When Amazon on Thursday reports how it fared during the holiday quarter, a key question will be if the retailer will finally raise the price of Prime, its fast-delivery and media subscription.
The company has every reason to do so, analysts say. Amazon had to pay higher wages and signing bonuses to attract workers in a labor shortage. It had to spend more on shipping because it could not get products into the right warehouses. Even steel for construction projects cost more.
Amazon has forecast an operating profit between $0 and $3 billion, with analysts estimating it landed at the higher end of the range, at about $2.5 billion, according to research firm FactSet. Still, analysts are expecting a price hike soon for Prime. U.S. subscribers’ annual fees last went up four years ago to $119 from $99, and they went up four years before that from $79.
“It’s about time,” said Michael Pachter of Wedbush Securities. “Shipping costs have gone up, period.”
Mark Mahaney, an analyst at Evercore ISI, said pitching a price hike would be straightforward: fuel is more expensive, trucking is pricier, and goods themselves cost more. Subscribers — more than 200 million globally, including a majority of U.S. households — would pay more because they want fast delivery, he said. That’s potentially worth billions of dollars to Amazon’s bottom line.
“They have pricing power because the value proposition is so strong,” said Mahaney.
Rival Netflix raised its standard U.S. rate weeks ago, too.
Amazon declined to comment on Prime’s pricing. In October, its CFO Brian Olsavsky said the retailer had no hike to announce, but “we always look at that.” He cited Prime’s value and the time since Amazon’s last increase as points to consider.
Among the factors he did not highlight: reliability. Three people who have worked at Amazon said the company would think twice before raising rates until its operation returned to normal, pointing to some shipping delays. The company had not added a major Prime benefit recently, and it has yet to make one-day delivery the default it promised almost three years ago.
“Given all of the Q4 delivery challenges, raising the price of Prime doesn’t seem appropriate,” said Scott Jacobson, a former senior manager at Amazon, who is now at Madrona Venture Group.
The decision also…
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