NEW YORK – Shares of Amazon declined Wednesday as financial services company UBS removed its buy recommendation, saying that the online retailer may have a difficult time raising the price of its Prime subscription service.
Prime membership was a huge hit leading up the holidays, so much so that it was one factor contributing to snarled traffic at the nation’s largest shipping companies.
A week before the Christmas holiday, more than a million people signed up for the service, which provides free two-day shipping on many items bought at Amazon.com – as well as free movie streaming and e-books – for $79 a year.
Amazon.com, the world’s biggest online retailer, hasn’t raised the price for membership in the nine years since its launch, even though shipping costs have increased and it added the e-books and movies recently.
As dominating as the company has become in retail, it has been criticized by some investors for what they perceive as a focus on growth at the expense of profit.
When it posted quarterly results two weeks ago that fell short of Wall Street expectations, the company said it was considering a $20 to $40 price increase for Prime.
UBS analyst Eric Sheridan, along with Consumer Intelligence Research Partners, conducted a survey that found the vast majority of Amazon Prime customers would likely renew their membership at the current price. But a markedly lower percentage of customers said they would renew if the fee was raised by $20 or $40.
If Amazon does raise the fee, Sheridan believes it may need to tack on more privileges, such as additional media content. And the company would have to get the message out about the value of Prime, which could drive up marketing expenses, he said.
Sheridan cut Amazon.com Inc. to neutral and reduced his price target to $375 from $450.
A representative for Amazon did not immediately respond to an email seeking comment.
Amazon’s stock dropped $12.54 on Nasdaq, or almost 3.5 percent, to $349.25 at close of trading. In the past year, shares are up 41 percent.