Updated from 10:38 a.m. to include January same store sales in the fifth paragraph.
NEW YORK (TheStreet) -- When Amazon (AMZN - Get Report) hinted on its fourth-quarter earnings call it was considering raising the price of its popular Amazon Prime service, the stock rose in after-hours as investors clamored for more earnings. Consumers however, aren't as keen on the idea.
In a research note downgrading the stock, UBS analyst Eric Sheridan noted that in a survey, a surprising number of people said that they would not renew their Amazon Prime memberships if the company raised prices.
UBS partnered with Consumer Intelligence Research Partners (CIRP) and found that, while 94% of consumers would review at the $79 annual fee, that number dropped sharply with a price increase. Only 58% of those surveyed would renew if the price rose by $20, and just 24% said they would renew their memberships if the price rose by $40, to $119 annually. "Our survey results call into question our prior views about the value that a broad set of consumers are applying to the current iteration of Amazon Prime," Sheridan wrote in the note.
On the fourth-quarter earnings call, Amazon CFO Thomas Szkutak said that given customers are using the service more, Amazon is considering upping the price between $20 and $40 in the U.S.
The timing of a potential price increase for Prime comes at an interesting time. Research firm ChannelAdvisor notes Amazon's January same-store-sales rose 14%, well below the 27.9% seen in December, "a substantial m/m decrease caused by the holiday December spike." By comparison, eBay (EBAY) saw a spike from December, going to 12.7% from 11%, and Comparison Shopping came in at 12% down, from December's 31.1%, due largely to Google (GOOG) Shopping, and product listing ads (PLA).
Amazon has never fully disclosed the exact number of Amazon Prime users it has, making the decision to potentially raise prices all the more curious. The closest we've gotten to actual news is the day after Christmas, when Amazon said had "tens of millions of members worldwide." Macquarie analyst Ben Schacter confirmed with Amazon that it had more than 20 million members, but nothing specific.
TheStreet also conducted its own poll, and found that 70.1% of respondents said "no" when asked if they thought the service was worth having at a higher price, regardless of whether they currently use it or not. Over 1,000 people were surveyed between Jan. 31, 2014 and Feb. 2, 2014, and just 13% of the sampling currently subscribed to Prime.
Sheridan notes that if Amazon were to increase the cost of Prime, it would have to do so by giving customers more than they get now. That includes "additional media content, streaming music and/or Fresh (supermarket offerings) and/or b) an increased level of marketing around the perceived value of Prime to the general public." Currently, Amazon does little to no marketing around its Prime membership.
Amazon Prime has been most compared to Netflix (NFLX - Get Report), which charges $7.99 a month for its most popular package. Netflix has enjoyed record success with its offerings, as the company had 33.4 million streaming subscribers at the end of the fourth-quarter, on the way to generating $1.17 billion in revenue for the quarter.
However, I think Amazon Prime is much more similar to Costco (COST), which has an annual membership fee for its shoppers. The fee, which ranges from $55 to $110, allows consumers to buy goods in bulk, saving them money in the long run. Costco upped the price of its membership fee, going from $50 to $55 in late 2011.
Whether Amazon can make consumers aware of the benefits of its Prime service, even at a raised price, remains to be seen. In the words of former Family Feud host Richard Dawson, "Survey says... NO!"
--Written by Chris Ciaccia in New York
>Contact by Email.Follow @Chris_Ciaccia
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts