Amazon.com may raise the price of a Prime membership in the near future to help offset some of the headwinds the e-commerce giant is facing, according to Jefferies analysts in an earnings preview note published Monday.
Amazon AMZN, -0.38% is slated to report fourth-quarter earnings on Thursday after the closing bell.
Jefferies notes that Amazon raised the price of Prime membership in March 2014 and again in May 2018. Prime was launched in 2005.
“Increasing the fee again this year seems reasonable and would maintain the latest cadence of about four years,” wrote analysts led by Brent Thill.
“Both prior increases have been for $20, so that’s a reasonable conservative basecase assumption (from $119 to $139), although a new increase would likely be larger since Amazon is facing substantial wage inflation.”
In the interest of growing Prime adoption abroad, Jefferies says the increase would likely be just in the U.S. Jefferies estimates there are 140 million Prime subscribers in the U.S.
Amazon, like many retail and consumer companies, is being challenged by higher labor costs, supply chain disruption and other hurdles. Still, Jefferies rates Amazon stock a buy with a $4,000 price target that is 34% above its current price.
“We see Amazon as a 2H22 story, aided by easing comps, improved cost visibility, moderating capacity build-out, continued momentum at high-margin businesses (AWS/advertising), and ~40% multiple compression since mid-2020,” the note said.
Amazon’s Chief Financial Officer Brian Olsavsky said on the third-quarter earnings call in October that he had “nothing to discuss or announce around Prime price increases,” according to a FactSet transcript. However, it is an option.
“[W]e always look at that. We look at the value. It’s generally a country-by-country discussion. We look at the value we’ve built. We look at the time since our last price increase. There’s a lot of strategic factors involved obviously.”
JPMorgan analysts also expect the Prime membership fee and fees for other Amazon services will rise.
“We also believe Amazon will take selective price increases as we have already seen through the recent ~5% increase in FBA fulfillment fees (typically ~2-3%), which should add an incremental ~$3 billion of third-party revenue in 2022,” analysts wrote.
“Amazon likely delayed some price increases as the company managed through elevated pandemic-driven demand, & we believe a Prime price increase is likely in 2022.”
JPMorgan rates Amazon stock overweight with a $4,350 price target.
MKM Partners fee hike commentary echoes JPMorgan, with analysts expecting higher prices across Prime, Fulfillment by Amazon and other areas of the business.
MKM rates Amazon stock buy with a $4,000 price target.
Amazon has an average buy rating and average target price of $4,105.35, according to 52 analysts polled by FactSet.
Here’s what else to know about Amazon heading into the earnings report:
Earnings: The FactSet consensus is for earnings per share of $3.63, down from $14.09 last year.
Estimize, which crowdsources estimates from sell-side and buy-side analysts, hedge-fund managers, executives, academics and others, is forecasting EPS of $4.75.
Amazon missed the FactSet EPS consensus in the last quarter, but beat the consensus the five quarters before that.
Revenue: The FactSet consensus is for revenue of $137.68 billion, up from $125.56 billion last year.
The Estimize outlook is for $138.74 billion.
Amazon missed the FactSet revenue consensus the last two quarters.
Stock price: Amazon shares have tumbled 9.4% over the last three months, and are down 11.2% for the past year.
The S&P 500 index SPX, +0.94% is down 0.9% over the last three months, but has gained 20% over the last 12 months.
–Analysts say labor inflation and supply chain disruptions will cut into results even as Prime membership continues to grow. “4Q results are expected to be negatively impacted by $2.0 billion in labor inflation, of which ~50% is attributed to wages and ~50% to incentives, and $2.0 billion in operational disruptions, mainly attributed to transportation costs,” wrote Stifel analysts.
-Amazon stock will benefit from gains in AWS and advertising business, Stifel says. Sales comparisons for the e-commerce arm of the business will be impacted by the Prime Day shopping event the year prior, according to analysts.
Stifel rates Amazon stock a buy with a $4,400 price target.
JPMorgan gives Amazon credit for managing a “challenging operating environment” during the holiday season, but “Amazon becomes a cleaner story through 2022.”
MKM also sees market share gains ahead for Amazon’s cloud and advertising businesses.
“While tougher comps through 1Q22 might weigh on Amazon’s fundamental optics early on, we believe Amazon could break out of its current range in 2H22 as optics and fundamentals improve as the year progresses (accelerating top line and flattish op margins),” MKM wrote in a recent report.
-One-day shipping should pick up even more steam. Amazon’s faster one-day shipping isn’t new, but rolling it out has taken time, writes Credit Suisse.
“[W]ith the planned retention of the seasonal 4Q hiring into 2022, we believe we are one step closer to seeing greater proliferation of faster delivery after two years of capacity constraints,” analysts said.
Credit Suisse rates Amazon stock at outperform with a $4,000 price target.