Prime Price Hike Amazon’s Gain and Netflix’s Pain?

Prime people knew it was coming. Today, Amazon, $AMZN, officially announced it would raise the price of Prime membership to $99 from $79-a-year. The popular service enables members to receive free two-day shipping on many items as well as allows them to buy movies and borrow Kindle books. But it has eaten into Amazon’s profits as both membership and shipping costs have swelled.

$amzn been waiting for this increased for prime for a while finally can move the stock a bit

— chris (@bullvsbear) Mar. 13 at 10:04 AM

Shares climbed more than a percent on the news. The company forecast the price increase in January during its last earnings call. At the time, management warned that prices could rise as much as $40.

Most cashtaggers saw the $20 increase as a boon for the company. They argued it would enable margin expansion without scaring away sales. Sentiment on the stock stood at 71% Bullish mid-day.

$AMZN price hike could bring $150M in operating income, says Piper Jaffray and an increase could add about $800M in revenue for first year

— SassySPY (@Sassy_SPY) Mar. 13 at 12:13 PM

$BBY Just got an email from $AMZN saying prime membership increasing. Race to the bottom is easing. Time to start making money again.

— Michael (@Fugeman) Mar. 13 at 11:56 AM

However, the bears were not in caves. Some cashtaggers argued that customers would feel pinched by the higher prices and could abandon the service, resulting in lower sales.

$AMZN The law of economics might disagree. A 25% price increase according to the law of elasticity does not mean little churn. Ask AOL 1999

— Gregory Kanter (@applelongandstrong) Mar. 13 at 11:47 AM

Perhaps even more interesting than the debate over the impact of Prime to Amazon’s bottom line was the banter about why the company was raising prices in the first place and what it could mean for video service Netflix, $NFLX.

Some cashtaggers maintained Amazon’s real reason for hiking Prime’s price was not higher shipping costs, as the company claims, but the need to pay for content for its video service. Bulls argued that the extra revenue would help Amazon compete with Netflix by enabling it to create shows capable of rivaling Netflix’s award-winning original series, such as Orange is the New Black. Netflix’s stock fell more than 1% mid-day though it was not clear whether Amazon’s news sparked the sell-off.

$AMZN this price hike is all about their content creation. won't complain the pilots look great. Betas stunk.

— Kay (@EzekielFX) Mar. 13 at 11:18 AM

Others cashtaggers argued that Netflix, which charges about $96-a-year, is too established to feel any pain from Amazon. They argued that the Prime price hike would only deter customers from even trying Amazon’s video service.

$AMZN 2%? CNBC RBC Mahaney is dead wrong…various polls I have seen show decrease of 1/3-1/2 of Prime Memberships..$NFLX 2.0 blunder IMO

— Go Bucks (@DocStoc) Mar. 13 at 11:32 AM

It remains to be seen whether Amazon’s video service will steal Netflix’s business. Amazon has not broken out how many people use its video service. Though it is clear that the company is in the content business. Four of Amazon’s recent television pilots were, reportedly, picked up.

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