Amazon stock rallied on Friday, posting its best one-day gain since 2015 after the company announced a 17 percent price hike on its popular Prime membership program.
Shares rose 13.5 percent to $3,152.79, adding about $190 billion to Amazon’s market cap as Wall Street welcomed Prime’s price announcement and gains fueled by strong performance in the cloud computing division and a stake in electric vehicle maker Rivian.
That was followed by a nearly 8 percent drop in its shares during Thursday’s trading session, as tech stocks embarked on a flight sparked by the plunge in shares of Facebook owner Meta.
Amazon said on Thursday that the increase in Prime membership costs from $119 to $139 a year was partly due to a rise in “wages and transportation costs” in its logistics network.
Brian Olsavsky, chief financial officer, said Amazon was seeing high employee absenteeism due to the Omicron variant of the coronavirus. “There are cases where you pay twice or three times as much for the same hour worked,” he said.
Citing similar charges, he forecast lower-than-expected sales of between $112 billion and $117 billion for the current quarter. Wall Street had expected sales of over $120 billion.
The increase in the price of Prime membership will take effect later this month for US customers or in March for existing members. It’s the third price increase since Amazon introduced Prime in 2005.
The company did not say whether it intends to raise prices in other international markets. In the fourth quarter, revenue from subscription services, which includes Prime memberships, was $8.1 billion, up 15 percent year over year.
A former Amazon executive described Prime’s price hike as a “very dangerous move” aimed at pleasing markets at the expense of consumers.
“Amazon has a lot of network effects, it has Prime Video and Alexa and all these things that come with being a Prime member,” said Guru Hariharan, chief executive of ecommerce management platform CommerceIQ. “But that will start with the stress test.”
According to Hariharan, CommerceIQ’s data on thousands of products sold on Amazon showed a price increase of 9 percent across the board in December 2021 compared to the previous year.
Amazon’s earnings showed strong growth in cloud computing, with Amazon Web Services reporting 40 percent year-over-year revenue growth. Excluding cloud revenue, the company would have reported an operating loss of $1.8 billion.
Fourth-quarter net income of $14.4 billion included a pre-tax valuation gain of $11.8 billion from an investment in Rivian, which went public late last year.
Quarterly revenue rose 9 percent from the prior-year period to $137.4 billion, in line with Wall Street expectations. Operating profit was severely impacted by increased staff costs and other Covid-related charges and fell 49 percent from the same period in 2020 to $3.5 billion.
Amazon added 140,000 employees during that time, bringing its global total to 1.6 million, not counting delivery drivers.
“As expected over the holiday season, we saw higher costs due to labor shortages and inflationary pressures, and these issues continued into the first quarter due to Omicron,” said Andy Jassy, chief executive. “Despite these near-term challenges, we remain optimistic and excited about the business as we emerge from the pandemic.”
For the first time, Amazon disclosed revenue for its advertising business, which ranked second only to AWS for growth last quarter, rising 32 percent year-on-year to $9.72 billion, bringing the segment’s revenue for the year to 31 billion dollars increased .
Amazon said Apple’s recent privacy changes hadn’t had a significant impact, unlike Facebook, which said it lost about $10 billion in revenue as a result.
“The ability for brands to engage customers through Amazon’s offerings remains largely unchanged,” said Dave Fildes, Director of Investor Relations.
#techFT brings you news, commentary and analysis on the big companies, technologies and issues shaping these fastest moving sectors from specialists from around the world. Click here to get #techFT in your inbox.