Amazon.com needs to further reduce its headcount to improve its eCommerce margin, according to analysts at Oppenheimer.
“We believe AMZN's 25% underperformance versus Nasdaq LTM is being driven by share loss to Microsoft (MSFT) and lack of eCommerce profitability,” the analysts wrote in a note to clients.
“Following our deep dive into AMZN expenses, we believe more layoffs are necessary for eCommerce to become meaningfully profitable.”
The analysts noted that Amazon’s profitability per employee ex-warehouse workers was significantly behind its large-cap peers.
“Earnings before interest and taxes per corporate employee was about $60,000 pre-pandemic, jumped to about $75,000 during the pandemic, before falling to about $30,000 last year,” they wrote.
“Since 2019, AMZN has increased operational expenditure per non-warehouse employee ex-D&A/Fulfillment by 53% versus META's plus 14% and MSFT/GOOG 3%/2% declines.”
As such, the analysts reduced their price target for Amazon to $125 from $135, with their new price target assuming 10x FY24E AWS revenue/1.5x FY24E eCommerce GP.
However, Oppenheimer’s analysts said they were maintaining their ‘Outperform’ rating on the stock on their belief the company’s headcount can be right-sized under its new CEO Andy Jassy.
Amazon shares were trading modestly lower on Thursday, down 0.4% at $110.68.
Contact the author at emily.jarvie@proactiveinvestors.com
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