Commentary

Amazon Jacks Up Price Of Prime By 20 Bucks As Sales, Profits Soar

Amazon isn’t letting much-better-than-well-enough alone. As it announced yesterday that sales were up 43% and its profit had more than doubled to $1.6 billion during the quarter ending March 31, it also disclosed that it would raise the membership to its Prime free-shipping — and, more recently — original-content, video-streaming service to $119 a year. 

The results were better than expected, and the stock surged 7% in after-market trading.

“The estimate among analysts was that Amazon's profit would shrink from the prior year,” writes Seth Fiegerman for CNN Tech. “The surprise surge in profit was driven by Amazon's cloud computing business, Amazon Web Services, and a fast-growing advertising division that is now a multibillion-dollar business.”

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Indeed, the company “disclosed that its ‘other’ sales, mostly comprised of its advertising revenue, jumped 139% to $2.03 billion for the first quarter, the first time that it’s surpassed $2 billion,” CNBC’s Eugene Kim reports. “‘It's now a multibillion-dollar program and growing very quickly,’ Brian Olsavsky, Amazon's chief financial officer, said during the earnings call.”

The full earnings-call transcript is published on Seeking Alpha.

“Olsavsky said advertising on its site is beneficial to both the customers and sellers on Amazon's platform. Ads help Amazon shoppers discover new brands and products more easily, while sellers are able to more effectively reach their target customers, he said,” Kim continues.

“Amazon said the price on Prime will go up on May 11 for new members, and starting June 16 for renewals of membership for existing members. The company said the increase, the first for its annual plan in four years, was the result of significantly increased costs for the service,” Nick Wingfield writes for the New York Times.

“Those include the billions of dollars that Amazon has poured into financing new television shows and movies which have been added to its video streaming service. On Thursday, it announced with the National Football League a renewed agreement for Amazon to exclusively stream Thursday night football games to Prime subscribers.”

But the real strength in Amazon’s numbers is not in the profits from products you and I buy, which historically have had razor-thin margins.

“Amazon Web Services, the cloud platform, continued to bring in the bulk of the company’s profits. That part of the business had a 26% operating margin in the most recent quarter, compared to 3.8% for the overall company. AWS sales, meanwhile, rose 49% to $5.44 billion as thousands of new companies signed up for the service,” Abha Bhattarai points out for the Jeff Bezos-owned Washington Post.

“[Amazon Web Services] had the unusual advantage of a seven-year head start before facing like-minded competition, and the team has never slowed down,” Bezos said in a statement, Bhattarai recounts. “That’s why you’re seeing this remarkable acceleration in AWS growth, now for two quarters in a row.”

Not that it isn’t having a well-documented impact — if a negative one — on businesses that aren’t in the cloud, such as your aging-out grandmom-and-grandpop retail chains.

“Amazon’s dominant share of the e-commerce market is fueling revenue growth as traditional brick-and-mortar chains increasingly struggle and close more stores. Online sales are growing faster than overall retail, and Amazon currently commands roughly 43 cents of every dollar spent online, according to estimates by research firm eMarketer. The company’s loyal base of Prime members, who analysts estimate spend significantly more than the average shopper on the site, now exceeds 100 million globally,” writes Laura Stevens for the Wall Street Journal.

GlobalData Retail, meanwhile, yesterday released the results of a survey that suggest that the American public does not share the President’s negative views about Amazon. 

“While 6.2% of Americans think Amazon is definitely a monopoly and a further 10.4% believe it might be a monopoly, the vast majority dismiss the idea that Amazon has such power,” according to a release recapping the findings of a survey of 2,505 adults interviewed over three days this week. 

“Moreover, there is a large body of opinion that contends Amazon’s success has been attained by hard work, innovation, and being receptive to customer demand,” managing director Neil Saunders writes in an email. “There is no doubt that Amazon’s rise has been inconvenient for other retailers and that it has caused disruption. In our opinion, this is the market at work. Ultimately, Amazon’s advance has been a force for good — especially for consumers,” he adds.

With all sorts of programming to curl up with while you wait a couple of days to set up that new Echo Dot Kids Edition for your offspring, I’m guessing there will not be mass defections from Amazon Prime in the wake of its $20 increase.

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