Amazon Prime is set to increase in cost for users for the first time in four years despite the company recording a $3.5 billion profit.

Jeff Bezos’ company defied investor concerns over rising costs and slow growth by reporting the fourth-quarter profit, which has largely a result of rising cloud and advertising revenue.

The results show Amazon is confident in its ability to raise the Prime membership cost from $119 to $139, the first increase since 2018.

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The announcement on Thursday, February 4, saw the company’s shares rise by 15 percent.

Amazon’s net income doubled to $14.3 billion – $27.74 per share.

This is largely as a result of an $11.8 billion valuation gain in the company’s investment in Rivian Automotive Inc – a car marker based in Irvine in California.

Revenue increased by 9 percent to $137.4 billion, while foreign currency rates reduced that rise by a percentage point.

This is the slowest expansion in at least seven quarters.

Although the Rivian incentive makes profit comparisons difficult, Wall Street analysts polled by FactSet expected Amazon to announce adjusted earnings of $3.63 per share on $137.7 billion in revenue.

Amazon Web Services Inc, the company’s cloud computing subsidiary accounted for the whole operational profit.

It posted an operating profit of $18.5 billion, up 37% over the previous year, on revenue of $17.78 billion, up 40%.

Amazon’s retail arm, on the other hand, posted a $1.8 billion operating deficit.

The Zacks Consensus Estimate for AWS net sales in the fourth quarter was $17.3 billion, up 36 percent from the previous year.

On the results call, Amazon Chief Financial Officer Brian Olsavsky stated that AWS now has a yearly sales rate of $71 billion.

He said that the 40 percent increase is the fourth straight quarter of rapid sales growth and added “We don’t see any capacity bottlenecks for AWS.

“The main limiter is our ability to work with customers to accelerate their timelines.”

Constellation Research Inc. analyst Holger Mueller added: “Just when one may have thought AWS couldn’t continue strong growth percentages on its vast base, it generated nearly 40 percent growth.”

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“This enabled AWS to reach the 10 percent of Amazon revenue milestone for the first time, and it appears that the recent disruptions have not harmed client faith in AWS.”

Operating income is predicted to fall between $3 billion and $6 billion in the first quarter of 2022, down from $8.9 billion in the first quarter of the previous year.

This guidance incorporates a $1 billion reduction in depreciation expense due to increases in the projected useful lives of servers and networking equipment.

However, investors liked what they saw a lot.

A big portion of the applause stemmed from Amazon’s evident confidence in its ability to raise its Prime membership cost from $119 to $139, the first such increase since 2018. In after-hours trading, Amazon shares increased by almost 15%.

In normal trading session on Thursday, February 4, Amazon shares plummeted over 8% to $2,776.91 per share, owing to concerns that the 26 percent drop in Facebook parent Meta Platforms Inc.’s shares could signal a broader-based downdraft for big-tech firms.

Amazon Chief Executive Andy Jassy had signalled more expenses to come three months ago, including  some $4 billion of “additional costs in our Consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs.”

Amazon had raised pay to an average of more than $18 an hour, offered sign-on bonuses of $3,000 to some workers and announced a plan to pay for worker tuition.

It has also spent heavily on fulfillment infrastructure, including doubling container processing capacity and expanding its fleet of delivery aircraft. Amazon revealed revenue for its advertising business for the first time, saying ad services grew 32%, to $9.7 billion in the quarter.

Amazon has its head office in Seattle and employs around 798,000 people.

Source: CNBC

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