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Amazon: Prime Price Hike and Record Profit

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Aug. 16 2018, Updated 9:00 a.m. ET

Amazon asked Prime members to pay more

In April, Amazon (AMZN) said it was hiking its Prime membership fee from $99 per year to $119 per year. That move appeared to divide observers, with some expressing concern that a price hike could spark an exodus from Prime membership. Others supported a price hike that could help Amazon garner more revenues.

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Price hike not impeding renewals

Amazon’s subscription services revenues, which include Prime membership fees, rose and hit a record level in the second quarter. Subscription services revenues jumped 57.0% YoY (year-over-year) to more than $3.4 billion.

During the company’s second-quarter earnings call, Amazon’s CFO, Brian Olsavsky, said that Prime renewals were looking good, implying that the price hike wasn’t turning subscribers away.

The new Prime price started applying to new subscribers on May 11, while for renewing subscribers the new price took effect on June 16. Since the second quarter ended on June 30, Amazon has had quite a bit of time to monitor renewal rates and compare that with the past periods.

Record profits

Amazon hiked its Prime membership price to allow it to absorb rising costs associated with the Prime program, and it seems to be achieving that goal. Amazon reported a record-quarter profit of $2.5 billion. 

eBay (EBAY), Facebook (FB), and Alphabet (GOOGL) reported second-quarter profits of $642.0 million, $5.1 billion, and $8.3 billion, respectively. PayPal (PYPL) posted a $526.0 million profit in that period.

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