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Wall Street salivates over possible price hike for Amazon Prime

Daily Ticker

Amazon (AMZN) increased its sales only 20% in the fourth quarter, disappointing investors who had hoped for even more.

But just as the stock was plummeting in after-hours trading on Thursday, Amazon execs let slip that the company is considering a major price hike in its Prime service.

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Amazon Chief Financial Officer Tom Szkutak told analysts that the price of Prime service could rise $20 to $40 from the current price of $80 a year. That would help cover more of Amazon’s rising shipping costs – nearly $3 billion in the fourth quarter – as well as spending on content for the video streaming side of Prime.

Amazon won’t say how many people have signed up for Prime, speaking only vaguely of “tens of millions” of customers. Taking a minimum 20 million Prime members, the proposed price hike could raise $400 to $800 million a year for the online retailer.

Amazon wouldn’t comment on rumors that it might begin to offer a lower-priced version of just the video streaming portion of the Prime service to compete head-to-head with Netflix (NFLX).

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Amazon sales of $25.59 billion were at the higher end of the company’s October forecast of $23.5 billion to $26.5 billion but below analysts' estimates of $26.1 billion. The shortfall came from overseas, where sales grew just 13% versus a 26% jump in the United States.

The 20% rate of growth was still double the overall increase in online retail sales and five times the 4% increase in total U.S. retail sales, Census Bureau figures show. Many retailers disappointed Wall Street with considerably worse results for the fourth quarter. Best Buy (BBY), for example, said its holiday season sales dropped 3% overall, with comparable store sales declining almost 1%.

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And on Friday morning, Walmart (WMT) warned that it had fallen short of its previous profit forecast for the fourth quarter, citing the impact of cuts to government food assistance programs and winter storms that forced stores to close.

Amazon had to stop offering Prime subscriptions in December as it nearly overwhelmed the capacity of the global shipping industry. Problems at UPS (UPS) delayed deliveries, prompting Amazon to issue $20 credits to customers who didn’t receive their orders before Christmas.

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