the midst of a tight labor supply.

Amazon forecasts operating profits of zero to $ 3 billion in the last quarter and analysts estimate it to be close to $ 2.5 billion, according to research firm FactSet. The market expects prices to rise soon. The annual subscription to the service in the United States rose from $ 99 four years ago to $ 119. That was $ 79 four years ago.

Michael Bacher of Wetbush Securities said, “The time is near. Shipping costs have risen, time.”

Mark Mahani, an analyst at Evercore ISI, said the rise in prime prices was easily justified by higher fuel prices, higher road traffic and product inflation. “Subscribers – more than 200 million worldwide, including most American households – are willing to pay a higher fee because they want faster delivery,” the analyst said. This is worth billions of dollars for Amazon’s downfall.

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

Competitor Netflix increased its prices in the United States a few weeks ago.

Amazon declined to comment on the Prime price. In October, Chief Financial Officer Brian Olsovsky said there were no hikes to announce to the retailer, but “we’ll always look into it.” He noted the prime value and the last reset time as points to consider.

Among the factors he does not highlight is credibility. Three people who worked at Amazon said the company would think twice about raising subscription fees until its operations return to normal, indicating some delays in shipping the products.

The company has not recently added a major advantage to Prime and has not yet achieved the one-day delivery capability it promised almost three years ago.

“Considering all the logistics challenges for the fourth quarter, raising the price of Prime does not seem appropriate,” said Scott Jacobson, a former senior executive at Amazon, who now works at Madrona Venture Group.

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