Amazon To Test Prime Customer Stickiness

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Amazon (NASDAQ: AMZN) announced its fourth-quarter results to mixed reactions. While it fell marginally short of revenue expectations, it reported a significant increase in income, thus gaining the market’s confidence. For the longest time, Amazon decoupled growth and profitability, and the market went along with that sentiment. It is nice to see profitability returning to being a consideration.

Amazon’s Financials

Amazon’s fourth-quarter revenues grew 9% to $137.4 billion, falling short of the market’s forecast of $137.6 billion. Net income of $27.75 per share was significantly higher than the Street’s forecast of $3.89 per share. Amazon attributed the increased income to its cost efficiencies and lower cost of fulfillment. This is a staggering result considering past metrics.

By segment, net product sales grew 9% from $71.06 billion last year to $71.42 billion and net service sales increased 21.08% from $54.5 billion to $65.99 billion.

North American sales grew 9% to $82.36 billion, while international sales fell 1% to $37.27 billion.

Amazon ended the year with revenues growing 21.69% to $469.82 billion. Net income increased to $33.36 billion, or $64.81 per share.

Amazon expects its first quarter revenues at $112-$117 billion with an operating income of $3-$6 billion.

Amazon’s Product Upgrades

Amazon announced the launch of its first physical store for apparel,?Amazon Style, for later this year. Amazon Style uses machine learning algorithms to create personalized recommendations while customers shop, making it easy to discover new looks. Customers will also be able to have items sent to a fitting room directly from the Amazon app, in addition to shopping from the fitting room without needing to leave. A lot of practicality questions come to mind. For example: what is the benefit of being able to shop from a fitting room if the item is not available to try on right then and there?

It also announced a partnership with Affirm that will give customers additional ways to pay in Amazon. Customers in the US will have the ability to split the total cost of purchases of $50 or more into monthly payments at checkout without late or hidden fees.

Amazon released new ML features across its devices. It introduced capabilities to make Alexa more proactive, conversational, and personal. Customers will be able to teach Alexa their preferences that it will remember when recommending things like recipes, local restaurants, and sports scores. It now also has the ability to start?Routine?after detection of activities. If Alexa hears a being washing machine or the sound of running water, it will alert customers that the laundry is done or that the faucet is on. Customers with the Echo Show 10 also have the ability to enable Conversation Mode for natural, back-and-forth interactions with Alexa, without needing to repeat the awake word.

Within connected devices, Amazon announced?Sidewalk Bridge Pro?by Ring, which will bring device connectivity to places including commercial centers, parks, universities, and wilderness areas. It also launched Ultrasound Motion detection for customers to enable?Occupancy Routines?when motion is detected near their Echo device. The service will allow the device to emit an inaudible ultrasound wave to detect movement and initiate a series of actions. For instance, customers can use an Occupancy Routine to have Alexa turn off lights when a person leaves the room.

AWS announced the general availability of Babelfish for Amazon Aurora PostgreSQL-Compatible Edition, which will allow customers to run applications created for Microsoft SQL in Amazon Aurora with minimal code changes. It also announced the general availability of Amazon EC2 Hpc6a instances created for high-performance computing use cases, such as genomics, computational fluid dynamics, seismic imaging.

Besides product upgrades, Amazon recently announced plans to increase the price of its Prime membership by $20 per year in the US. That is a significant 17% increase in price for the service. Amazon is confident that the price will not impact its user base because it believes in the stickiness of the Prime membership. It will be interesting to watch if that truly is the case because analysts believe that in ’20-’21, Amazon added a significant number of customers in the income range of $55-$70K.?

Its stock is trading at $3,362.70 with a market capitalization of $1.71 trillion. It had touched a 52-week high of $3,773.08 in July last year. It had fallen to a 52-week low of $2,707.04 in January.

Disclosure:?All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article. I am an investor in this company.

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