Amazon Q4 and 2021 Full Year Results – Announces Increase of Prime Membership

Amazon announced its fourth-quarter and full-year financial results for 2021, eclipsing Wall Street’s profit expectations, driven largely by its investment in Rivian, an electric vehicle maker.

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Here are some Q4 earnings report highlights:

Net Sales: Amazon reported an increase in net sales of 9% to $137.4 billion in the fourth quarter, compared with $125.6 billion in the fourth quarter of 2020.

Net Income: The company reported net income increased to $14.3 billion in the fourth quarter, or $27.75 per diluted share, compared with $7.2 billion, or $14.09 per diluted share, in the fourth quarter of 2020. Amazon’s fourth quarter 2021 net income included a pre-tax valuation gain of $11.8 billion from its common stock investment in Rivian Automotive, Inc., which completed an initial public offering in November.

Note: Net Sales and Net Income is for the whole company, which includes all sales and income such as revenues from AWS, its cloud business.

Black Friday / Cyber Monday (BFCM): Amazon said it had its biggest ever BFCM shopping weekend with apparel, beauty, home, and toys being among the top-selling categories.

Third Party Sellers: During the holiday season, the company claimed third-party sellers or marketplace sellers achieved record-breaking sales globally on its online store. Many of these sellers are small to medium-sized businesses with more than 130,000 sellers worldwide surpassing $100,000 in sales on Amazon, it said.

Between Black Friday and Christmas, US-based third-party sellers sold an average of 11,500 products per minute, Amazon added.

“Given the extraordinary growth we saw in 2020 when customers predominantly stayed home, and the fact that we’ve continued to grow on top of that in 2021, our Retail teammates have effectively operated in peak mode for almost two years. It’s been a tremendous effort, and I’m appreciative and proud of how hard our teams have worked to serve customers.”

Andy Jassy, Amazon CEO

Yet, despite the rosy sounding numbers, Amazon lost money on its retail commerce business in the US and Internationally. Much of it caused by pandemic-related expenses such as supply chain challenges and higher transportation costs.

However, Amazon CFO Brian Olsavsky in last night’s earnings call was optimistic that many challenges will be resolved and retail operations will be in better shape, “[W]e do see the sun coming out and getting better here over the next number of quarters, and that’s going to be where we’re going to put a lot of our effort.”

Prime Membership Price Changes Coming

The company also announced its third price adjustment for its popular Prime Membership plans in the US that will go into effect on February 19, 2022 for new members and March 25, 2022 for existing members.

Amazon will increase the annual membership from $119 to $139 and the monthly membership from $12.99 to $14.99. CNBC reports that the Prime Student membership will also increase from $59 to $69 annually, but this information was not included in the Amazon announcement or earnings call transcript.

Also, Amazon offers a Prime Membership for EBT/Medicaid and select government assistance recipients at $5.99 per month which is more than 50% off the current monthly plan price. There was no official word from Amazon if this price would change but considering all the other price adjustments, a $6.99 per month change seems likely.

The company explained the price increase of its Prime Membership plans saying they have been adding value such as more original programming on Prime Video, adding NFL games, expanding fast and free delivery service to more customers, including more free same-day delivery, new programs like Amazon Pharmacy, and expanding other existing services such as Amazon Music for Prime, Prime Reading, and Prime Gaming.

However, price increases for transportation, including related labor, are the more likely reason for Amazon to increase the membership prices in the US now. The United States represents the largest pool of Prime Memberships with about 75% of the more than 200 million confirmed Prime members as of 2021.

Olsavsky in the earnings call added, “[For] other countries, we’ll continue to evaluate every year and nothing else to announce right now.”

Amazon Advertising

Amazon has been growing its digital advertising revenue, becoming the third major player after Google and Facebook, excluding China.

This Q4 and full-year 2021 earnings report was the first time the company broke out advertising services revenue as a separate group, offering a better picture of the growth of this revenue stream.

In the fourth quarter of 2021, the company reported Advertising revenue of $9.7 billion, which was a 33% increase over 2020. For the full year of 2021, Amazon took in $31.16 billion in advertising.

Growth in its digital advertising revenue does seem to have slowed a bit. Amazon provided historical data that showed YoY growth in Q3 2020 at 52%, Q4 2020 at 66%, Q1 2021 at 76%, Q2 2021 at 88%, and Q3 2021 at 52%.

The fourth quarter 2021 growth of 33% for 2021 is the smallest year-over-year growth of the data points provided in the earnings release.

Note: all YoY info excludes F/X (foreign exchange) impact.

While Amazon’s advertising revenue includes data from all of its advertising opportunities, most shoppers probably noticed over the last year that the company is serving up more promoted listings and advertising on its commerce marketplace.

For third party sellers this means that in addition to paying selling fees, which also increased in January, there will be a greater need to allocate funds for Amazon advertising to drive shoppers to their listings.

That is good news for Amazon, but bad news for sellers and consumers. Some sellers may have room to absorb a bigger promotional budget and hold their selling price, but most sellers will likely have to pass on the additional cost to consumers through price increases.

Amazon Stock Soars

The overall better than expected net income and news about the increase to the Prime Membership pricing in the US caused the stock to soar in after-hours trading. Amazon also spent heavily to scale its logistics network during the pandemic and capital expenditures are slowing down to more manageable levels, another positive sign for investors.

The complete Q4 and full year 2021 Amazon earnings report are available on the Amazon Investor Relations website.