Wed, April 24, 2024 at 9:35 AM EDT
Business
Is Amazon ready to raise the price of Prime delivery? Wall Street thinks so
|
When Amazon.com Inc on Thursday reports how it fared during the holiday quarter, a key question will be if the retailer will finally raise the price of Prime, its fast-delivery and media subscription.
The company has every reason to do so, analysts say. Amazon had to pay higher wages and signing bonuses to attract workers in a labor shortage. It had to spend more on shipping because it could not get products into the right warehouses. Even steel for construction projects cost more.
Amazon has forecast an operating profit between $0 and $3 billion, with analysts estimating it landed at the higher end of the range, at about $2.5 billion, according to research firm FactSet. Still, analysts are expecting a price hike soon for Prime. U.S. subscribers’ annual fees last went up four years ago to $119 from $99, and they went up four years before that from $79.
“It’s about time,” said Michael Pachter of Wedbush Securities. “Shipping costs have gone up, period.”
Mark Mahaney, an analyst at Evercore ISI, said pitching a price hike would be straightforward: fuel is more expensive, trucking is pricier, and goods themselves cost more. Subscribers – more than 200 million globally, including a majority of U.S. households – would pay more because they want fast delivery, he said. That’s potentially worth billions of dollars to Amazon’s bottom line.
“They have pricing power because the value proposition is so strong,” said Mahaney.
Rival Netflix Inc raised its standard U.S. rate weeks ago, too.
Amazon declined to comment on Prime’s pricing. In October, its CFO Brian Olsavsky said the retailer had no hike to announce, but “we always look at that.” He cited Prime’s value and the time since Amazon’s last increase as points to consider.
Among the factors he did not highlight: reliability. Three people who have worked at Amazon said the company would think twice before raising rates until its operation returned to normal, pointing to some shipping delays. The company had not added a major Prime benefit recently, and it has yet to make one-day delivery the default it promised almost three years ago.
“Given all of the Q4 delivery challenges, raising the price of Prime doesn’t seem appropriate,” said Scott Jacobson, a former senior manager at Amazon, who is now at Madrona Venture Group.
The decision also boils down to math, he said. More valuable than fees is the way Prime changes the behavior of customers, prompting them to spend more on Amazon to make the most of their membership. Would extra subscription revenue outweigh any hit to spending by those who quit?
Amazon said it has worked to minimize how the pandemic and operational difficulties have impacted customers. It said in recent years it has added Prime benefits, such as savings on drugs when paying without insurance, and it has sped up delivery while adding popular programs to stream.
The cause of Amazon’s latest challenges may come into focus in its results Thursday, stemming from a surge in demand, the ongoing labor and supply crunch, or both. The National Retail Federation has said holiday sales rose 14.1% during November and December, beating its prior forecast.
The Omicron variant of COVID-19 has surged, too, albeit at the tail end of Amazon’s U.S. holiday peak.
“You’ve got to believe that Amazon got hit heavily,” Pachter said, agreeing the company’s delivery uncertainties complicated a Prime hike.
“To raise my price when I literally ordered (some) hot sauce and it took like nine days to get here, that would be a poke in the eye.”
(Reporting By Jeffrey Dastin in Palo Alto, Calif; Editing by Lisa Shumaker)
Continue Reading
Business
Oil Firms Doubtful Trans Mountain Pipeline Will Start Full Service by May 1st
|
Oil companies planning to ship crude on the expanded Trans Mountain pipeline in Canada are concerned that the project may not begin full service on May 1 but they would be nevertheless obligated to pay tolls from that date.
In a letter to the Canada Energy Regulator (CER), Suncor Energy and other shippers including BP and Marathon Petroleum have expressed doubts that Trans Mountain will start full service on May 1, as previously communicated, Reuters reports.
Trans Mountain Corporation, the government-owned entity that completed the pipeline construction, told Reuters in an email that line fill on the expanded pipeline would be completed in early May.
After a series of delays, cost overruns, and legal challenges, the expanded Trans Mountain oil pipeline will open for business on May 1, the company said early this month.
“The Commencement Date for commercial operation of the expanded system will be May 1, 2024. Trans Mountain anticipates providing service for all contracted volumes in the month of May,” Trans Mountain Corporation said in early April.
The expanded pipeline will triple the capacity of the original pipeline to 890,000 barrels per day (bpd) from 300,000 bpd to carry crude from Alberta’s oil sands to British Columbia on the Pacific Coast.
The Federal Government of Canada bought the Trans Mountain Pipeline Expansion (TMX) from Kinder Morgan back in 2018, together with related pipeline and terminal assets. That cost the federal government $3.3 billion (C$4.5 billion) at the time. Since then, the costs for the expansion of the pipeline have quadrupled to nearly $23 billion (C$30.9 billion).
The expansion project has faced continuous delays over the years. In one of the latest roadblocks in December, the Canadian regulator denied a variance request from the project developer to move a small section of the pipeline due to challenging drilling conditions.
The company asked the regulator to reconsider its decision, and received on January 12 a conditional approval, avoiding what could have been another two-year delay to start-up.
Business
Tesla profits cut in half as demand falls
|
Tesla profits slump by more than a half
Tesla has announced its profits fell sharply in the first three months of the year to $1.13bn (£910m), compared with $2.51bn in 2023.
