Amazon Prime Is Now $119 a Year After 20% Price Increase
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Amazon says they're raising prices because the Prime membership program is growing too rapidly.
Amazon announced on Thursday that the company is raising the prices of its Prime membership in the United States for the first time in four years. Starting on May 11, Amazon customers who are new to the Prime membership program will have to shell out $119 a year for free two-day shipping and Amazon's slew of other entertainment perks. Previously, Prime was just $99 a year, or a $8.25 per month. The last time that Amazon raised prices was in 2014, when customers paid just $79 a year.
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According to Recode, Amazon's CEO Jeff Bezos shared that Prime memberships had surpassed more than 100 million subscriptions worldwide, and that Prime members account for more purchases on the site than any other shopper.
On the same call, Amazon CFO Brian Osavsky shared that the Prime program has become increasingly costly for Amazon—the sheer number of Prime-available products has soared from 20 million in 2014 to over 100 million products (and groceries) that customers can purchase today.
While the price increase could translate to frustrated customers—or potentially be a downside for those considering membership—Prime memberships could become even more valuable for savvy Whole Foods shoppers in the future. Just last week, Amazon and Whole Foods announced it would discontinue its current rewards program in the store and hinted at a new program where Prime members could have an exclusive 10 percent discount on already-discounted items.
The New Amazon Prime Price Increase Is a Risky Move
In late January, Amazon.com (NASDAQ:AMZN) CFO Tom Szkutak told investors that Amazon was thinking about raising the Amazon Prime price by $20-$40 this year. This week, the company confirmed that the price of a Prime subscription will rise by $20 to $99, starting next week for new sign-ups and next month for renewals.
Amazon shareholders seemed to like the move, sending Amazon stock up on a down day for the market. However, while the Prime price increase should improve Amazon's earnings somewhat, that won't necessarily lead to good results for shareholders. Any decrease in Amazon's revenue growth from people who drop Prime could cause severe multiple contraction, more than offsetting earnings growth.
The case for a price increase
When Szkutak announced the potential price increase in late January, he stated that Prime usage and shipping costs have been rising for years. However, in the program's nine-year history, Amazon had never raised the price. A price increase would offset Amazon's rising Prime-related expenses.
Amazon is raising the price of Prime to offset rising fuel costs.
Many analysts -- including The Motley Fool's own David Hanson -- think virtually all current Prime members will accept the price increase. Bullish analysts argue that Prime customers get a lot of value out of the service.
Furthermore, $99 is a very reasonable price considering all of the features that come with a Prime membership, including free two-day shipping on most items, free access to books in the Kindle Lending Library, and more than 40,000 streaming movies and TV episodes through Prime Instant Video.
If everybody is willing to pay an extra $20, then there is no downside to raising prices. In fact, by demonstrating its long-term pricing power, Amazon would give investors greater certainty about its ability to deliver huge profits in the decades ahead.
The flip side
However, what if some current Prime members aren't willing to pay an extra $20 a year? Many Amazon Prime members have stated that they won't renew if the price increases.
It's true that people often don't follow up on their stated intentions from a survey. However, these surveys have found that about half of all Prime members would not renew at a higher price.
If just 10% of Amazon's Prime membership base decides to drop the service rather than pay more, this would have a noticeable impact on revenue growth. The law of large numbers is already starting to cut into Amazon's growth rate. Any loss of Prime subscribers would aggravate this trend.
To be clear, the risk isn't that Amazon's revenue suddenly stops growing. However, analysts are currently expecting the company to post revenue growth of approximately 20% for the next two years. If Amazon's revenue growth instead drops to 15% by next year, the stock would probably warrant a lower earnings multiple.
A Prime price increase might bring in an extra $300 million to $400 million of "free" revenue next year, according to analyst Mark Mahaney. After tax, that would add around .40-.50 to Amazon's earnings -- not very much at all compared with Amazon's roughly $370 stock price. The downside risk from multiple contraction is a lot greater than the upside from profit growth.
A familiar sight
The gushing about Amazon's price increase from bullish analysts reminds me of the 2011 Netflix (NASDAQ:NFLX) price increase. By now, many people may have forgotten that Netflix stock peaked at more than $300 the day after Netflix announced its price increase. At the time, analysts were bullish on the potential for higher prices to boost Netflix's profit margins.
