Amazon Prime customers get free deliveries and instant streaming video downloads. But will they accept a $20 price hike?

Amazon has increased the cost of its $79 Prime free delivery service by $20, the primary hike because it was introduced nine years ago. After April 17, those signing up can pay $99 a year for 2-day free delivery of purchases and streaming of Prime Instant Video movies.

The move may bring it a momentary surge in signups. “Lock in low cost,” reads an indication at the Prime join up page. But what it means in the end is open to discuss.

UBS analyst Eric Sheridan downgraded his recommendation of Amazon stock from buy to neutral, in response to a survey before Amazon’s move that the web retailer would lose Prime members if it raised the yearly fee. The UBS survey found that at $99, about 58% of Prime users said they might renew. At $119, just 24% said they’d renew. These results were more negative than Sheridan had anticipated.

“Our survey results call into question our prior views concerning the value that a broad set of customers are applying to the present iteration of Amazon Prime. If Amazon were to lift Prime fees, this kind of fee increase may need to be accompanied by either a) a much better level of value within the service offering (additional media content, streaming music and/or Fresh (supermarket) offerings) and/or b) an increased level of promoting round the perceived value of Prime to most people,” Sheridan wrote in his downgrade report, in accordance with the net investing news service, StreetInsider.com.

Amazon Fresh is a separate online retail service delivering fresh food at the same day it’s ordered, when orders total $35 or more. The yearly transportation charge is $299. Amazon is using services like Prime and Fresh to construct a distribution system that habituates online buyers to using Amazon.com for a wide selection of purchases. Fresh was launched in Amazon’s hometown of Seattle last year, expanded to La in June, and opened in San Francisco in December. It’s reported to be headed to Big apple this year.

On March 13, Amazon said the brand new price for high will be $99, and Amazon stock, after trading lower because the news was first announced, moved higher by the tip of the day to $371.51, up from the former day’s close of $370.64.

Prime customers are frequently frequent buyers at the Amazon.com retail site and large users of its Prime Instant Video download service, a Netflix competitor. (A base subscription to Netflix would come to about $96.) Amazon have been spending heavily to obtain rights to both movies and television episodes. It is also producing original content for the service which include Alpha House, a political comedy.

In addition to free, two-day deliveries, Prime customers get unlimited immediate streaming in their collection of 40,000 movies and television episodes inside the Prime Instant Video service. They qualify for a free book a month throughout the Kindle First Books program and feature the suitable to borrow books for a limited period in the course of the Kindle Owners Lending Library.

[Like to learn more about how Amazon.com reports its Amazon Web Services unit revenues? See Amazon Cloud Revenue Mystery Persists.]

Amazon Web Services, the large online retailer’s cloud services unit, contributed an estimated $3.8 billion to total Amazon.com revenues in 2013 and is anticipated so as to add $4.6 billion this year. But since Amazon doesn’t account for the unit separately, it’s hard to claim whether it’s profitable. AWS appears as “other” revenue at the parent company balance sheet. Hence, any view of the health of AWS must be fit into the bigger question of Amazon.com’s overall financial health.

No one knows what number of Prime customers there are, however the Associated Press reported that Amazon spokesmen mentioned “millions” of them in December. Amazon investors look betting that top customers will find it difficult to tug far from the benefit of the service, despite a $20 price hike. “Since i’ve everything from batteries to fertilizer conveniently dropped at my doorstep I’m still all in!” wrote one reader, Gary J, at the SeekingAlpha investment website Thursday.

Some analysts think the Prime price hike is an indication that growth in Amazon’s core business is slowing and that it needs more upfront cash flow. It has been building out regional distribution centers across the country and delivery services at the outskirts of major metropolitan centers for several years.

Charlie Blaine, writing on Forbes.com, concluded there have been several market pressures now asserting themselves against the cost of Amazon stock. These pressures have existed before, and the stock price has risen despite them. The stock price went up 45% in 2012 and gained another 59% in 2013. Those increases gave Amazon stock an Apple-like aura, until it posted fourth quarter results that came in below the expectancies of many analysts. Thus far this year, it’s down 12.4%.

Blaine wrote that many investors were disappointed in Amazon’s fourth quarter guidance for the primary quarter of 2014. It forecast revenues of $18.2 billion to $19.9 billion, with an analyst consensus on the time of $19.7 billion. That consensus has pulled back because the year unfolded and is now $19.4 billion.

Amazon is an image of growth because it continues to rack up huge quarterly revenues, but investors ought to take it on faith that such growth is a harbinger of future Amazon profits. Thus far, its increasing delivery expenses have meant that it makes little in quarterly profits and infrequently reports losses. On the end of 2012, it reported a lack of $39 million for the year. On the end of 2013, it reported $274 million of net income.

The $20 Prime price hike is both a show of confidence that customers can’t live without Amazon and an admission that it could ill afford the lack of confidence that reporting more losses might spark off.

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Charles Babcock is an editor-at-large for InformationWeek, having joined the publication in 2003. He’s the previous editor-in-chief of Digital News, former software editor of Computerworld and previous technology editor of Interactive Week. He’s a graduate of Syracuse … View Full Bio

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