Amazon.com followed through on plans announced in January to increase the fee customers pay for its Prime subscription service, raising the annual membership $20 to $99 a year.
It is the first Prime price hike since Amazon introduced the service nine years ago. When Amazon said it was considering the move
in January, it cited growing shipping and fuel costs as the reason. The company said it was looking at boosting the membership fee $20 to $40 a year.
An Amazon spokeswoman said that the price increase will begin March 20, when the company will start charging $99 a year for new memberships. Beginning April 17, existing Prime members will pay $99 to renew.
The more than 20 million Prime members get two-day shipping at no extra charge on more than 20 million items from the retail site. They also get access to Amazon Prime Instant Video, the company’s Netflix-like streaming video service.
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And if they own a Kindle e-reader, they can use the Kindle Owners Lending Library, which lets users borrow more than 500,000 digital books free with no due dates.
While the news was expected, Amazon shares climbed 87 cents to $371.51 Thursday, while the broader market slumped on concerns about Russia amassing troops at the Ukraine border. Wall Street has long fretted over Amazon’s thin margins, and a boost in Prime fees would likely increase the company’s profitability.
In a research note, RBC Capital Markets analyst Mark Mahaney said the move should add $300 million to $400 million in additional operating income, which would translate to 45 cents to 55 cents a share in earnings.
And while some Prime members have said in surveys that they would drop the service if Amazon raised fees, most analysts don’t believe the membership churn will be significant. Several point to Issaquah-based Costco, which has seen few defections
each time it has increased fees to its warehouse club.
“We see little likelihood of meaningful churn from the price increase,” said Robert W. Baird & Co. analyst Colin Sebastian in a research note.
Amazon spokeswoman Julie Law disputed the results of a survey of Prime members by Consumer Intelligence Research Partners that found only about half of the respondents would either definitely or probably renew if Amazon raised prices by $20 a year.
“We have done extensive analysis and I can assure you the third-party research is incorrect,” Law said. “We know that customers love Prime, as their usage of the shipping benefit has increased dramatically since launch. On a per customer basis, Prime members are ordering more items, across more categories, with free two-day shipping than ever before.”
Jay Greene: 206-464-2231 or email@example.com. Twitter: iamjaygreene