Amazon.com, Inc.’s (AMZN - Free Report) Japanese unit announced an increase in prime membership annual fee to 4,900 yen ($43.86) from 3,900 yen ($32.50).This represents a hike of 26%, which is definitely huge.
Notably, this is the first price hike since the e-commerce giant launched its service in Japan. Any specific reason behind this move has not been disclosed yet.
The increase in shipping costs and rising labor cost must be one of the reasons for the price hike. In the last reported quarter, the company's worldwide net shipping expenses increased approximately 22% year over year to $9.04 billion. Nonetheless, Amazon said that it has been continuously expanding Prime services in the country.
Is Hike a Concern?
The move comes at the opportune time when Amazon is aggressively expanding operations in Japan.
Japan is witnessing rapid adoption of e-commerce technology. Per a report from Statista, Japan is expected to generate revenues worth $86.125 million in 2019.
Further, the report suggests that revenues are anticipated to hit $104.1 billion by 2023, witnessing a CAGR of 4.9% between 2019 and 2023. For the current year, user penetration in the market is projected at 81.2% and is likely to reach 86.5% by 2023.
Given strong demand of e-commerce growth in the country, Amazon can increase prices without affecting growth to a great extent.
Moreover, these price hikes should be less of a concern, taking into consideration the extra revenues it will bring in. This should increase Amazon’s top line and margin profile, while generating healthy growth going forward.
The company entered into the Japanese market by selling books online. Since then, it has become the go-to-destination for basic necessities and consumer electronics. Soon the company added many benefits like video- and music-streaming services, and Prime Photos for saving pictures to the cloud.
In order to appease individuals who are upset about the price hike, Amazon will surely add more services that should help keep Prime members interested, thereby expanding the already extensive realm in which Amazon has delivery domain.
Continuous Expansion of Prime Benefits
Prime continues to act as the key catalyst in strengthening the online retailer’s presence in every sphere.
Therefore, Amazon remains focused toward advancement of Prime services with the help of customer-oriented benefits and savings, and expanding grocery delivery and pick-up services.
Apart from this, the company introduced an advanced and convenient method of delivery of packages for Prime members. It has launched Amazon Day that allows Prime users to select any day in a week to take delivery of their recent orders together, in fewer packages.
Moreover, its robust same-day and two-hour delivery services are helping it gain momentum across customers. Notably, Amazon took the delivery of its 40th Boeing 767 cargo plane in an attempt to strengthen its two-day shipment facilities.
Amazon has been focusing on building video content, primarily for Prime subscribers.
Per the latest report from Markets and Markets, the video streaming market is expected to witness a CAGR of 18.2% between 2017 and 2022, and reach $7.5 billion by 2022.
In 2018, Amazon reportedly spent $4.5 billion on content. JPMorgan estimates the company to spend $5 billion this year. Notably, Amazon is working on improving its regional content portfolio.
The company continues to provide new offers to Prime members, which has been a major driver behind the rapid adoption.
We believe the company’s ever expanding content portfolio will continue to attract subscribers despite the price rise.
Zacks Rank & Other Stocks to Consider
Amazon currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader technology sector include eBay (EBAY - Free Report) , Ctrip.com International, Ltd. (CTRP - Free Report) and ASOS plc (ASOMY - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth for eBay, Ctrip.com and ASOS is currently projected at 9.53%, 23% and 8%, respectively.
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