Amazon’s sales forecast misses estimates as it hikes Prime membership in US
Amazon.com said it raising the price of its Prime subscriptions, as it looks to offset higher shipping costs and wages even after beating profit expectations for the holiday quarter.
Shares rose 17 per cent in after-hours trade, after dropping nearly eight per cent before the market’s close as part of a broader technology stock sell-off. If shares rise on Friday by that much it would be the stock’s biggest percentage gain since October 2009.
For the holiday quarter, Amazon earned $14.3bn, double its net income from a year earlier, which included a pre-tax gain of $11.8bn 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 labor market, and it has paid more for shipping because it could not get products into the right warehouses.
Now, it is raising the U.S. monthly fee of Prime, its fast-shipping and media subscription, to $14.99 from $12.99, with annual membership increasing to $139 from $119. The change is effective Feb. 18 for new members, it said.
U.S. subscribers’ annual fees last went up four years ago to $119 from $99, and they went up four years prior from $79. Analysts have said it was time And it has more than 200 million paid subscribers to its loyalty club Prime to whom to appeal for an increase to cover the company’s increased costs.
With more than 200 million members globally, Prime is an incentive to consumers to direct more of their shopping to Amazon so they can make the most of their subscriptions. Such fees for the fourth quarter alone grew 15% to $8.1 billion.
Amazon Web Services (AWS) was a bright spot for Amazon, too. The cloud computing division has booked more sales with demand rising for gaming and remote work. It increased revenue 40% to $17.8 billion, ahead of estimates of more than $17.3 billion.
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 Corp and Alphabet Inc’s Google recently forecast a positive outlook or results for their cloud businesses as well.
Still, Amazon forecast first-quarter sales below Wall Street estimates, projecting between $112 billion and $117 billion, or to grow between 3% and 8%.
Analysts were expecting $120.04 billion, according to IBES data from Refinitiv.
Julian Skelly, Head of Retail EMEA, at digital transformation consultancy Publicis Sapient: “Amazon’s Q4 challenge was to build enough people capacity to match their investments in fulfilment. They have risen to the challenge but had to take a significant hit on profits to do it. However, their bets will likely pay off. As the world emerges from the pandemic, consumers will continue to shop online and will favour brands that can get their goods to them easily and quickly. Amazon is even stronger in this today than back in 2021 and consumers will continue to turn to them for speed and convenience.”
“Amazon’s Q4 growth confirms that they continue to capitalise on the increased consumer demand arising from the pandemic. Although Amazon’s revenue growth has slowed down since the height of the lockdown, it continues to climb at a good pace. Amazon has done well by investing heavily in hiring, while others have struggled to bring on additional capacity.”
“New hires come at a price however, and Amazon have had to pay over the odds for new people – with sign-on bonus and higher wages, which puts them in a risky position for 2022 if consumer demand drops as the pandemic subsides and people go back to stores. If the online shopping habits that consumers have developed over the past 2 years change, Amazon could be stuck with a large cost base and declining revenue.”
Skelly called the Prime move an “interesting one”, which underlined confidence. “They are betting that US customers will value the package more than the $20 hike in annual subscription costs. This comes at a time when overall digital spending is on the rise. Amazon are betting that people will try and squeeze as much out of the subscription price by putting more of this extra spend their way. It’s probably only a matter of time before we see this in other regions”, he added.