Amazon.com Inc (NASDAQ:AMZN)'s plans to add 250,000 holiday employees this year is a move that signals optimism amidst increased costs, analysts at Bank of America have noted.
The expanded hiring strategy is a notable increase from the 150,000 hires made in the previous year, amidst a marked slowdown in North America quarter-to-quarter revenue growth.
The added workforce is expected to play a crucial role in managing the anticipated surge in demand during this year's festive season, Bank of America noted.
According to Bloomberg, these new employees will earn hourly wages ranging from $17 to $28, with the average being $20.50 per hour. This represents a hike from the previous year's average hourly rate of $19. Additionally, Amazon plans to offer bonuses of up to $3,000 for some of the new hires.
Higher labor costs could be a 4Q margin headwind, according to Bank of America.
“At an average hourly wage of $20.50, assuming 11 weeks per added worker for the quarter and a 40-hour work week, incremental Q/Q labor costs could represent $2.25bn in 4Q,” analysts wrote.
“While Amazon's ‘largest ever annual investment in US hourly pay’ could be a headwind to margins, we expect 4Q'23 gross profit to be up $12bn Y/Y vs 4Q'22, more than enough to absorb the incremental labor costs if Amazon can effectively manage S&M and G&A expense.”
However, the move also suggests a strong holiday outlook, the analysts wrote.
“Amazon's hiring levels relative to other retailers suggest the company anticipates strong Holiday season revenue trends….For Amazon's US retail segment, we project Y/Y growth to accelerate into 4Q, with Offline store closures in large urban areas, logistics regionalization, and delivery speed improvements fueling share gains.”
Bank of America has a Buy rating on Amazon stock.