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Amazon’s (AMZN) latest quarterly report was marred by the rising costs related to operational issues. Namely, the investments the company has made in both expanding the workforce and building out fulfillment capacity – with the ecommerce giant now having an excess of both.
It has been suggested that on top of being hit with increasingly difficult macro conditions, Amazon misjudged the waning demand in a post-pandemic world.
However, Evercore analyst Mark Mahaney seems more confident after hosting a call with Marc Wulfraat, President and Founder of MWPVL, a consulting firm that monitors Amazon’s growth.
“We came away incrementally positive on Amazon’s ability to address its excess-capacity issue over the next 2-4 quarters, with our belief that 2 will be more likely than 4,” the 5-star analyst explained.
To solve the issue, however, Amazon will need to make some changes. One will be to reduce the workforce to the tune of around 65,000 while also putting a pause on any hiring. Cutting back square footage growth expansion by 30 million square feet to 45 million could also be required and should take between 2-4 quarters (by Q1:23).
“This sq. ft reduction is expected to come not only from existing and active buildings,” explained Mahaney, “but also from delaying or halting new capacity expansion projects.” According to Wulfraat’s tracking, Amazon has already walked back on 22 U.S. projects which add up to 8 million sq ft.
Overall, considering the stock is currently trading at a 40% discount to its average historical EV/EBITDA multiple, the analyst believes most of the capacity issues are already “priced in.”
As such, Amazon remains one of Mahaney’s “Top Longs in the Internet MegaCap sector.” The analyst sticks with an Outperform (i.e., Buy) rating on the stock, backed by a $205 price target. Should the figure be met, investors are looking at one-year upside of 62%. (To watch Mahaney’s track record, click here)
Almost all on the Street agree. Barring one Hold and Sell, each, all 36 other recent analyst reviews are positive, making the consensus view here a Strong Buy. Going by the $180.13 average target, shares are expected to move ~43% higher over the next 12 months. (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.