Amazon’s Prime Problem
$AMZN did not have happy holidays. And it’s going to hurt Prime customers.
During its earnings conference call Thursday evening, the online retailer announced that it would hike fees for its popular “Prime” subscription service, which provides free shipping on certain items and the ability to stream videos from Amazon’s library. The $79-a-year program could rise as much as $40, according to CFO Tom Szkutak.
But the Prime pain could aid investors. Promise of higher margins in the future stemmed a steep sell-off from the otherwise dismal holiday quarter report. Amazon’s EPS of $0.51 on $25.59 Billion in revenues missed consensus estimates by a long shot. Wall street had expected a whopping 17 cents more in EPS and another $440 million in revenues.
The stock fell 9% after the earnings release but recouped some of those losses during the conference call when Amazon announced the coming price increases.
Analysts at Jefferies even raised their price target from $390 to $450 this morning. Their target is nearly 19% more than Amazon’s current trading price.
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Amazon’s revenue guidance also buoyed some investors. The company said sales would be between $18.2 Billion and $19.9 Billion for the current quarter, a growth rate of 13% to 24%. The company expects between a $200 million loss and $200 million income.
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Amazon is tight-lipped about the exact number of prime subscribers, revealing only that it has tens of millions worldwide. Since debuting nine years ago, units available for prime shipping have surpassed 19 million.
Szkutak added that the company’s motivation was to offset increases in fuel and transportation. “Customer usage, on a per customer basis, has gone up pretty dramatically, given the selection and the convenience of the service…shipping cost have gone up a lot, fuel cost have gone up a lot.”
Szkutak also allayed some fears about the quarter by laying the blame on bad weather that delayed shipments of merchandise, forcing the company to offer gift certificates and refunded shipping fees.
~ via Catherine Holahan (@cholahan)
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