When Amazon (NASDAQ:AMZN) raised its annual membership for new members starting on Feb. 18, 2022, technology stocks were amid a slump. AMZN stock fell eventually bottomed weeks later. Markets realize that subscription revenue from Prime membership will lift Amazon’s bottom line and fatten its profits. The e-commerce giant followed up with another price hike. After May 13, 2022, Canadians will pay $2 more for the monthly plan, to $9.99 per month. The price of annual plans will rise by $20 to $99 per year. Amazon’s price hike is the one reason to justify owning shares.
Amazon justified the price hike by citing heavy investments in Prime. For example, customers get a wider product selection. It also introduced free one-day shipping on orders without imposing a minimum purchase requirement. Amazon’s Prime Video needs higher quality content to compete with the likes of Crave and Netflix (NASDAQ:NFLX). The Hollywood Reporter confirmed that Amazon would spend $465 million for the first season. The run rate for the entire series will cost over $1 billion. The company cannot afford to offer customers better content without passing costs to them.
Amazon has also given more to Prime members to compete with similar services. For example, members get music, e-books, and games. The better it retains customers, the higher its operating margins get. Amid a stock market correction, investors will only pick companies whose profits are rising as revenue increases. Gone are the days of start-up companies who tout revenue growth while losing more money. 34 out of 35 analysts rate AMZN stock as a “Buy.” The average price target is over $4,100, according to Tipranks. As customers renew their membership at higher rates, chances are high that Amazon stock will close at a new high within a year.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
