Amazon (NASDAQ:AMZN) has continued to strengthen its position in 2024, propelled by strategic shifts towards a regionalized fulfillment infrastructure in the US and other cost efficiencies.
These efforts have led to an improvement in North American margins, which rose by +510 basis points year-over-year to 4.2%. This marks a streak of five consecutive quarters of y/y expansion.
Although J.P. Morgan’s Doug Anmuth thinks that moving forward, such an improvement will be hard to sustain, the analyst nonetheless takes a positive stance on the margin front.
“While we expect more moderate margin expansion than coming out of the pandemic overbuild in 2023, we remain confident the company can achieve N.America margins beyond MSD% (mid-single digit) over time, w/near-term focus on inbound shipping, inventory placement, & automation/robotics,” said the 5-star analyst.
By increasing “purchase consideration and frequency,” while also enhancing profitability through a $0.45 reduction in cost per unit served, Amazon’s regionalized infrastructure network has boosted the company’s revenue haul. Over time, just as Anmuth expects, Amazon remains confident it can achieve North American margins exceeding mid-single digits. Via the same aforementioned improvements, Amazon believes there’s an opportunity to “drive increased leverage.”
Importantly, says Anmuth, there are several notable structural differences compared to the pre-pandemic period – the ecommerce giant’s network is now more than twice as large, hourly wages have increased, and the standard for Prime delivery has shifted from primarily 2-day to same-day delivery (SD1D). Still, Anmuth believes that “solid Retail growth, increased cost discipline & rationalized capex, regionalization & lower cost to serve & strong advertising” will all give a boost to North America “margin expansion.”
North America aside, international profit margins are also showing improvement in both established and emerging markets. Additionally, even as AWS invests in generative AI and tech infrastructure, its operating income margin is benefiting from “top-line acceleration” and better control of the headcount.
Bottom line, Anmuth, who ranks among the top 2% of Wall Street stock pros, rates AMZN shares as Overweight (i.e., Buy) and keeps the stock on his Best Idea list. The analyst also maintained his $240 price target, suggesting the stock will climb 27% higher over the coming months. (To watch Anmuth’s track record, click here)
Sometimes, Wall Street’s analysts all agree, and that’s the case here. AMZN has 42 recent reviews and all are to Buy, giving the stock a Strong Buy consensus rating. Over the next year, shares are expected to appreciate by ~19%, considering the average target stands at $221.30. (See Amazon stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
