Home » e-commerce » Amazon may hike Prime cost as earnings disappoint and further challenges lay ahead of the company for which it needs to adjust its business model and expand its operations

Amazon may hike Prime cost as earnings disappoint and further challenges lay ahead of the company for which it needs to adjust its business model and expand its operations

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… first time after 9 years

The main attraction of Prime is that the shipping service is bundled with a mature streaming video service for the price of Netflix’ service only:
Amazon or Netflix [Brent Byron YouTube channel, Dec 5, 2012]

Comparison of Amazon prime and Netflix streaming video services. Both amazon and netflix have movies and tv shows, some of the same titles, but netflix has many more movies available than amazon (20,000 vs 12,000). You can also bundle the dvd service with streaming service on netflix. Price is similar for the two services. Amazon gives free shipping on some items with prime accounts, but has no dvd rental service, just streaming. I’m an affiliate of netflix.

but wait:

Considering joining Amazon Prime for the free shipping and free streaming video service this holiday season? Here’s why you may want to rethink that move…
Tom Forte, Telsey Advisory Group; David Pearl, Epoch Investment Partners; Natali Morris, independent technology reporter; and CNBC’s Jon Fortt discuss Amazon’s fourth quarter earnings report.

Amazon.com posted quarterly results Thursday that fell short of expectations and handed in a weak revenue outlook.

Additionally, Amazon said during its conference call it may increase the cost of its popular Amazon Prime subscription by $20 to $40 due to higher fuel and other shipping costs.

There were no immediate details on when or how Amazon would make the decision during the call. The company did not disclose the exact number of Prime customers.

“We have added massive selection and digital content to the service—Kindle owners lending library, Prime instant video,” according to CFO Thomas Szkutak during the call. “It’s great value for customers. We see customers love it and we will continue to make that better over time.”

In December, Amazon said that its Prime service had a “record-setting holiday season.” According to the company, more than 1 million people signed up in the third week of December alone. Prime members get free two-day shipping on eligible items, free streaming of 150,000-plus movies and TV episodes, and free e-book borrowing from a library of more than 475,000 titles.

The world’s largest Internet retailer posted earnings of 51 cents a share on sales of $25.59 billion, versus expectations for 66 cents a share on sales of $26.06 billion, according to a consensus estimate from Thomson Reuters.

In addition, the company posted current-quarter sales guidance of between $18.2 billion and $19.9 billion, missing expectations for $19.67 billion.

The company said international sales gained just 13 percent, lower than Wall Street forecasts for around 14 percent to 15 percent.

Shares initially shed nearly 10 percent in extended-hours trading before gradually recovering from lows. The stock rallied nearly 5 percent during the regular session Thursday. (Click here to get the latest quotes.)

The stock has had a stellar run since the lows of 2009, with shares surging close to the $400 mark by the end of 2013.

“It’s a good time to be an Amazon customer. You can now read your Kindle gate-to-gate, get instant on-device tech support via our revolutionary Mayday button, and have packages delivered to your door even on Sundays,” said CEO Jeff Bezos in the company’s press release. “In just the last weeks, Forrester, YouGov, and ForeSee have all ranked Amazon #1—and we believe we’re just scratching the surface of what world-class customer service can be.”

Earlier this week, the Wall Street Journal reported that Amazon plans to move into the mobile payments business, offering brick-and-mortar retailers a checkout system that uses Kindle tables as soon as this summer, citing sources.

Recently, Amazon also expanded its grocery delivery service to two new U.S. cities, introduced Sunday package delivery with the Postal Service and reached agreements to build warehouses in several states.

Amazon Prime TV Commercial via @RichBTIG [BTIGResearch YouTube channel, Jan 2, 2014]

Aired on IFC network on 12/29/13 Richard Greenfield & Brandon Ross, BTIG http://www.btigresearch.com

From Amazon.com’s Management Discusses Q4 2013 Results – Earnings Call Transcript [Seeking Alpha, Jan 30, 2014]

Tom Szkutak – Chief Financial Officer, Senior Vice President:

For Q1 2014, we expect net sales of between $18.2 billion and $19.9 billion or growth of between 13% and 24%. This guidance anticipates approximately 30 basis points of unfavorable impact from foreign exchange rates.

GAAP operating income, or loss to be between a $200 million loss and $200 million in income, compared to $181 million in income in the first quarter 2013. This includes approximately $350 million for stock-based compensation and amortization of intangible assets.

We anticipate consolidated segment operating income, which excludes stock-based compensation and other operating expense to be between a $150 million loss and $850 million, compared with $441 million in the first quarter of 2013. We launched Prime in the U.S. nine years ago with free, unlimited two-day shipping on one main items in an annual membership priced at $79. Today Prime Selection is growing to over 19 million items.

Even as fuel and transportation cost have increased, the $79 price has remained the same. We know the customers love Prime as the 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.

With the increased cost of fuel, transportation as well as the increased usage among Prime members were considering increasing the price of Prime between $20 to $40 in the U.S.

