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Wednesday, May 22, 2024

Amazon is raising the price of Prime in order to cover the expenses of the epidemic

An strengthening economy, as well as a persistent virus, are starting to weigh on Amazon’s retail sector, despite the fact that its cloud computing division has grown and revenues have been boosted by an investment.

Because of Covid’s mandate to stay at home, the company’s profits, employee count, and stock price soared two years ago. However, the company reported on Thursday that its operating income in the fourth quarter fell to $3.5 billion, less than half of the $6.9 billion it earned in the fourth quarter of 2020, which was a record high.

Amazon said that it will raise the yearly fee of its Prime shipping membership from $119 to $139 in order to offset the higher expenses of doing business. According to the firm, the 17 percent rise is the first Prime increase since 2018.

Because of omicron, Amazon saw increased prices over the Christmas season, as predicted. “These challenges lingered into the first quarter as a result of labour supply constraints and inflationary pressures,” stated Amazon Chief Executive Officer Andy Jassy in a statement.

Despite this, Amazon’s net income increased significantly as a result of what the company described as a “pretax valuation gain” in Rivian Automotive, an Amazon venture that went public in the fourth quarter. Amazon holds a 20 percent stake in the electric car manufacturer Tesla.

As a result, net income increased to $14.3 billion, up from $7.2 billion the previous year. According to the corporation, net profits would have dropped to $2.5 billion if Rivian had not been acquired. Revenue increased to a record $137.4 billion, which was just slightly less than what experts had predicted.

In terms of market share, Amazon controls almost 40% of the e-commerce industry, but that segment — which is where the firm originated and for which it is still best known — is becoming the corporation’s weakest portion. Online retail sales were largely steady in the fourth quarter of 2020 compared to the previous quarter.

It is certain that growth is decreasing, according to Tom Johnson, global chief digital officer of Mindshare Worldwide, who wrote in a letter. When compared to previous hypergrowth quarters from early in the pandemic, supply chain concerns that have a knock-on effect on advertising expenditures, and ongoing extra expenses, it is clear that the rapid period of growth has come to an end.

Amazon Web Services (AWS), the company’s cloud segment, had its typical stellar performance, with operating income increasing by 49 percent. Advertising income reached $9 billion, representing a 37% increase over the previous year. On the other hand, Twitter’s yearly revenues are less than $5 billion, despite the fact that it derives the great bulk of its income from advertising.

Amazon shares tumbled by more than 8% during normal trading on Thursday, as investors concerned about what was to come in the future. Nevertheless, once the earnings report was released, investors concentrated on the positive news, driving Amazon shares up by almost 17 percent in after-hours trading before starting to slide back to their previous levels.

Several factors, according to Andrew Lipsman, principal analyst at the research firm Insider Intelligence, have contributed to Wall Street’s buoyancy.

Amazon hired 140,000 new employees during the third quarter, bringing its total number of employees to 1.6 million. That was a 24 percent increase in a year. Walmart, the biggest non-government employer in the United States, employs 2.2 million people.

Jonathan James
Jonathan James
I serve as a Senior Executive Journalist of The National Era
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