Amazon has 2 options to deal with a USPS price hike, Credit Suisse says (AMZN)

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April 13, 2018 5:23 PM

See what tough choices Amazon will have to make as a result of USPS price hikes.

If the United States Postal Service increases prices,
Ju estimates the added shipping costs would total between $1 billion and $1.8 billion.
Amazon's long-term profitability isn't in jeopardy.
Watch Amazon stock in real time here.

Amazon may soon have to make a tough decision in the face of potential United States Postal Service price increases, according to a Credit Suisse analyst.

The note comes after President Donald Trump, on Thursday evening, ordered the creation of a task force to review the deteriorating financial state of the USPS.

The order comes just weeks after Trump attacked Amazon for among other things, costing the USPS billions of dollars.

"Our current working assumption is that the USPS accounts for ~40-50% of Amazon's shipping cost in the United States, and if we use a range of 15-20% for price increases, we arrive at roughly $1b-$1.8b in potential incremental shipping costs for 2018 that Amazon may elect to absorb, with every ~5% change to the price resulting in about ~$400mm in costs," Ju wrote.

"The other option is for Amazon to pass some if not all of the incremental costs on to the consumer in the form of Prime price hikes," the note said.

"We estimate that Amazon had ~104mm Prime subscribers as of the end of 2017 and if we assume ~60mm in NA, a ~$20 rise in the annual subscription fee should cover most if not all of the aforementioned shipping cost increases. At any rate, this highlights the importance of Prime Now and its Flex Driver network as the long term product hedge against greater USPS dependency."

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