Using inflation as a reason, Amazon is introducing a new holiday fee for sellers.
Key details
This week, Amazon announced its new holiday fee for sellers. The company will introduce a holiday peak fulfillment fee from October 15, 2022, to January 14, 2023. This fee has pleased many analysts as they see the fee bringing in hundreds of millions of dollars in profit.
Amazon says the reason is higher expenses during the holiday season. The fee will impose a 35-cent per item “peak fulfillment fee” on merchants that use the Fulfillment by Amazon (FBA) service to sell products in the U.S. and Canada. Sellers who use FBA don’t have to worry about picking, packing, and shipping items, Amazon handles it for them.
Why it’s important
UBS’ Lloyd Walmsley, who has a Buy rating on the AMZN stock, sees the fee adding roughly $870 million in additional revenue in the fourth quarter. Walmsley now estimates approximately $7.4 billion in total consolidated operating income and profit margins of 4.6% for the fourth quarter, higher than his previous projection of about $6.5 billion in operating income and 4.1% margins, according to Barron’s.
Other investors think differently. Morgan Stanley’s Brian Nowak, who has the equivalent of a Buy rating on AMZN shares, calculates an increase of $570 million in EBIT, or earnings before interest and taxes, during the same period. He said the fee speaks to Amazon’s confidence in sellers sticking around despite higher charges and reliable consumer demand, according to Barron’s.
Backing it up a bit
This isn’t the first time Amazon has raised fees this year. In January, Amazon raised FBA fees by an average of 5%. In April, the company began charging sellers a 5% fuel and inflation surcharge as well. It doesn’t stop there, membership fees were also raised this year. In February, the company raised the cost of a Prime membership from $12.99 a month to $14.99 a month, with annual subscriptions raising from $119 to $139.
