Company announces cost of Prime subscription will increase $20 to $119 for US customers, after share price soars to record high of $1,625
As Amazon reported that it had more than doubled its profits to $1.6bn in the first three months of 2018, the company announced that the cost of a Prime subscription would increase to $119 from $99 per year for US customers, The Guardian reports.
The results sent the company’s shares soaring 7% to a new record of $1,625 in after-hours trading, adding billions to the fortune of its founder, Jeff Bezos.
During the earnings call, the company, which said last week that it had signed up more than 100 million people to its Prime subscription service, revealed that the cost of a Prime subscription would increase to $119 per year, effective from 11 May for new subscribers and to renewed subscriptions from 16 June. It represents the first price hike in the US since March 2014.
The company’s chief financial officer Brian Olsavsky said that the price hike was a reflection of the increased cost of handling same-day, one-day and two-day shipping and “increased value” for customers.
In the first quarter of 2018 Amazon collected more than $550m a day in revenue from Amazon.com sales, web hosting, TV production and Whole Foods, the upmarket US grocery chain it bought last year.
Amazon also reported strong growth at its highly profitable cloud computing division, Amazon Web Services (AWS).
AWS, which hosts companies including Netflix, Airbnb and the CIA, reported a 49% hike in sales in the first quarter to $5.44bn. AWS made a profit of $1.4bn – the majority of Amazon’s profits over the quarter.
The company’s success has allowed it to announce a big investment in Amazon Studios, its in-house TV production firm that makes The Grand Tour, presented by Jeremy Clarkson, and the dystopian series The Man in the High Castle.
The strong results came despite Donald Trump’s repeated threats to force the company to pay more tax.
Amazon is the world’s second-biggest company after Apple, with a market value of $723bn. Many experts expect it to overtake the iPhone maker and become the world’s first trillion-dollar company.
Analysts at Credit Suisse believe Amazon’s shares – which have risen by more than 50% in the past six months – could soon hit $1,800. The bank’s Stephen Ju said: “Amazon is one of the best positioned to capture the next wave of retail dollars coming online.” Food and fashion spending are its big targets.
Ju said: “Apparel and groceries remain large pools of dollars still left to come online, and Prime Wardrobe and the linkup between Whole Foods Market content and Prime Now distribution will serve as the spearheads to address those opportunities.”
Michael Olson, an analyst at Piper Jaffray, also said he expected Amazon’s shares to rise, adding even if Trump did launch a tax offensive against the firm it would have a negligible effect.
“Nothing can be certain, except death and taxes … and more Trump tweets on Amazon,” Olson said in a note to clients. “We believe sales tax collection changes would have limited impact on consumer use of Amazon and could actually help Amazon’s relative competitive positioning in domestic ecommerce.”
Olson said research showed that only 5% of the public think about whether companies pay appropriate levels of tax when deciding where to shop. Free and fast shipping, which Amazon provides to Prime subscribers, is seen as a much more important consideration.
Amazon’s results come as the company and its multi-billionaire founder Bezos are coming under greater scrutiny from politicians, regulators and its employees. Last week, the head of the IMF, Christine Lagarde, said technology companies such as Amazon had “too much market power – in the hands of too few”. She said the tech giants’ dominance was “not helpful to the economy or to the wellbeing of individuals”.
Bezos was recently met with a noisy protest from Amazon employees in Germany, who allege mistreatment of workers and tax avoidance. About 450 protesters picketed the offices of media company Axel Springer, which honored Bezos with an award for innovative excellence.
“We have an Amazon boss who wants to Americanize work relationships and take us back to the 19th century,” union leader Frank Bsirske told the crowd of Amazon workers, some carrying placards reading: “Make Amazon pay”.
Andrea Nahles, the newly elected leader of Germany’s Social Democratic party, the junior partner in chancellor Angela Merkel’s government, said Bezos treats his employees badly and is a “world champion in tax avoidance”.
Nahles, who is billed as a possible chancellor candidate for the next election in 2021, added: “This does not deserve a prize.”
Amazon has repeatedly rejected the union’s demands. It says it believes warehouse staff should be paid in line with competitors in the logistics sector, not as retail staff.
An Amazon spokesman said: “Amazon provides a safe and positive workplace for thousands of people across Germany with competitive pay and benefits from day one.”