Amazon Prime’s price hike won’t solve e-commerce woes

AInvestors at Inc. were bracing for the worst a day after Meta Platforms Inc.’s lackluster earnings report sparked a historic stock plunge and spread concerns the tech stalwarts were losing their mojo . Amazon shares fell nearly 8% in regular trading on Thursday ahead of its own earnings announcement.

But Amazon’s lackluster results and the announcement of a price increase on Amazon Prime subscriptions were enough to appease investors, who sent the retailer’s share price up 14% in after-hours trading. Office.

Late Thursday, the internet giant reported revenue of $137.4 billion for the three months ended December, up 9% from a year earlier, but slightly below l median estimate of $137.8 billion from analysts polled by Bloomberg. For the third consecutive quarter, Amazon offered a moderate forecast, forecasting revenue growth of 3% to 8% for the current quarter, below the median estimate of 11%.

Shareholders seemed relieved that the company was not deteriorating further. And a few positives compensate for the disappointing turnover. First, industry-leading cloud computing unit Amazon Web Services delivered another stellar performance, growing 40% in the last quarter. This was slightly faster than the previous three month period.

Second, the company announced that it would increase the price of its US Prime subscription, which offers faster delivery and other benefits like video streaming, to $139 per year from $119.

Amazon clearly calculated that the price increase would make up for any lost subscribers. It’s not guaranteed, however. While the company has retained its subscribers after its past surges four and eight years ago, there’s a chance people will balk at the last jump. That’s especially true now that consumers have better alternatives: the e-commerce operations of its major competitors, including Walmart Inc., Target Corp. and software provider Shopify Inc., are all more robust now than they were a few years ago.

The latest results highlighted Amazon’s other challenges. One of the reasons the company said it was increasing the cost of Prime was to counter rising labor and transportation costs. As one of the largest employers in the world with 1.6 million workers, Amazon is acutely feeling wage pressures.

There are other warning signs. Amazon’s online sales were down slightly over the holiday season compared to the 2020 quarter, which had benefited from a sustained surge in online shopping during the Covid-19 pandemic.

Consumers are spending less online across the retail sector. According to Bank of America credit card data, U.S. e-commerce sales fell 3% in December from a year earlier, after rising 6% in November. Sales remained negative in early January, the data showed.

This is a problem for a stock like Amazon. While investors weren’t completely surprised by its stagnant results, stocks still aren’t cheap at 56 times the median 2022 earnings estimate, even using Thursday’s depressed closing price.

After a brief rebound, investors looking for strong growth are unlikely to return until there is some indication of a rebound in sales. The wait could be long. –Bloomberg

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