In terms of details of how we would roll out the Prime price increase that we are considering, you have to wait on that, but certainly as I mentioned, it’s something that we haven’t had any increase in the nine years. Customers certainly love Prime.

The available units for shipment have grown dramatically from one million to over 19 million over the last nine years. We haven’t had any price increase. Customer usage, on a per customer basis, has gone up pretty dramatically, given the selection and the convenience of the service. So that’s why we are considering, of course during this nine year period, shipping cost have gone up a lot, fuel cost have gone up a lot. So that’s certainly the basis for us taking a look at it but in terms of the details, we will be back when we make those decisions back to customers.

We have added a lot of new services to Prime beyond this shipping benefits you mentioned it owners and then library. Certainly video, Prime Instant Video we are investing very heavily, and so those are certainly costly. Those aren’t the reasons for the price increases that were contemplating. That decision again is just based on – we have not done our price increase nine years. Shipping costs have gone up if you look back very considerably over the nine-year period.

Customers like the service, they are using it a lot more and we have a lot more selection. They are using it lot more and so that’s the reason why we are looking at the increase.

In terms of the international growth, the growth was solid, with revenue [exchange] of 15%. The unit growth was considerably faster than that, primarily because third-party growth we saw very strong and certainly FBA [Fulfillment by Amazon – Build your Business with Amazon Services] is a component of that and when you think about the capacity that we built it for not only for retail, but also for our third parties and we are able to offer your our FBA items through Prime as well, so we are very happy with the capacity that we have built across the world, including our international operations and that’s reflect in the results that you are seeing.

Yes, we like it the way it is. Yes. But again, if you look back at what we have done, you can’t expect that we might do going forward, but certainly we have had, in the U.S., Prime in place for nine years. We have added a massive selection during that time period. We have also added, this is on the physical side and we have also added digital content as well to the service in the U.S. with Kindle Owners’ Lending Library as well as Prime Instant Video and so it’s a great value for customers. We see that customers love it and we are going to continue to try and make that even better for customers over time.

We are seeing customers like the digital content. We are seeing great engagement, we are not breaking out in terms of the form, but again we are seeing great engagement. We do track very closely the Prime customers to come from free trials for examples.

They come through the pipeline for digital content from free trial standpoint, we track those conversions and we see that’s growing very nicely. We do look at customers that use our Prime Instant Video, what are their shopping patterns look like both side of digital content.

Beyond the free content we have on there, do they buy more digital content and certainly we are seeing nice growth in digital content because of that, because they do. They also do a lot of shopping physical categories as well, so those things we are tracking very closely and it’s a great pipeline for us as customers look at the total value proposition for Prime, including digital content.

Amazon Prime Instant Video VS Netflix Streaming [DaVirtualGeek YouTube channel, Jan 23, 2014]

A quick look at the differences between the two popular streaming services Amazon Instant Video and Netflix. More Details Below. Pricing and Selection: Netflix Streaming: $7.99 per month or $95.88 Annually. Netflix says, “We have thousands of other movies & TV episodes available to watch instantly ” Amazon Instant Video (Included with Amazon Prime) $79.99 per year. $39.99 per year for students. Amazon says they have, “41,000 movies & TV episodes” JOIN Amazon Prime Student FREE: http://www.amazon.com/gp/student/signup/info?ie=UTF8&refcust=WS5HDYTCDR66IVLIYTE55GDU2U&ref_type=generic

From: Amazon.com Announces Fourth Quarter Sales up 20% to $25.59 Billion [press release, Jan 30, 2013]


  • Amazon announced a record-setting holiday season for Amazon Prime, the annual membership program with tens of millions of members worldwide. Amazon is working hard to increase capacity for the Prime program. In December, Prime was so popular that Amazon limited new Prime membership signups during peak periods.
  • Prime Instant Video selection increased from 33,000 to more than 40,000 movies and TV episodes in 2013.
  • Selection in the Kindle Owners’ Lending Library in 2013 grew from 250,000 books to more than 475,000 books-books that Kindle owners with a Prime membership can borrow for free with no due dates.

About Amazon.com

… The new Kindle Fire HDX features a stunning exclusive 7” or 8.9” HDX display, a quad-core 2.2 GHz processor, 2x more memory, and 11 hours of battery life, as well as exclusive new features of Fire OS 3.0 including X-Ray for Music, Second Screen, Prime Instant Video downloads, and the revolutionary new Mayday button. The all-new Kindle Fire HD includes an HD display, high-performance processor and dual speakers at a breakthrough price. …

Related (only for the last 365 days):

More than a billion units worldwide were ordered from Marketplace Sellers, including local businesses of all sizes, on Amazon during 2013

The number of active Marketplace Sellers using the Fulfillment byAmazon service grew more than 65 percent year-over-year worldwide

Amazon today announced a record-setting year for Marketplace Sellers with businesses of all sizes selling on Amazon. In 2013, Marketplace Sellers on Amazon sold more than a billion units worldwide, cumulatively worth tens of billions of dollars. Marketplace Sellers around the world also continued rapid adoption of Fulfillment by Amazon (FBA), a service that Marketplace Sellers can choose to have Amazon ship their products directly to customers and offer Amazon Prime benefits, FREE Shipping, simple exporting to customers around the world, easy returns for orders placed on Amazon and great customer service. The number of active Marketplace Sellers using the FBA service grew more than 65 percent year-over-year worldwide.

