Home MARKET Amazon faces a near-term cloud — but this analyst sees far sunnier days ahead

Amazon faces a near-term cloud — but this analyst sees far sunnier days ahead


The recovery of Amazon.com Inc.’s AWS cloud-computing business is a hot area of stock-market debate nowadays, but one analyst sees a bright picture as he looks past that issue.

“Admittedly, we are not able to get investors comfortable on AWS’s near-term growth rate, or the [fourth-quarter operating-income] guide,” MoffettNathanson analyst Michael Morton wrote Wednesday, but he’s increasingly optimistic about the company’s earnings potential in 2024.

Morton upped his estimates for Amazon’s

2024 earnings before interest and taxes to $51 billion from $45 billion, citing his heightened belief that Amazon can improve its cost centers.

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“For a company that rarely provides a glimpse under the hood, [Chief Executive] Andy Jassy’s comments on the 2Q23 call suggest $2.6B in gross profit benefit from the regionalization of the fulfillment network on ‘a 19% reduction in miles traveled to deliver packages to customers,’” Morton wrote.

By his estimation, Amazon shells out $17 billion on fuel every year, so that 19% cut could mean 11 cents in savings per unit globally, he said. “It might not sound like a lot, but Amazon ships 22 billion packages per year, and it quickly adds up,” Morton said.

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Morton sees other profit drivers as well, including around pricing. “After years of Amazon absorbing higher prices from 1P [first-party] vendors, it’s time for the 1P vendors to bear the costs, allowing 1P gross margins to improve, driving an incremental $3.4B in gross profit to our prior estimate,” he noted.

He also commented on potential top-line tailwinds, including traction with same-day and one-day shipping, which is helping the company pick up market share. Plus, Amazon’s advertising business is performing better than the broader industry, in Morton’s view.

He has a buy rating and $189 target price on Amazon shares, which advanced 1.8% in Wednesday’s session.

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