(Bloomberg) — Amazon.com Inc. is betting its Prime program provides enough bang that U.S. customers will be willing to pay an extra 20 bucks for an annual subscription.
The increase to $139 a year, announced Thursday when the company released its fourth-quarter results, is the first price hike since 2018. The company has invested billions of dollars to ensure packages get to customers on time despite an acute labor shortage and supply-chain bottlenecks. Prime subscribers also get access to movies, sports programming and photo storage, among other perks.
The company added millions of new subscribers after previous price increases, and, despite high inflation, analysts say Amazon probably won’t lose many customers once the latest hike goes into effect. Investors welcomed the increase and sent the shares soaring after the company reported robust results, fueled in part by a strong showing from its cloud-services division.
“Amazon has historically sold the increase in Prime to consumers by saying ‘we have much more and much more items,’” said Tom Forte, a senior research analyst at D.A. Davidson & Co. “They’re spending billions more on content than they were four years ago. I think there’s a strong case to make for price increases. I think there’s a compelling case that the retention rate will still be high.”
Morgan Stanley analysts led by Brian Nowak wrote in a note on Friday that Amazon attracted a large number of households averaging $55,000 to $70,000 in annual income over the last two years. “In our view, the growing and aging of Amazon’s Prime sub base continues to be a key enabler of Amazon’s retail business,” the analysts wrote.
Amazon shares rose 11% at 9:51 a.m. in New York.
The price change goes into effect on Feb. 18 for new Prime subscribers; it will apply to current members who renew after March 25. Amazon also raised its Prime monthly subscription to $14.99 from $12.99.
The Seattle-based company signed up a combined 60 million U.S. Prime members in 2020 and 2021, according to Consumer Intelligence Research Partners, bringing the total number to 172 million. The research firm attributes the surge in sign-ups to consumers’ stampede online during the pandemic.
Prime helps Amazon convert occasional shoppers into loyal customers. Prime subscribers typically spend more on Amazon than non-members
The price increase struck Evercore ISI retail analyst Greg Melich “as a bit early,” but he said it should “prove effective” given strong renewal rates and expanded benefits.
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