This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Conundrum: Can Amazon Handle Increased Prime Pricing?

By: Nicole Urken | 02/12/14 - 12:06 PM EST

NEW YORK (TheStreet) -UBS published a troubling report today on Amazon's (AMZN) ability, or lack thereof, to raise prices on their Amazon Prime service.  The survey found that while 94% of Amazon Prime customers surveyed indicated they would likely renew at the $79 current annual fee, those percentages dropped precipitously when price increases of $20 and $40 were introduced (to 58% and 24%, respectively).

I am not in disagreement that we could see a big fallout from Amazon Prime's increase. But here is why it's an opportunity.

First, we need to keep in mind a warning story: Netflix (NFLX). When Netflix raised prices on its DVD service considerably--encouraging a shift to streaming--results suffered. the stock fell from about $300 in July 2011 to lows around $60 before rising toward the end of 2012 before surging again. But the issue for Hastings wasn't the price increase itself --it was the severity of the increase and how it was communicated. Remember, those that were paying $9.99/month for unlimited streaming and 1 DVD would now be paying $15.98/month, a 60% increase. He had the right vision for a shift to streaming...but botched the execution. It ultimately provided a huge opportunity for future growth longer-term. 


Ultimately, the service of getting free two-day shipping, unlimited instant streaming, and ability to borrow Kindle titles for free is a fantastic deal--and the subscription model is a fantastic one with recurring streams. And we have seen pricing power where it matters--in loyalty names like Costco (COST), where the recurring membership fee earnings stream comprises 75% of EBIT, has not seen attrition after hiking fees most recently in January 2012-- with the renewal rate staying strong at 90% in the US and Canada.

Plus, unlike with Netflix or Costco that trade on subscriber and membership numbers, Amazon does not trade on its Prime subscribers-- in fact, it doesn't even reveal its specific numbers.

All that said, I would encourage Amazon to increase the price by $20, a 25% boost, versus $40, a 50% boost relative to current prices in order to avoid Netflix's whiplash.

Long-term, Amazon contniues to gain share of US eCommerce and success of its Kindle platform.

--Written by Nicole Urken in New York.

>Contact by Email.

Other Posts In Nicole's Stocks and the City:

Is the robust IPO market affecting the broader indices?

04/10/14 - 03:53 PM EDT

The Momentum Tell and the Yellen Timeline

04/10/14 - 02:47 PM EDT

Under Armour is cheap! (yes, I said cheap)

03/27/14 - 06:26 PM EDT

FedEx Corp is a Buy

03/19/14 - 01:58 PM EDT

Tech in Transition: The Winners

03/19/14 - 11:01 AM EDT

Get More Investment Ideas:

Sozzi: Coke Isn't It

04/16/14 - 14:02 PM EDT

Jim Cramer: Spotting a Bottom Is No Easy Affair

04/16/14 - 11:17 AM EDT

Katz: Wells Fargo and JPMorgan Are Buys

04/15/14 - 13:18 PM EDT

Jim Cramer: Heavy Overhang From These IPOs

04/15/14 - 11:52 AM EDT

Kass Katch: Buy Ocwen Financial

04/15/14 - 06:00 AM EDT

To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
Real Money Pro

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Trifecta Stocks

Trifecta Stocks analyzes over 4,000 equities weekly to find the elite 1% of stocks that pass rigorous quantitative, fundamental and technical tests.

Product Features:
  • Model portfolio
  • Trade alerts
  • Recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
Stocks Under $10

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Dividend Stock Advisor

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Breakout Stocks

Bryan Ashenberg, using sophisticated stock screening and fundamental research, identifies potentially explosive small and mid-cap stocks.

Product Features:
  • Model portfolio
  • Small-cap and mid-cap focus
  • Intraday trade alerts
  • Weekly roundups
Options Profits

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
Top Rated Stocks Top Rated Funds Top Rated ETFs