Analysts loved Netflix's price increase in 2011 -- but they underestimated customer backlash
Netflix stock eventually made it back to $300 (and beyond), but only after investors got a huge scare -- and many probably dumped their Netflix stock when it was well below its July 2011 high. Analysts simply underestimated how many customers would drop Netflix over a $6-a-month (or 60%) price increase.
Of course, Amazon is not raising the Prime price by 60%. While its 25% price increase is risky, a 50% increase to $119 would have been far more likely to chase away subscribers. Still, the "Netflix 2011" scenario may repeat itself in miniature with Amazon over the next year or two. A slowdown in revenue growth below 20% could make a lot of investors more wary of Amazon's sky-high valuation.
Amazon's decision to raise the Prime membership price should boost the company's profitability, but not in a "game-changing" way. On the other hand, if enough people drop Prime that Amazon's revenue growth slows, Amazon stock could take a big hit, as its valuation is driven by investors' expectations for rapid revenue growth.
Thus, while there is potential upside for Amazon investors if revenue growth continues without a blip, the potential downside is a lot more significant. Amazon's decision to raise the Prime price is the riskiest move it has made in many years.
Amazon Prime yearly subscription increasing to $119 starting in May
Amazon's Q1 2018 earnings were just released, and the company once again beat estimates. But during the analyst call, it wasn't all good news — at least for customers. Amazon says that it will be increasing the yearly subscription price of Amazon Prime in the U.S. to $119 from the current $99.
This new price will go into effect for new Prime sign-ups starting on May 11, just a couple weeks away, while those of us who already have Prime won't be hit by the price increase unless our renewals come due on or after June 16. Amazon will send out emails to current subscribers with details prior to the change.
The month-to-month subscription option, which is $12.99/month ($156/year) after receiving a price bump earlier this year, will remain.
Amazon just boosted its (already massive) Prime revenue with a single move.
Amazon recently revealed that it has over 100 million paid Prime members worldwide — not all of whom pay the equivalent of $99/year, mind you — which is a hefty amount of recurring revenue that Amazon can rely on. Prime has increased in price a couple times since its launch (though the last annual increase was in 2014), and Amazon has regularly tinkered with other subscription options for its music service and Amazon Fresh grocery delivery. It has, of course, increased the value of Prime with new additions to the service as well — and Prime subscription growth doesn't seem to be slowing down.
Most people with Prime are deeply invested in it at this point and will simply say "sure, what's another $20?" — but from Amazon's perspective, that's a 20% boost in U.S. subscription revenue without having to grow its customer base. Sure the company is likely to lose a few Prime subscribers who are disgruntled with the increase, but that small loss will be more than covered by the aforementioned 20% increase from each remaining customer. A smart move, no doubt, even if it isn't particularly customer-friendly.
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Shoppers who receive certain types of government assistance, including Medicaid, may qualify for a discounted rate of $5.99 per month, or $72 a year, which will not increase as part of the overall hike. To check eligibility, you can upload a photo of your Medicaid or EBT card, which is given to recipients of programs such as Temporary Assistance for Needy Families (TANF), Women, Infants, and Children (WIC) and Supplemental Nutrition Assistance Program (SNAP). Amazon notes on its website that funds on EBT cards cannot be used to pay for Prime memberships.
Walmart and Target -- among Amazon's largest rivals -- now offer free two-day shipping on orders over $35. (Amazon's current threshold for free shipping is orders over $25.) Nordstrom, Apple and Neiman Marcus, meanwhile, ship all orders gratis. Need something now? Google Express offers free same-day delivery on a number of items from stores such as Costco, PetSmart and Lowe's.
A growing list of retailers also offer unlimited free shipping for an annual rate. (Think Prime on a smaller scale.) A $10 Sephora Flash membership, for example, gets you free shipping on a year's worth of beauty products, while a similar pilot program at Bed Bath & Beyond costs $29.
How to avoid the Amazon Prime price increase and keep paying $99 a year
Amazon has announced that the annual price of Prime membership will increase from $99 to $119 on May 11th for new members and on June 16th for existing members. If you’re willing to pre-pay your membership dues, there is a way to ensure you pay the current $99 for Prime, instead of the new $119 price.
To avoid the Prime price increase, you can purchase a Gift of Prime for yourself now and apply it to your account the day your current membership expires. If you redeem the Prime gift while your Prime membership is still active, the $99 you paid will simply be credited to your account and your Prime membership will not be extended, so you have to wait until your Prime membership expires before redeeming the Prime gift. If you are not a current Prime member, you can still purchase a Gift of Prime for yourself now and redeem it whenever you want in the future, even after the price increases.
If you let your Prime membership expire and redeem the Prime gift within a few days of your existing membership expiring, nothing about your Prime account will change. You will not lose any playlists, watch lists, or other Prime-specific configurations. Your Amazon account will even continue to display that you’ve had Prime since whatever date it currently lists. The gift of Prime never expires, so you could even purchase multiple gift memberships for yourself to redeem multiple years from now. I’ve read that people who used this trick prior to 2014, before the increase from $79 to $99, to purchase Prime gifts for $79 are still able to apply the gifts to their account today without any issues.
How to keep paying $99 for Amazon Prime
- Go to the Manage Prime Membership page and note the date listed under “Next Payment” in the left-hand column. This is the date your Prime membership will expire and this is the date that you will redeem the Prime gift membership. You should mark this date on a calendar, although, I’m sure Amazon will email you about it.
- Go to the Edit Membership page and select the “End My Benefits” button at the bottom. Don’t worry, this step just cancels the automatic Prime renewal. You will still have all of your Prime benefits until the date in step 1.
- Purchase a one-year Gift of Prime voucher for yourself. You can purchase as many as you would like and apply them multiple years in a row as your Prime membership expires. If you ever change your mind and want to go back to auto-renewing, you can redeem the voucher(s) and the full $99 that you paid will be applied to your account as Amazon Credit.
The only negative to this method is that if you are still using the grandfathered system for sharing Prime membership, which permits you to share your membership with 4 people, you will lose that grandfathered benefit when you allow your account to expire for a day.
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Amazon to raise Prime membership in US from $99 to $119
The 20 percent price hike goes into effect May 11 and hits existing customers' renewals on June 16.
This is only the second time Amazon has increased the annual Prime fee.
The annual price of an Amazon Prime membership in the US is going up by 20 percent.
The e-commerce titan on May 11 will hike Prime's fee to $119 a year from $99, finance chief Brian Olsavsky said Thursday during an earnings call with analysts. The new price will apply to existing Prime members' renewals starting June 16. If your regular renewal is on or after June 16, you won't be allowed to prepay for another year at the currently lower rate, an Amazon spokeswoman said.
It's only the second time Amazon has increased the cost of its annual Prime membership since it was first introduced in 2005. In 2014, the company raised the price to $99 from $79 .
Even so, the boost to Prime's fee -- particularly above the psychologically significant $100 level -- could threaten future renewals and new Prime customers. Prime is one of the company's most important businesses, helping build loyal, repeat customers who tend to spend about twice as much with Amazon as do non-Prime shoppers.
Prime's biggest customer base is in the US and most of those members sign up on an annual -- instead of monthly -- basis. That means tens of millions of US customers will be affected by the change.
Amazon CEO Jeff Bezos just last week revealed that Prime hit over 100 million paid members worldwide, owed in part to the company's continued push to add new benefits, including the Prime Video streaming service, more same-day shipping, the Prime Now rapid delivery program and the Prime Day annual sale.
"We still feel this is the best deal in retail and we work to make it better and better every day," Olsavsky said on the call.
He added that the price hike was partly to reflect the higher costs of offering Prime, with its rising shipping fees and additional perks. The number of eligible items for two-day shipping at no additional cost increased in recent years from 20 million to more than 100 million items in the US, the company said.
The cost of the new annual membership remains a better deal than the monthly fees, which amount to $155.88 a year. Amazon raised the price of monthly US memberships in January by 18 percent to $12.99.
One way Amazon has been able to boost membership fees without raising the annual price beyond $100 is by creating a bevy of add-on subscriptions, such as Prime Pantry, Amazon Music Unlimited and Audible Channels. That effort, perhaps, wasn't doing enough to help Amazon recoup its rising shipping costs for Prime members.
