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

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

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(Getty Images)

  • If the United States Postal Service increases prices, Amazon could either absorb the added costs, or increase its Prime subscription rates, according to Credit Suisse analyst Stephen Ju.
  • 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 USPS is on an unsustainable financial path and must be restructured to prevent a taxpayer-funded bailout," the executive order, signed by Trump, said.

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

"While we are on the subject, it is reported that the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon," Trump tweeted on March 31.

"That amounts to Billions of Dollars. The Failing N.Y. Times reports that "the size of the company’s lobbying staff has ballooned," and that does not include the Fake Washington Post, which is used as a "lobbyist" and should so REGISTER. If the P.O. "increased its parcel rates, Amazon’s shipping costs would rise by $2.6 Billion." This Post Office scam must stop. Amazon must pay real costs (and taxes) now!"

In a note sent out to clients on Friday, Credit Suisse analyst Stephen Ju estimates USPS price hikes will increase Amazon's costs by between $1 billion and $1.8 billion.

"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.

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(Credit Suisse)

"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."

Ju said that Amazon has been steadily lowering its currently heavy dependency on USPS for its shipping.

"And as it continues to do with the ongoing rollout of Prime Now and its Flex Driver program, Amazon continues to decrease its dependency on the USPS – we hence believe that while the potential exists for near-term profits to be negatively impacted, the long-term thesis remains unchanged," he wrote.

Ju has a price target of $1,750 a share, just above the Wall Street consensus of $1,705.

Amazon is up almost 22% on the year.