BofA Securities analyst Justin Post maintained a Buy rating on Amazon.Com Inc
The re-rating reflects CEO Andy Jassy's goal for a leaner Amazon by the end of the first quarter of 2025, translating into an estimated $700 million in cost savings and Amazon Web Services' multi-year, multi-billion-dollar co-investment into custom AI chips with Intel Corp
Post noted that Intel chips would be more cost-effective for customers than alternatives. Intel will produce custom AI fabric chips for AWS that will be built on Intel 18A, the company's most advanced process node.
According to the analyst, AWS remains well-positioned to capture broad-based AI customer demand due to its more diverse and growing product offering.
Post estimates $700 million annually in cost savings under Jassy's plans to increase Amazon's individual contributor-to-manager ratio by slashing management layers and making employees return to the office five days a week beginning in January.
Assuming a non-warehouse workforce of 400,000 and a current manager-to-contributor ratio of 1 to 6, at least 2.5% of employees (around 7,000) are projected to shift from manager roles to contributor positions, and if the difference in pay is $100,000.
Post's price target is based on his sum-of-the-parts (SOTP) analysis, which values the 1P retail business at 1.2 times 2025E Revenue, the 3P retail business at 3.0 times 2025E Revenue, AWS at 8.0 times 2025 Sales, and the advertising business at 5.0 times 2025 Sales.
For 2025E, Post's 8.0 times AWS multiple is relatively below his SaaS comps at 8.5 times, his 1.2 times GMV multiple is a discount to his retail comps at 1.3 times, and his 5.0 times advertising multiple is a discount to his digital advertising comps at 5.2 times.
The analyst deems some conglomerate discounts as warranted with elevated regulatory risk but long-term notes that in-line to discount multiples are warranted given growth rates more than peers.
Price Action: AMZN stock is up 1.22% at $187.15 at the last check on Tuesday.
