Amazon Prime is a great deal in the eyes of many Amazon customers, offering free two-day shipping for $79/year, among other benefits. But the price of Prime hasn’t kept pace with the company’s shipping costs, Amazon CFO Tom Szkutak said on the company’s last earnings call that Amazon is planning on raising the price of an Amazon Prime annual subscription by $20 or $40. Considering that Amazon has more than 20 million Prime subscribers, that could translate to a whole lot of cash.
Amazon stock sunk in morning trading on Wednesday after UBS lowered its rating from Buy to Neutral, and cut its price target from $450 to $375. Why? Largely due to its recent consumer survey that suggested customers may react quite negatively to Amazon hiking up the price of their Prime service. In a new note, UBS analyst Eric Sheridan writes that Amazon Prime customers were happy to renew the service — but only at the current rate. 94% of customers indicated they “definitely will renew” or “probably will renew” at the current $79 annual fee. But raise the price point, and those percentages drop precipitously. Cost is the number one reason customers cite when not renewing their Prime membership. At $20 or $40 price increases (the range suggested by Amazon in its latest earnings call), the percentage of people who said they would renew the service dropped to 58% and 24% respectively.
