Technology

Is Prime Paying Off for Amazon?

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Amazon.com Inc. (NASDAQ: AMZN) can claim 40 million customers for its $99-a-year Amazon Prime service. That amounts to about $4 billion in membership fees. Amazon can also claim an annual average of $1,500 in purchases from Prime members, which adds up to a tidy $60 billion. Add in the non-Prime customers, who spend an annual average of $625, and it is not hard to reach Amazon’s 2014 revenue total of $89 billion.

Now Amazon does not exactly hand out this sort of data, so research firm Consumer Intelligence Research Partners had to dig it out. According to a report at GeekWire, the research firm surveyed 500 of Amazon’s fourth-quarter U.S. customers to reach its conclusion on spending. The researchers also noted that owners of an Amazon Kindle device spend almost as much as do Prime members — $1,450, double the amount on non-Kindle owners.

The amazing thing about Amazon is that even with $89 billion in revenues and $26.2 billion in gross profit the company managed to post a net loss of $241 million in 2014. The loyalty offerings like Prime and Kindle keep customers happy and spending, but Amazon itself spent $26 billion of its gross profit in 2014 on selling, general and administrative expenses (SG&A). Shipping costs are higher and production costs for the company’s original entertainment programming are also likely to be higher this year.

Amazon posted a profit of $214 million in the fourth quarter, but analysts are not looking for a repeat of that performance in the first quarter of this year. The current consensus calls for a net loss of $0.12 a share in the first quarter and a net loss of $0.18 in the second quarter. Full-year revenues are currently forecast to rise about 15% to $102.65 billion, and earnings per share are expected to come to $0.40 for the year after the predicted bumpy start.

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