PhillipCapital analyst Timothy Ang has kept his “buy” call on Amazon Inc, revising his FY21E PATMI down 10% on higher guidance of labour and fulfilment costs for 4Q21E.
On the e-commerce front, Amazon is absorbing higher costs from rising wages and productivity losses from labour shortages, higher steel prices as well as trucking and container capacity costs. These increased 2Q21 operating expenses by US$2 billion — 2% of its revenue, leading to operating expenses spiking twice faster than revenue.
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These costs may approach US$4 billion through the 4Q21 holiday season as Amazon ramps up staffing by 150,000 and opens access to new ports and container capacity.
“Higher costs are expected to dampen growth for the next quarter. We also worry the higher cost may linger into the following quarters as the US labour shortage may persist and higher wages take a permanent nature,” says Ang.
Meanwhile, the revenue of Amazon’s cloud computing business Amazon Web Services jumped 39% y-o-y to US$16.1 billion in 3Q21, the strongest growth in the last eight quarters.
Ang notes that the industries whose spending was suppressed by the pandemic are recovering and accelerating their use of the cloud.
Amazon’s advertising revenue grew 50% y-o-y to US$8.1 billion, on track to reach PhillipCapital’s FY21E target. The supply chain pressures have not impacted advertisement demand, says Ang.
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The analyst has revised his target price to US$4,157, down from the previous US$4,329. The valuations are based on discounted cash flow, with a weighted average cost of capital of 6.2% and terminal growth of 5%.
As of yesterday’s close, Amazon ended 0.16% lower at US$3,312.75.
