Amazon (AMZN) shares jumped higher Friday after posting stronger-than-expected fourth quarter earnings, powered in part by its web services business, while unveiling a price increase for its Prime members.
Amazon's net income nearly doubled from last year to $14.3 billion, thanks in large part to an $11.8 billion boost from Amazon's stake in EV maker Rivian Automotive (RIVN). Still, sales were up 9% to a record $137.5 billion, while revenues at Amazon Web Services soared 40% to a record $17.8 billion.
AWS, in fact, saw operating income rise 48.5% from last year to $5.3 billion, helping Amazon's bottom line beyond the impact of its one-time Rivian boost.
Prime costs, Amazon said, will rise from $12.99 to $14.99, with the annual membership rising 16.8% to $139, with changes for new members coming into effect on February 18. For existing members, the increases will begin from March 25.
With the continued expansion of Prime-member benefits and the increased memory usage that we've seen, as well as the rise in wages and transportation costs, Amazon will increase the price of a Prime membership in the United States," CFO Brian Olsavsky told investors on a conference call late Thursday.
"Items available for Prime free shipping have increased over 50%, and members have saved billions of dollars shopping on Prime Days," he added. "This is all on top of new program benefits like prescription savings and fast, free delivery from Amazon Pharmacy and the continually growing Amazon Music catalog for Prime members, as well as Prime Reading and Prime Gaming."
Amazon shares were marked 10.5% higher in early trading Friday to change hands at $3,064.52 each, a move that would trim the stock's six-month decline to around 8.5%.
Operating expenses were up 13% at $133.95 million, Amazon said, linked largely to labor and shipping cost increases.
Amazon said in October that it would hire 150,000 workers heading into the holiday season, with wages as high as $21 an hour, amid one of the most severe labor shortages in U.S. history. Sign-on bonuses of up to $3,000 were also on the table, Amazon said, with the bulk of the new roles based in Arizona, California, Colorado and Florida.
Olsavsky had cautioned at the time that costs linked to hiring, inflation and other "operational disruptions" could rise to as high as $4 billion over the December quarter.
"As we mentioned in the last earnings call, we did see more than $4 billion in costs from inflationary pressures and lost productivity and disruption in our operations," Olsavsky said late Thursday. "The inflation primarily relates to wage increases and incentives in our operations, as well as higher pricing from third-party carriers supporting our fulfillment network."
"We do expect these cost challenges to persist in the Q1, albeit adjusted for lower seasonal volumes relative to the fourth quarter," he added.
Looking into the current quarter, Amazon said it sees operating income of between $3 billion to $6 billion on revenues in the range of $112 billion to $117 billion, compared to the Refinitiv forecast of $120 billion.
"We think that “normalized” growth will allow Amazon to better focus on becoming more efficient and innovative," said KeyBanc Capital Markets analyst Edward Yruma, who carries an 'overweight' rating with a $4,000 price target on the stock. "That’s not to say that Amazon’s innovation focus suffered, per se, but that the focus on running “flat out” during Covid likely disrupted the normal cadence of improvement within Amazon."
"The $20 price increase for Amazon Prime should help offset inflationary pressures and increased transportation expenses," he added. "And we think the impact to retention should be minimal as the value of Prime has expanded significantly since the last price increase in 2018."
