Amazon’s (AMZN) latest cost cutting initiative will see the company let go of more than 18,000 employees. Amongst the company’s segments, the Devices, Stores and People, Experience and Technology (PXT) teams will all badly affected by the company’s attempt to rein in expenses against a backdrop of worsening macro conditions.
The extent of the cull in some segments has puzzled Morgan Stanley’s Brian Nowak.
“Notably and somewhat surprisingly, a majority of the role eliminations will come in the Stores and PXT teams. We expected a significant amount of discipline in the Devices/Alexa teams, which we believe make up a majority of the estimated $10bn-15bn in AMZN’s ‘Other Bets’ investment projects we have detailed the past,” Nowak opined
In any case, Nowak reckons the headcount reduction will result in annual savings of ~$3.6 billion and add 13% to his 2024 EBIT forecast. “This is an important step,” he went on to say, “but we look for even more discipline on AMZN’s $10-$15bn of non-core spend.”
The cut to the workforce (and hiring freeze) should also have a positive effect on SBC (stock-based compensation) which could now be “significantly lower” in 2023/2024.
Setting aside the harsh reality of 18,000 employees losing their jobs, Nowak thinks the cuts are “important symbolically,” and demonstrate another tech company taking hard but needed decisions on how to “better manage cash flow” against a backdrop of a “potentially more challenging” 2023/2024. At the same time, the company is expected to keep on investing so to hold on to its market leading position.
All told, Nowak reiterated an Overweight (i.e., Buy) rating on AMZN, backed by a $140 price target. Should the figure be met, investors will be sitting on returns of ~56% a year from now. (To watch Nowak’s track record, click here)
Elsewhere on Wall Street, AMZN receives an additional 35 Buys, countered by just 3 Holds and all coalescing to a Strong Buy consensus rating. Going by the $137.85 average target, the shares have room for 12-month growth of 53%. (See Amazon stock forecast on TipRanks)
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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.
