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February 8, 2022updated 10 Feb 2022 3:35pm

Amazon Prime sales up by 37% price by 15%

By GlobalData Thematic Research

During Amazon’s Q4 2021 earnings call, the global retail giant announced a price increase for its Amazon Prime fast package delivery and video bundle in the US from $12.99/month to $14.99/month (up 15.4%). The annual prices increased by 16.8% from $119 to $139. Before the price change, the 12-month subscription was equivalent to a 23.7% discount—after the increase, it will be equivalent to a 22.7% discount. This is the first price increase since 2018 and only the third price increase ever.

The CFO at Amazon, Brian Olsavsky, justified the price increase by pointing out that “items available for Prime free shipping increased over 50% and members saved billions of dollars shopping on Prime Days”. He also stated that “since 2018, Prime has tripled the number of Amazon Originals” and drew attention to the “historic 11-year agreement with National Football League” for exclusive video rights to Thursday Night Football (NFL).

Video and fast delivery

GlobalData Technology estimated that the number of Amazon pay-online video subscriptions increased by 7.5%, from 48.8 million to 52.5 million. The revenue increased by 11% to $3.48 billion. GlobalData Technology estimates that half of $11.46 each month is attributed to video. Since 2018, the video and fast delivery Prime bundle cost anywhere between $9.92, the monthly price with a 12-month commitment, and $12.99, the regular monthly price. GlobalData used a weighted average formula and arrived at the $11.46 figure used above.

There are many subscribers all over the globe who do not use Prime Video and thus all the subscription revenue is attributed to fast delivery. If we multiply the average of 48.8 million and 52.5 million by $11.46, we get the revenue of $0.58 billion, only a fraction of net sales from subscriptions globally. Amazon does not provide the subscription net sales revenue figure for the US but the total amount for all countries in which Prime was launched stood at $31.77 billion. In some countries, Amazon delivers products but does not have an Amazon Prime membership. Also, there are territories where only Amazon Prime Video is available, rather than the video and fast delivery bundle.

Amazon price increases are widely considered justified

Amazon Web Services (AWS) reported a 37.1% increase in revenue, from 45.4 million to 62.2 million, despite several high-profile outages. Overall, markets reacted very positively to the post-market close in Q4 2021 earnings on February 3, 2022, opening on February 4 at 3112.13, after closing at 2776.91 the day before (up 12.1%). The consensus is that the product offerings are strong enough to justify price increases and it will improve free cash flow.

On GlobalData’s Ecommerce Retail Thematic Scorecard, Amazon ranks 8 out of 49. JD.com and Home Depot rank first and second, respectively, mainly due to their superior utilization of VR and AR, as well as their higher ESG scores. Amazon scored two out of five on the VR and AR theme, and only scored one on ESG—whereas JD.com and Home Depot both scored five on VR/AR and four on ESG. Amazon’s low ESG is score is largely due to its stock destruction practices. A score of one or two is highlighted in red, which alerts investors or stakeholders that in the next 12 months the themes will negatively impact the company’s revenue. As a result, investing in AR and VR will be crucial for the international retail giant. Amazon is likely to follow in the footsteps of its tech rivals: Apple, Google, and Microsoft.