) has announced an increase in its prime membership annual fee to
$99 from $79, representing a 25% hike.
Amazon's Prime service that provides two-day free shipping was
priced at $79 since its launch in 2005. Recently, Amazon beefed
up the service with the addition of online video streaming and
the kindle library. Amazon's kindle library includes above
500,000 Kindle titles and more than 40,000 movies and TV episodes
for streaming via Prime Instant online video.
The move comes as Amazon is facing intense bottom-line
pressure. The increase in shipping costs and fuel price hike
forced the company to raise the price. In the last reported
quarter, the company's net shipping expenses surged 19% to $1.21
billion. The price hike could negatively impact subscriber growth
amid significant competition from
The prime service has been expanding considerably over the
years, with new Prime membership signups exceeding more than the
company's expectations during peak periods in December. Seeing
the strong demand for the service, Amazon could increase the
prices without affecting growth to a great extent. Though the
number of prime subscribers has not been revealed, analysts
expect the online retail giant has 20 to 25 million prime members
in the U.S.
This strategic move could help Amazon to improve its top line
and margin profile while still generating healthy growth in the
future. Additionally, the company's partnerships with major film
studios and production houses have helped it to expand its
content portfolio faster than its rivals.
Also, Amazon is rumored to be launching a television set-top
box (STB) which will stream video content. The STB will not only
compete directly with
) Apple TV but also with similar products from Roku Inc. and
Boxee Inc., as well as gaming consoles from
) and Sony Corp. that offer video programming.
We believe the company's ever expanding content portfolio will
continue to attract subscribers despite the price rise.
However, significant competition from eBay, Google and other
online retailers remain a matter of concern. Additionally,
Amazon's continuing investments in fulfillment centers could hurt
profitability, going forward.
Currently, Amazon has a Zacks Rank #4 (Sell).
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