It caps a difficult period for the electric vehicle (EV) maker, which – faced with falling sales – has announced thousands of job cuts.
Boss Elon Musk remains bullish about its prospects, telling investors the launch of new models would be brought forward.
Its share price has risen but analysts say it continues to face significant challenges, including from lower-cost rivals.
The company has suffered from falling demand and competition from cheaper Chinese imports which has led its stock price to collapse by 43% over 2024.
Figures for the first quarter of 2024 revealed revenues of $21.3bn, down on analysts’ predictions of just over $22bn.
But the decision by Tesla to bring forward the launch of new models from the second half of 2025 boosted its shares by nearly 12.5% in after-hours trading.
It did not reveal pricing details for the new vehicles.
However Mr Musk made clear he also grander ambitions, touting Tesla’s AI credentials and plans for self-driving vehicles – even going as far as to say considering it to be just a car company was the “wrong framework.”
“If somebody doesn’t believe Tesla is going to solve autonomy I think they should not be an investor,” he said.
Such sentiments have been questioned by analysts though, with Deutsche Bank saying driverless cars face “technological, regulatory and operational challenges.”
Some investors have called for the company to instead focus on releasing a lower price, mass-market EV.
However, Tesla has already been on a charm offensive, trying to win over new customers by dropping its prices in a series of markets in the face of falling sales.
It also said its situation was not unique.
“Global EV sales continue to be under pressure as many carmakers prioritize hybrids over EVs,” it said.
Despite plans to bring forward new models originally planned for next year the firm is cutting its workforce.
Tesla said it would lose 3,332 jobs in California and 2,688 positions in Texas, starting mid-June.
The cuts in Texas represent 12% of Tesla’s total workforce of almost 23,000 in the area where its gigafactory and headquarters are located.
However, Mr Musk sought to downplay the move.
“Tesla has now created over 30,000 manufacturing jobs in California!” he said in a post on his social media platform X, formerly Twitter, on Tuesday.
Another 285 jobs will be lost in New York.
Tesla’s total workforce stood at more than 140,000 late last year, up from around 100,000 at the end of 2021, according to the company’s filings with US regulators.
Musk’s salary
The car firm is also facing other issues, with a struggle over Mr Musk’s compensation still raging on.
On Wednesday, Tesla asked shareholders to vote for a proposal to accept Mr Musk’s compensation package – once valued at $56bn – which had been rejected by a Delaware judge.
The judge found Tesla’s directors had breached their fiduciary duty to the firm by awarding Mr Musk the pay-out.
Due to the fall in Tesla’s stock value, the compensation package is now estimated to be around $10bn less – but still greater than the GDP of many countries.
In addition, Tesla wants its shareholders to agree to the firm being moved from Delaware to Texas – which Mr Musk called for after the judge rejected his payday.
Business
Stock market today: Nasdaq futures pop, Tesla surges after earnings with more heavyweights on deck
|
Tech stocks rose on Wednesday, outstripping the broader market as investors welcomed Tesla’s (TSLA) cheaper car pledge and waited for the next rush of corporate earnings.
The Nasdaq Composite (^IXIC) rose roughly 0.6%, coming off a sharp closing gain. The S&P 500 (^GSPC) was up 0.2%, continuing a rebound from its longest losing streak of 2024, while the Dow Jones Industrial Average (^DJI) fell 0.1%.
Tesla shares jumped nearly 12% after the EV maker’s vow to speed up the launch of more affordable models eclipsed its quarterly earnings and revenue miss. That cheered up investors worried about growth amid a strategy shift to robotaxis and the planned cancellation of a cheaper model.
The results from the first “Magnificent Seven” to report have intensified the already high hopes for Big Tech earnings, that the megacaps can revive the rally in stocks they powered. The spotlight is now on Meta’s (META) report due after the market close, as the Facebook owner’s shares rose after the Senate voted for a potential ban on rival TikTok. Microsoft (MSFT) and Alphabet (GOOG) next up on Thursday.
Meanwhile, Boeing (BA) reported better than expected first quarter results before the opening bell with a loss per share of $1.13, narrower than the $1.72 estimated by Wall Street. Shares rose about 2% in morning trade.
Live6 updates
-
Health15 hours ago
Remnants of bird flu virus found in pasteurized milk, FDA says
-
Art21 hours ago
Mayor's youth advisory council seeks submissions for art gala – SooToday
-
Health19 hours ago
Bird flu virus found in grocery milk as officials say supply still safe
-
Investment20 hours ago
Taxes should not wag the tail of the investment dog, but that’s what Trudeau wants
-
News20 hours ago
Peel police chief met Sri Lankan officer a court says ‘participated’ in torture – Global News
-
Science24 hours ago
iN PHOTOS: Nature lovers celebrate flora, fauna for Earth Day in Kamloops, Okanagan | iNFOnews | Thompson-Okanagan's News Source – iNFOnews
-
Media15 hours ago
Vaughn Palmer: B.C. premier gives social media giants another chance
-
Art21 hours ago
An exhibition with a cause: Montreal's 'Art by the Water' celebrates 15 years – CityNews Montreal