Tuesday, February 4, 2014

Amazon may raise prime subscription prices after a bad holiday season

If the world’s biggest, most aggressive, and lowest-cost online retailer had a bad quarter, then it really was one of the worst holiday seasons in years. Amazon reported earnings today that missed expectations on both sales and profit.
Michele Rehle/Reuters

The company had sales of $25.59 billion, a 20% increase from the year before but below analysts expectations of $26.06 billion. The earnings miss was bigger, 51 cents per share versus the 66 cents analysts expected, for a net income of $239 million.

Amazon’s CFO Tom Szkutak said on a conference call with analysts that the company was “considering” increasing the price of its Amazon Prime service by $20 to $40 a year due to high usage among existing Prime members and the “increased cost of fuel and transportation.” Prime, which give customers free two-day shipping and access to streaming video, costs $79 a year and has since the service started nine years ago. Netflix, whose streaming video service competes directly with Amazon’s instant video service, said last week it was considering offering a range of streaming services, with the most expensive at $11.99 to run four streams simultaneously.

Szkutak was mum on details about when the price increase would come.
Amazon’s persistent low profits come from its low prices and a huge amount of investment in the business. The company spent $880 million on property and equipment in the fourth quarter and the Wall Street Journal reported yesterday that Amazon “plans to offer brick-and-mortar retailers a checkout system that uses Kindle tablets as soon as this summer,” which could mean giving merchants tablets and card-readers, another large upfront investment for the company in a competitive, low-margin business.

Amazon also said that they expected sales to be between $18.2 and $19.9 billion in the first quarter of 2014, meaning only 13% to 24% growth over the year. The company also said operating income could come in between a loss of $200 million and a gain of $200 million, compared to $181 million in operating income in the first quarter of 2013.

Amazon isn’t the only online retailer to report weak results: eBay revenue and sales for the fourth quarter also missed expectations. More confirmation of what many analysts and companies have already described as a weak holiday shopping season is expected to come when retailers report their financial results in February.

Amazon’s stock closed today at just over $403.

“It’s a good time to be an Amazon customer,” CEO Jeff Bezos said in a statement.

But not so much to be a shareholder, at least today: the stock is down more than 8% in after-hours trading.

1 comment:

  1. I had not seen this article nor heard the news so thanks for sharing! Scooped it only my news board at Scoop.it.

    ReplyDelete