Amazon’s (AMZN) heavy investment in people to capitalize on rising consumer demand is a big lesson for other retailers, according to Craig Elston, Head of Strategic Services at Iterable. “Amazon’s decision making is a lesson for other retailers: deliver a positive customer experience in the face of seasonal headwinds, and you can capitalize on an increase in consumer demand,” he says.
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Amazon’s businesses have been under pressure lately, as evidenced by a lackluster Q3 financial report last week. The online giant’s top and bottom lines missed analyst estimates and gave lackluster guidance for Q4.
“It should come as no surprise that Amazon’s earnings are at the mercy of economic pressures. In Q3, we’ve seen a plateau in consumer demand, challenges in the supply chain, and the rising cost of fulfillment,” Elston says.
I am bullish on AMZN stock. (See Analysts’ Top Stocks on TipRanks)
Big Spending on Staff Recruitment and Retention
Meanwhile, Elston thinks that Amazon’s business will soon turn around, thanks to big investments the company has made in people and a rebound in online spending in the holiday season.
“To mitigate the effects of these forces, Amazon has invested heavily in staff recruitment, increased wages, and deployed powerful (and expensive) retention programs like free college tuition,” Elston says.
He continued, “While these expenditures have impacted Q3 earnings, they will set Amazon up to succeed in Q4 and beyond; 42% of shoppers in the U.S. plan to spend more money on gifts this holiday season compared to 2020. Maintaining a positive customer experience, and managing shopper expectations requires manpower and morale — both of which were bolstered by Amazon’s Q3 spending.”
Sean Turner, CTO of Swiftly, a digital loyalty platform for brick-and-mortar grocers, is on the same page, pointing to Amazon’s gaining momentum in the grocery business.
“Despite slowing earnings, Amazon is showing momentum in the grocery space,” he says. “The digital leader is steadily expanding its line of Fresh grocery locations to bolster sales both online and in brick-and-mortar stores, combining technology and convenience to lure customers away from their local retailer — especially as supply chain issues cause prices to rise and consumers spending behavior to change.”
TipRanks’ Smart Score
Investors have been lukewarm on Amazon’s shares recently. Its shares have gained a meager 8% so far this year compared to a 25% gain of the S&P500. Investors have anticipated Amazon’s challenges, choosing to stay on the sidelines rather than chase after its shares.
TipRanks’ Smart Score assigns Amazon a perfect 10, citing solid fundamental factors and increased hedge fund activity.
Wall Street’s Take
Turning to Wall Street, Amazon has a Strong Buy consensus rating, based on 29 Buys assigned in the past three months. The average Amazon price target of $4075.34 implies 15.8% upside potential.
Analyst price targets range from a low of $3,800.00 per share to a high of $4,500.00 per share.
That’s much better than the 8% it has gained thus far this year.
Disclosure: At the time of publication, Panos Mourdoukoutas didn’t own shares of Amazon.
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