Amid Amazon.com Inc.'s (AMZN) - Get Amazon.com Inc. Reportstellar earnings call, the company announced that it will be increasing the price of its Prime subscription in the U.S. by $20 to $119 per year -- something experts say is nothing but good news.
This price hike is only the second big one since Amazon first launched Prime in February 2005 for $79 a year. In 2014, Amazon increased the price to $99 a year. A few months ago, Amazon had increased the monthly price of a Prime subscription, which it only began offering recently, from $9.99 a month to $12.99 a month.
Loup Ventures managing partner Andrew Murphy said the increase is significant because it shows Amazon's pricing power on its most important offering.
"It drives $1 billion to $2 billion to Amazon's bottom line, but it's even more important as a gauge for the relationship that Amazon is building with consumers -- clearly a very strong one," Murphy told TheStreet in an email. The price increase announced during earnings shows that the company is confident in the value of its Prime subscription, which offers free two-day shipping among other services, he said.
"It's a company that works hard to drive value by charging consumers as little as possible, so the move is an indication that they are seeing real strength in the business," Murphy said.
Thanks to the ever-growing value of the Prime subscription, Wedbush analyst Michael Pachter said subscriber growth will likely be unaffected by the $20 increase. The company reported revenue from subscription services including Amazon Prime of $3.1 billion for the first quarter of 2018, a 63% change from subscription revenue in Q1 of 2017 at $1.9 billion
Murphy said that the money Amazon gets from the price hike could be reinvested in more and better content for the company's streaming music and video platforms, more convenient shipping options such as the newly announced in-car delivery and additional services for Prime members.
"They'll reinvest that income into the Prime offering and benefits, and the flywheel spins on," he said. Amazon announced last week in its annual shareholder letter that Prime had passed 100 million subscribers, the first time it had specified how many subscribers Prime has.
Amazon's stock is up 4.6% to $1587.21 during afternoon trading Friday. Since the beginning of the year, shares have risen 35.7%.