The Amazon Marketplace, which consists of more than 2 million Marketplace Sellers of all sizes worldwide, experienced record growth during the busy holiday selling season. On Cyber Monday, more than 13 million units were ordered worldwide from Marketplace Sellers on Amazon, growing the total units ordered by over 50 percent year-over-year.

“It has been an incredible year for Marketplace Sellers including popular brands and businesses of all sizes selling on Amazon. Our customers have told us they appreciate the hundreds of millions of products listed by Marketplace Sellers that range from all types of apparel to a vast selection of electronics items,” said Peter Faricy, VP for Amazon Marketplace. “Our goal every day is to make selling onAmazon as easy as possible. Fulfillment by Amazon is a wonderful service as it gives all Marketplace Sellers the option of warehousing their inventory in our fulfillment center network. It has been a game changer for sellers because their items become eligible for Prime benefits, which drives their sales and benefits consumers with additional Prime selection.”

“We experienced explosive sales growth for items listed on Amazon, 10x sales increases in some cases, when offering attractive holiday deals. For many items, all available inventory was sold out within an hour of the deal posting! We are already making selling on Amazon a core component of our marketing and sales planning for holiday 2014 and beyond,” said Mike Mitchell, COO for MMP Living, a home goods and toy retailer based in Colorado. “By leveraging Amazon’s FBA program we were able to focus on sourcing and offering products of the highest quality, knowing that Amazon’s world-class infrastructure will handle getting our products out to customers quickly. With the focus always on the customer coupled with the fastPrime Shipping options, Amazon is second to none.”

Prime Instant Video to be the exclusive subscription streaming home for Veronica Mars TV show in deal with Warner Bros. domestic Television Distribution

With Prime Instant Video fans can catch-up on all three seasons of the Veronica Mars series before the movie debut on March 14

Exclusive film distribution deal brings A24 movies such as Spring Breakers and The Bling Ring to Prime Instant Video

Deal includes Vikings, the #1 new cable series of the year in the U.S. along with popular MGM films for Prime members to stream instantly

Amazon Prime members can now watch Under the Dome episodes on an unlimited basis just four days after their initial broadcast

Under the Dome is also available for purchase and download exclusively on Amazon Instant Video

Prime members now have access to even more episodes of NOVA,Masterpiece, and documentaries from Ken Burns along with PBS KIDS programs such as Caillou, Daniel Tiger’s Neighborhood andWild Kratts

PBS KIDS programming available to customers with Kindle FreeTime Unlimited

Prime Instant Video is adding thousands of episodes fromNickelodeon, Nick Jr., MTV and COMEDY CENTRAL—including a collection of subscription TV shows customers won’t find anywhere else—with favorite kids shows like Dora the Explorer, Go, Diego, Go!,Blue’s Clues and The Backyardigans, all available to Kindle Fire customers with FreeTime Unlimited

Multi-year deal will bring Amazon customers the TV shows and movies they want to watch, when they want to watch them, and on any device they want to watch them on—including Kindle Fire, iPad, iPhone, Roku and more

Also as a part of the agreement with NBCUniversal, popular children’s shows including Curious George and Land Before Time will be available to customers with Kindle FreeTime Unlimited

Prime Instant Video is now home to previous seasons of popular shows like Rachael Ray’s Week in a Day, Anthony Bourdain: No Reservations, Cupcake Wars, House Hunters, Iron Chef America, Chopped, and Throwdown With Bobby Flay

This is the first online-only subscription distribution deal for Scripps Networks Interactive

Fan-favorite series The Shield will also join the Prime Instant Video catalog for Amazon Prime members to instantly stream at no additional cost

Amazon recently announced that PBS favorite series Downton Abbeyand the anticipated summer series Under the Dome from CBS will soon be available exclusively on Prime Instant Video

Amazon Prime members now have more of their favorite CBS series to choose from for instant streaming, at no additional cost on hundreds of devices

New programming now available to Amazon Prime members includes America’s Next Top Model, Everybody Loves Raymond, Undercover Boss, United States of Tara and more

New TV series based on Stephen King novel and produced by Steven Spielberg’s Amblin Television to premiere on CBS Television Network in June

Amazon Prime members will have unlimited access to series episodes just four days after broadcast and Under the Dome will also be available for purchase and download exclusively on Amazon Instant Video

Subscription streaming of “Downton Abbey” — the most watched TV series of all time on Prime Instant Video — to become exclusive toAmazon


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