Amazon needs to make more money from its retail business at a time when the bar is already high and underserved consumers are looking for bigger and better deals. “Starting in 2025, the retail business will have big shoes to fill from (Amazon Web Services),” research firm MoffettNathanson wrote in a note to investors on Wednesday. Analysts see Amazon adding roughly $90 billion in operating income from fiscal 2023 through fiscal 2027. But with profitability forecasts for its AWS cloud unit finally settling, MoffettNathanson said retail, excluding advertising revenue, will need to pick up the slack. Analysts said they believe “Amazon can do it,” but “it’s going to be tougher from here.” AWS has shouldered the burden of adding to the company’s EBIT growth over the past several years. Since 2019, MoffettNathanson estimates that AWS has generated two-thirds of the company’s profits. But with the cost headwinds needed to support AWS’s growth continuing, analysts believe Amazon’s cloud business will contribute less to overall earnings. Getting more from e-commerce could be tough given the pace of retail’s latest earnings so far. Destinations that can offer the best value are the best. Discount retailer TJX Companies showed on Wednesday why chains TJ Maxx, Marshalls and HomeGoods are at the top of shoppers’ lists. Amazon’s second-quarter results, released after the bell on Aug. 1, were hurt by e-commerce failures, with management blaming distractions from the Olympics and presidential politics as reasons for the weak guidance. AWS was impressive last quarter despite massive investment to keep up with demand. While the strength of the cloud is a big part of Amazon’s investment thesis, we believe the company can continue to grow retail margins and add more to overall profitability. Even in a weaker second quarter, Amazon was able to lower its “cost to serve,” the amount it costs the company to deliver a product to customers in North America on the retail side. Management emphasized that there were more gains to be made by further building out its same-day delivery network, regionalizing its inbound network, and expanding the use of automation and robotics. We see no reason to doubt the team on this score. While the stock took a nearly 9% post-earnings plunge on August 2, we weren’t worried. Ten days later, after an ugly stock market slide and then some stabilization, we added to our position in Amazon at its highs of $160. The stock closed just above $180 on Wednesday, up about 7% since the trade. (Jim Cramer’s charitable trust is long on AMZN. See here for a full list of stocks.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after sending a trade alert before executing the trade. The above Investment Club information is subject to our Terms and Conditions and Privacy Policy, as well as our Disclaimer. No obligation or fiduciary duty is, or is created, by your receipt of any information provided in connection with the Investment Club. No specific result or profit is guaranteed.
The Amazon Prime logo on a package in Manhattan.
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Amazon Apple needs to make more money from its retail business at a time when the bar is already high and consumers with limited attention spans are looking for bigger and better deals.