Amazon Says It May Increase Shipping Fees of Prime Service

Amazon announced in a fourth-quarter earnings conference call that it might be raising prices on shipping fees through its Amazon Prime program. The $79-a-year shipping service could go up in price by as much as 50 percent, increasing the company’s bottom line by close to $500 million. The announcement came as a pleasant surprise to investors following a slow holiday season for Amazon and its lowest growth rate in several years.

According to The New York Times, Amazon has been putting a lot of money into adding new warehouses and offering free videos to Prime members. But the company has always seen a relatively small profit, despite its revenue growth of 22 percent in 2013. “The eternal question,” NYT says, “is when it will turn all that expansion into profit.”

“Amazon is now valued at $176 billion,” the article reports, “which gives it the 17th-largest valuation in the S&P 500-stock index. But Amazon also has by far the highest price to earnings ratio among companies with a market capitalization above $25 billion.”

By the same criteria, Amazon is ranked at 18th in revenue growth.

“Amazon is likely to approach or exceed $100 billion in sales this year, which make it the fastest retailer in history to reach that benchmark,” Businessweek says, noting that the retailer is growing faster than its rivals. “Amazon continues to take market share from both offline and online competitors. The company also made a profit of $274 million for the year, compared with a loss of $39 million last year.”

Colin Gillis, an analyst with BGC Partners remains cautious about the company’s growth. “We see that the price investors are paying is expensive for the current level of revenue growth given the uncertainty around the degree of leverage that the company may be able to achieve,” he says. Gillis adds that “it may take years” for Amazon to grow into its true worth.

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