Amazon (NASDAQ:AMZN) has been, and perhaps will always be, one of the most popular stock options for investors. Luckily for its fans, the company blew expectations out of the water with its most recent quarterly earnings report.
Simultaneously, Amazon announced that it will be increasing the annual cost of its most coveted service, Amazon Prime, from $99 to $119. How will these factors affect the company and its stock? Let’s take a closer look.
Price Hike vs. Profit
Amazon saw amazing performance in the past quarter, beating the Zacks Consensus Estimates for both earnings and revenue. The most startling statistic was its adjusted earnings of $3.27 per share, which crushed our estimate of $1.22 per share. The company also saw improved revenue in AWS, online sales, third-party sellers, and physical stores year-over-year.
Meanwhile, Amazon has decided to make a critical move that will directly impact its online sales: increasing the price of Amazon Prime.
In a recent survey conducted by Yahoo (NASDAQ:AABA) Finance, it was found that almost half of all Amazon Prime users will drop the service following this price hike. The survey was conducted on 7,000 current Prime members, 35% of which said they would stay with Amazon Prime, 20% were unsure, and the remaining 45% said they would drop the service.
This Yahoo Finance survey showed that individuals who would stay do so because of the delivery service itself, while those who would leave feel as though they do not utilize Amazon’s services enough to warrant paying an extra $20. The increase will take place in May for new customers, and June for current members.
Although this is the case, investors should not worry. Arguments can be made that such negative responses may be infused with emotions, and the practical dropout percentage could be much lower.
On top of this, the monthly packages could see a major uptick as a form of “middle ground” for consumers. This potential dropout rate is unlikely and will not be overly costly when considering increased monthly package purchases and higher annual subscription prices.
Amazon is currently sporting a Zacks Rank #1 (Strong Buy), and earning estimate revisions have been extremely bullish in the past week following the earnings report release. With 77% agreement to the upside among revisions for its next quarter estimates, and 92% agreement to the upside among revisions to current quarter estimates, analysts feel very strongly that Amazon will continue on this surge of strong growth.
If this was not enough to convince an investor that Amazon will continue to impress, following the release of the report, the stock went up 6.5% in after-hours trading. To date, it is up 7.5%.
Price hikes should be even less of a concern when we consider the extra revenue it will bring in. Goldman Sachs (NYSE:GS) released an estimate earlier in the week saying the price change could bring in extra $1.5 billion in 2019 for the company. If revenue growth outpaces the effect of users dropping the service, investors should not worry.
In order to appease individuals upset about the price hike, Amazon will also offer members a new Whole Foods service, where groceries can be delivered to an individual’s front door. This should help keep Prime members interested, as well as expanding the already extensive realm in which Amazon has delivery domain.
Bottom Line
Amazon crushed expectations in their first quarter. Following this, it announced an increase in its Amazon Prime service, which has left some customers unhappy. But investors should not worry just yet, as analysts are becoming increasingly bullish and expect similar performance in the next quarter. After this amazing report, Amazon sports a Zacks Rank #1 (Strong Buy).
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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
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