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Amazon's first-quarter earnings, which were also reported Thursday , were again strong, with the company posting its second consecutive quarter of over $1 billion in profit. Shipping costs in the quarter rose 38 percent from a year earlier to $6.1 billion. Subscription fees, which include Prime memberships, rose 56 percent to $3.1 billion from a year earlier.
Michael R. Levin, co-founder and partner of Consumer Intelligence Research Partners, said Amazon will likely take a temporary hit from the price hike, with some Prime members opting not to renew and others avoiding signing up.
But, with Prime experiencing strong renewal rates, at over 90 percent after the first year and even higher after the second year, he said most customers will accept the higher price.
"After you sign up for that second year, they've got you for life, man," Levin said. "This is a pretty strong signal that they're pretty confident that they'll keep a lot of members."
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States That Levy Tax on Amazon Prime
As stated earlier, 34 US states and the District of Columbia levy sales tax on Amazon Prime membership fee. You can check out the list of these states on Amazon’s ‘Tax on Amazon Prime Page’. If there is any change in the list, it will be updated there.
But for now, Amazon Prime is subject to sales tax in the following states :
- District of Columbia
- New Jersey
- New Mexico
- New York
- North Carolina
- Puerto Rico
- Rhode Island
- South Carolina
- South Dakota
- West Virginia
For the remaining states in the US, there is no tax on Amazon Prime membership.
Do you want to get the Prime membership at a discount price?
Amazon hikes up price of Prime to $119 a year
Amazon (AMZN) announced on Thursday that it’s raising the price on Amazon Prime, its popular subscription service, from $99 a year to $119 a year.
Starting May 11, anyone who signs up for a new Prime subscription will find they need to pony up $20 more per year than previously. For current Amazon Prime users, they’ll see a bit of a grace period, with Prime renewal prices climbing to $119 a year on June 16.
As Amazon CFO Brian Olsavsky pointed out on the company’s earnings call on Thursday afternoon, this is the second time Amazon has raised prices on Prime, with the first price hike occurring in March 2014.
“We still think it’s the best deal in retail, and we’re continuing to make it better each day,” Olsavsky said on the earnings call.
Since Amazon launched Prime in 2005, the subscription service has transformed the way shoppers experience online retail by standardizing 2-day fast shipping. The company has also added on a stable of media services for Prime users to enjoy, including video and music streaming. Indeed, Prime has become so successful, Amazon CEO Jeff Bezos announced in mid-April a milestone of more than 100 million Prime users.
Despite that, however, Prime is thought by many analysts to be a money-losing proposition — the company, instead, views it as a way to hook and retain shoppers — with some estimates suggesting the company has lost billions of dollars on Prime in more recent years because Amazon does not traditionally factor in a big profit margin into services and products like Prime. Its Kindle e-readers, for instance, are sold “at-cost,” meaning Amazon does not make a significant profit off the sale of those devices.
No doubt Thursday’s announcement is an effort on Amazon’s part to help ameliorate those losses, particularly as it continues to pour over $3 billion a year into the creation of original series and films.
The news came as Amazon released first-quarter 2018 earnings on Thursday. The Seattle tech giant reported earnings of $3.27 per share on $51 billion in revenues for the quarter, blowing past estimates from Wall Street analysts, who were generally expecting $1.27 per share on revenues of $49.96 billion. Amazon stock surged over 6% in after-hours trading.
Can't always get what you want
Amazon is not abiding by its end of the agreement, and while the reasons are entirely understandable, Amazon isn't a charity. A friend of mine decided it was an easy call: He cancelled his Prime membership.
Even though he loves what Amazon does and has Echo speakers sprinkled throughout his house, which seemingly runs completely on Alexa's virtual assistance capabilities, he doesn't watch Amazon Video, doesn't listen to its music channels, and isn't reading books on a Kindle. He's a Prime member for the fast delivery and he's not getting it, and he says two-week delivery is available from any fly-by-night operation.
When he called to cancel, however, the Amazon representative recommended he pause his membership, since he intends on restarting when quick shipping begins again (Amazon actually credited six months of service back to his bank account). For others only using Prime for free shipping, they might also want to cancel their service.
Although Amazon has done a lot of good in changing how we shop, consumers don't have to remain loyal when a company isn't delivering for us, literally and figuratively. We ought to take our business elsewhere -- or at least put it on hiatus until the online retailer comes through for us once more.