, Inc. (AMZN) Slumps After Analyst Downgrade

Amazon stockBy Szk7788 (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons Inc. (NYSE:AMZN) has been in Wall Street’s good graces for some time, but that could be about to change. UBS analysts downgraded the company’s stock from Buy to Neutral and cut their price target from $450 a share to $375 a share.

Why Amazon gets a downgrade

The analysts based their decision on the company’s recent earnings report, which surprisingly showed revenue and paid unit growth deceleration, and the results of their proprietary Amazon Prime price study. The downgrade comes just four months after they upgraded the stock to Buy based on a “re-acceleration thesis” for the online retailer’s revenue.

UBS spotlights Amazon study

The analysts teamed up with Consumer Intelligence Research Partners in their survey of, Inc. (NASDAQ:AMZN) customers. They surveyed U.S. customers between Feb. 4 and 7 and were actually surprised at the results of it. The main finding was that although 94% of Amazon Prime customers said they would “definitely” or “probably” renew at the $79 annual fee, that percentage dropped to 58% if a $20 price increase was introduced. It fell further to 24% if a $40 price increase was introduced.

As a result of these findings, the UBS team thinks, Inc. (NASDAQ:AMZN) would have to add more value in is service offerings like media content or streaming music or increase marketing about the perceived value of Amazon Prime to customers.

Analysts have been considering what would happen to, Inc. (NASDAQ:AMZN) if it raises the price for its Prime service for some time. The company already said it was considering raising it by $20 to $40. The key here is going to be raising it just enough to cover costs more easily without upsetting most customers enough that they dump the service.

Amazon estimates lowered

They reduced their estimates for, Inc. (NASDAQ:AMZN) to show “a lowering of expected margin improvements” this year and next. They also see increased spending as being possible because the online retailer may need to add more value to its Prime service in order to keep customers signed up.

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About the Author

Michelle Jones
Michelle Jones was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Michelle has been with ValueWalk since 2012 and is now our editor-in-chief. Email her at [email protected]

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