You will be redirected back to your article in seconds
Skip to main content

Prime Now ‘Much More Valuable,’ Amazon Says of $20 Membership Increase

Amazon followed up what many thought to be a disappointing pre-holiday quarter with good news for investors. The e-commerce giant saw net sales increase 9 percent to $137.4 billion in the fourth quarter, riding the holiday season to a 22 percent full-year sales bump to $469.8 billion. Net income came in at $14.3 billion during the final quarter and $33.4 billion for the full year.

Peak season sales came in just under FactSet’s consensus estimates of $137.7 billion, but stock still soared as much as 16 percent in Thursday’s after-hours trading.

Perhaps the biggest takeaway, however, is that Amazon is raising the annual Prime membership fee from $119 to $139 per year while monthly programs will cost $14.99, or $2 higher than the current level.

In a Nutshell: For new Prime members, the price change will go into effect on Feb. 18, while the new price will apply after March 25 for current Prime subscribers on the date of their next renewal.

The tech titan cited rising wages and transportation costs, as well as expanding Prime perks, as the main reasons for the price hike. Amazon last tweaked Prime’s fee to $119 from $99 in 2018.

“We saw especially after not raising the price in the U.S. since 2018, that the time was right to raise it,” Amazon chief financial officer Brian Olsavsky said in an earnings call. “We think it’s a much more valuable program today than it was in 2020, let alone 2018.”

Many analysts believed high spending to mitigate supply-chain challenges could potentially thin out Amazon’s margins. The company shelled out $4 billion in the fourth quarter to deal with higher freight and shipping costs, labor shortages and global bottlenecks hampering supply flows.

Related Stories

Amazon’s shipping costs grew just 10 percent to $23.7 billion, a significant slowdown from the previous fourth quarter. Last year’s Covid-driven holiday shipping costs grew 67 percent year over year to $21.5 billion. These costs have slowed down every quarter since on a sequential basis.

“We did a lot to combat the supply chain issues we anticipated in Q4,” Olsavsky said. “We worked with vendors to secure inventory early, or in some cases paid earlier, which had a working capital impact. We also worked very hard to open up existing channels of input into the country whether it was port capacity or vessel capacity. We did everything we knew how to as far as trying to get more capacity in a constrained market, and we think it worked for our customers in Q4. As challenges remain in 2022, I wouldn’t say we’re totally past that, but we don’t expect it to be a big issue in Q1.”

As of Dec. 31, 2021, total inventories across Amazon escalated 37 percent to $32.6 billion, up from last year’s $23.8 billion. Amazon’s gross margin was 39.7 percent, up from the year-ago period’s 36.9 percent. Lower shipping expense growth factored into the stronger margin, as did Amazon’s ongoing mix shift towards services revenue streams such as AWS, seller services, subscriptions and its advertising business.

Amazon was backed by the strength of its Amazon Web Services (AWS) cloud computing unit, which brought in $17.78 billion in revenue for the quarter, ahead of Wall Street’s expectations of $17.23 billion. The segment’s 40 percent growth marks the fourth consecutive quarter that AWS has expanded its growth rates.

For the current first quarter, Amazon guided net sales to $112 billion to $117 billion, or 3 percent to 8 percent year-over-year growth. This anticipates an unfavorable impact of approximately 150 basis points from foreign exchange rates. The estimates come in lower than Wall Street projections of $120 billion.

Operating income is expected at $3 billion to $6 billion, versus $8.9 billion in the 2021 first quarter.

Olsavsky broke down Amazon’s capital expenditure allocation during the call, noting that 40 percent goes into infrastructure including AWS, just under 30 percent is related to warehouses, and just less than 25 percent goes to transportation capacity.

“We see the capex for infrastructure going up as we support AWS. The business is growing globally and we’re adding regions and capacity to handle usage that still exceeds revenue,” Olsavsky said. “On the fulfillment center side…We see that moderating and that will probably now match growth of our underlying businesses. And then the third piece is transportation. We still see additional levels of investment in that in 2022.”

Amazon reported that third-party sellers provided 56 percent of all unit sales in the quarter, the highest-ever fourth-quarter mix, Olsavsky noted.

More than 130,000 third-party sellers worldwide surpassed $100,000 in sales on Amazon, and between Black Friday and Christmas, U.S.-based third-party sellers sold an average of 11,500 products per minute.

Operating cash flow decreased 30 percent to $46.3 billion for the trailing twelve months, compared with $66.1 billion for the trailing 12 months ended Dec. 31, 2020. 

Net Sales: Amazon’s net sales increased 9 percent to $137.4 billion in the fourth quarter, compared with $125.6 billion in fourth quarter 2020. Excluding the $1.3 billion unfavorable impact from year-over-year changes in foreign exchange rates throughout the quarter, net sales increased 10 percent compared with fourth quarter 2020.

North American sales grew 9 percent to $82.4 billion from $75.3 billion a year ago, while the international business saw a 1 percent revenue loss to $37.2 billion from $37.5 billion in 2020. When excluding foreign exchange rates, international grew 3 percent.

Amazon’s direct e-commerce sales dipped 1 percent to $66.1 billion from last year’s $66.5 billion fourth quarter. Conversely, third-party seller services jumped 11 percent to $30.3 billion from $27.3 in the year-ago period.

Physical stores saw sales growth of 17 percent to $4.7 billion, improving from $4 billion in the 2020 fourth quarter.

And the company’s burgeoning advertising business saw revenue rise 32 percent to $9.7 billion, from the 2020 peak season’s $7.3 billion. This marked the first time Amazon disclosed revenue from this business unit.

For the full year, Amazon’s net sales increased 22 percent to $469.8 billion from $386.1 billion in the year-ago period. Excluding the $3.8 billion favorable impact from year-over-year changes in foreign exchange rates throughout the year, net sales increased 21 percent compared with 2020.

Net Earnings: Net income at Amazon increased to $14.3 billion in the fourth quarter, or $27.75 per diluted share, compared with $7.2 billion, or $14.09 per diluted share, in fourth quarter 2020.

Operating income dropped to $3.5 billion in the fourth quarter, compared with $6.9 billion in fourth quarter 2020.

In all of 2021, net income reached $33.4 billion, or $64.81 per diluted share, compared with net income of $21.3 billion, or $41.83 per diluted share, a year ago. Operating income increased to $24.9 billion, compared with last year’s operating income of $22.9 billion.

CEO’s Take: “As expected over the holidays, we saw higher costs driven by labor supply shortages and inflationary pressures, and these issues persisted into the first quarter due to Omicron,” Amazon CEO Andy Jassy said. “Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic.”