Amazon Prime is Amazon’s Secret Profit Weapon

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By Jacob Maslow

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Amazon on iPhone and on macbook retina

If you were to ask many analysts regarding the long-term prospects of Amazon (NASDAQ:AMZN), you would get quite a bipolar picture. While there are many analysts who love this online retailer/technology company, there are quite a vocal few who feels that Amazon is going to go out of business sooner rather than later.

It’s not hard to figure out why Amazon has so many haters. First and foremost, its profit margin is nothing to write home about. In fact, its profit margin is actually quite worrisome if Amazon wasn’t a technology company besides being an online retailer. It also has been spending a lot of money on failed projects, and these failed projects can’t help but call into question the overall direction of the company.

I’ve written earlier that these failed projects actually show Amazon’s strength. Moreover, the research and development investments this company has been making are really an insurance policy on its future relevance. It takes a lot of forward planning and capital to stay relevant in technology. Not surprisingly, those research and development costs will eat into profit margins. It seems that Amazon’s haters love to look at only one part of the picture instead of looking at Amazon sees itself and how the market sees Amazon.

Be that as it may, despite this back and forth between Amazon boosters and critics, one key aspect of Amazon’s business needs more attention. This part of the Amazon’s business is contributing big time to its bottom line. I am of course talking about Amazon Prime. This is the annual subscription fee that Amazon members pay for certain benefits. Amazon hyped up the fee to $99 from $79, but the price hike didn’t really put a dent on the popularity of this premium program. In fact, despite the price rise, approximately 10M new customers signed up. This is a great asset that Amazon has. It pumps a lot of cash into the company which they can then use to beef up its other businesses as well as partly fund its constant experiments.

I’m very bullish on Amazon primarily because of its big vision for the future. The future isn’t easy. If it was, then everybody would be making a lot of money building companies that would stay relevant for a long time. The future moves quickly. Oftentimes, the future can get snuffed out by fast breaking trends. It’s like trying to bottle lightning. You really have to give it up to Amazon and its leadership for the great job it’s doing so far.

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