SEATTLE – For shoppers, Amazon Prime often comes through, delivering that last-minute purchase for an almost forgotten birthday or an overlooked necessity for vacation travel.
In Amazon's fourth-quarter earnings announcement, Prime came through for Amazon itself.
For much of 2014, Amazon.com's stock had been in the doldrums, shedding a quarter of its value as investors fretted about either skimpy profits or too-frequent losses. On Jan. 29, Amazon reported a $214 million profit in the fourth quarter, slim given the company's $29.3 billion in sales. But the black ink was well ahead of analyst expectations.
In the earnings announcement, Amazon founder and Chief Executive Jeff Bezos highlighted the rapid growth of Prime, which marked its 10th anniversary last week. He noted that the $99-a-year service, which offers shipping on millions of products at no additional cost, boosted its worldwide paid membership 53 percent last year — "50 percent in the U.S. and even a bit faster outside the U.S."
Amazon stock soared on the news, regaining nearly $25 billion over the next couple days. There were few outside Amazon who believed that Prime could be the engine it has become when it debuted 10 years ago.
"Skeptics thought we were crazy," said Amazon Vice President Greg Greeley, who runs the service. "At the time, they said, 'Why would anybody want to spend that much for shipping?' and 'How the heck are they going to be able to afford it?' "
It took some time, as Bezos suggested, but Prime has proved those doubters wrong. The service has moved from a shipping program to the heart of Amazon's retail strategy.
Prime started when an Amazon engineer named Charlie Ward pitched the idea in a digital employee-suggestion box. At the time, Amazon offered customers free shipping on purchases of $25 or more, as long as they were willing to wait a few extra days for their order to arrive. Ward thought some customers would be willing to spend more, and might even shop more often if they could be part of a buying club that offered rapid shipping.
Bezos seized on the idea and pulled together a group of executives in November 2004 in the boathouse at his home.
Amazon won't disclose the number of Prime subscribers, though analysts believe the number is around 40 million members or more worldwide. So conservatively, Amazon is generating $4 billion from Prime members on just the $99-a-year member fees alone.
Amazon continues to find new features to add to Prime, adding such offerings as unlimited photo storage or a subscription music service.
RBC analyst Mark Mahaney believes the growth of Prime might help resolve one of the most long-standing Amazon investor gripes — skimpy profit margins. He thinks Prime could have between 55 million and 85 million members by 2016. That could mean as much as $8.5 billion in revenue, just from membership fees.