UBS Downgrades Amazon (AMZN) to Neutral; Analyst Surprised by Prime Price Survey

February 12, 2014 6:45 AM EST
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(Updated - February 12, 2014 7:47 AM EST)

UBS downgraded (NASDAQ: AMZN) from Buy to Neutral with a price target of $375.00 (from $450.00). A proprietary Amazon Prime price survey showed 94% of Amazon Prime customers would likelihood renew at $79 per year. The percentage dropped to 58% and 24% respectively with price increases of $20 and $40.

"Based on both Amazon's recent Q4 13 results (surprise deceleration in revenue & paid unit growth trends – both against easier compares) & the results of a proprietary Amazon Prime price survey, we are downgrading Amazon, said analyst Eric J. Sheridan.

"UBS partnered with Consumer Intelligence Research Partners (CIRP) to survey Amazon customers in the US from February 4-7, 2014. We were negatively surprised by the results of the survey. The key finding of the survey was that while 94% of Amazon Prime customers surveyed indicated a likelihood of renewing ("definitely will renew" or "probably will renew") at the current $79 annual fee, these percentages dropped precipitously when price increases of $20 and $40 were introduced (to 58% and 24%, respectively)," added the analyst.

"Our survey results call into question our prior views about the value that a broad set of consumers are applying to the current iteration of Amazon Prime. If Amazon were to raise Prime fees, such a fee increase might need to be accompanied by either a) a higher level of value in the service offering (additional media content, streaming music and/or Fresh (supermarket) offerings) and/or b) an increased level of marketing around the perceived value of Prime to the general public."

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