POSTED: 5:50 a.m. HST, Mar 13, 2014
LAST UPDATED: 8:51 a.m. HST, Mar 13, 2014
NEW YORK >> Amazon is raising the price of its popular Prime membership to $99 per year, an increase of $20.
It's the first price increase since the online retailer introduced its Prime membership program, which includes two-day free shipping on many products, in 2005. The company said it would probably raise the price by $20 to $40 in January.
The hike will apply to users when they renew their membership. Users who renew membership before April 17 will pay $79 for the year. After April 17 the price will change to $99. New customers that start a free trial between now and March 20 will lock in the $79 rate for the first year.
Amazon has spent heavily to grow its business and expand into new areas, from movie streaming to e-readers and groceries, and it has accomplished that goal.
The company said it added a million new Prime members in the week before Christmas and a surge in online ordering in the U.S. contributed to huge delays for people sending gifts just ahead of the holiday.
But that has rankled some investors, who are looking for bigger returns.
In an email Thursday to members, the Seattle company stressed that it has not raised the price on Prime in the nine years since its launch, even though shipping costs have increased and it has added new services, such as video streaming. The number of products available for two-day shipping has grown to 20 million from 1 million.
Amazon doesn't disclose how many Prime members it has, but it said in December that it has "tens of millions" of members worldwide.
Cowen & Co. analyst John Blackledge estimates there are about 23 million U.S. prime members. Blackledge said that since the bulk of new memberships occur in the fourth quarter, around the holidays, the benefit of the price hike will probably be felt next year.
He added that he doesn't expect the continued growth of Prime members to slow down despite the price increase.
The announcement was an immediate hit with investors.
Shares rose $10.05, or 2.7 percent, to $380.69 during morning trading. The stock is down 7 percent since the beginning of the year.