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Analysts Remain Optimistic Amid Amazon's Move To Raise Prime Price

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Walmart's Moat in the US Grocery Market (GuruFocus) Inc. (NASDAQ: AMZN) announced membership fee changes for the price of Prime for the first time since the introduction of the service nine years ago.

Membership Fee Changes

Amazon Prime membership will have a $20.00 price increase going from $79.00 to $99.00. Prime offers unlimited streaming for Prime Instant Video, access to the Kindle Owners' Lending Library, and Free Two-Day Shipping/ Standard Shipping/ No-Rush Delivery for eligible purchases. The company's website informs members and the general public that if an individual's membership renews before April 17, 2014, they will be charged the membership rate of $79.00. All renewals on or after April 17th will be subject to the $20.00 price increase.

Amazon student members, who receive months of Free two-day shipping and e-mail alerts for discounts and promos, will see a $10.00 price increase. If an individual begins a free trial prior to March 20, 2014, the student will be charged $39.00 when it automatically renews. If the free trial starts on or after March 20th, members will be subjected to the $49.00 price. For existing paid Amazon Student membership, renewals before April 17, 2014 will be $39.00. Membership renewals on or after that date will be subject to the price increase of $49.00.

Prime Fresh membership available in Los Angeles and San Francisco, CA metro areas will remain the same at $299.00. According to Amazon, Fresh membership includes all Amazon Prime benefits in addition to "free same-day and early morning delivery of orders over $35, including fresh grocery and local products found on"

Analysts Respond to Price Increase

Cowen & Co. analyst John Blackledge views Prime's price boost as an “incremental positive.” In the note, Blackledge estimated that Amazon has 23 million Prime members in the United States. The $20.00 price increase for each of these members represents $460 million in additional revenue. The analyst commented, "We expect continued growth of Prime members, despite the price increase. Purchases are habitual and are not impacted by seasonality for Prime members at this point."

Mark Mahaney from RBC Capital Markets threw more numbers down. RBC reported that the price increase for Prime membership is likely to generate $300 million to $400 million in incremental operating income, assuming a subscriber base of approximately 20 million and churn of one to five percent. Mahaney noted that this translates to an incremental annual EPS of $0.45 to $0.55.

RBC added that they do not expect to see material increase in subscriber churn. The analyst continued to comment on his forecast, expecting the bulk of the upside will likely be in 2015 given the renewal timing.

Both firms maintain an Outperform rating on shares of Amazon.

Response in Amazon Shares

Shares of Amazon were up as much as 3.34826%, the largest intraday high since January 30th. Amazon closed at $370.64 on Wednesday and are currently trading at $372.92

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Posted-In: Cowen & Co. John Blackledge Mark Mahaney Membership Fee ChangesAnalyst Color News Management Analyst Ratings


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