Amazon (NASDAQ:AMZN) faces a mix of challenges and opportunities heading into the fourth quarter.
Amazon Web Services (AWS), long the engine of growth, is now a potential challenger.
Channel checks by MoffettNathanson Research now raise growth concerns. but this is More than offset by the company’s opportunities to reduce costs, according to the firm.
Changes to Amazon’s (AMZN) fulfillment model appear ready to bear fruit. During its second-quarter earnings call in August, CEO Andy Jassy hinted at the potential for a $2.6 billion gross profit as a result of regionalizing the fulfillment network. This strategic move led to a 19% reduction in miles driven to deliver packages to customers, a significant cost-saving initiative, especially as fuel prices increase.
Regionalization could reduce shipping costs by an average of $0.11 per package, adding millions to the company’s bottom line.
Another change affects our own suppliers. Amazon (AMZN) is shifting some of its fulfillment costs to these suppliers, creating an opportunity for an additional $3.4 billion in gross profits compared to previous estimates.
Amazon’s (AMZN) earnings could also be boosted by rising sales, MoffettNathanson says. The company is seeing e-commerce share gains thanks to its same-day and one-day shipping options. This, along with strong growth in the advertising sector, puts the company in a good position to outperform the industry.
Despite the opportunities, MoffettNathanson, who has a buy rating on Amazon (AMZN), believes AWS’s challenges merit a lower stock valuation. The company is lowering its price target from $191 to $189. Analysts maintain their buy rating and see upside potential of around 46%.
