Amazon’s cost-saving moves shine bright for Q4 despite challenges
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Amazon (NASDAQ:AMZN) is facing a mixed bag of challenges and opportunities heading into Q4.
Long the engine of growth, Amazon Web Services (AWS) is now a possible challenge.
Channel checks by MoffettNathanson Research now raise concerns about growth. But this is more than offset by the companyâs opportunities to reduce costs, according to the firm.
Changes to Amazon's (AMZN) fulfillment model seem ready to pay off. During its Q2 earnings call in August, CEO Andy Jassy hinted at the potential for a $2.6B gross profit benefit resulting from the regionalization of the fulfillment network. This strategic move led to a 19% reduction in miles traveled to deliver packages to customers, a significant cost-saving initiative, especially as fuel prices rise.
Regionalization could reduce shipping costs by an average of $0.11 per package, adding millions to the companyâs bottom line.
Another change affects first-party vendors. Amazon (AMZN) is shifting some of its fulfillment costs to these vendors, creating an opportunity for an additional $3.4B in gross profit compared to prior estimates.
Amazonâs (AMZN) profits could also be boosted by rising sales, MoffettNathanson says. The company is seeing share gains in e-commerce thanks to its same-day and one-day shipping options. This, coupled with robust growth in the advertising sector, positions the company well to outperform the industry.

Despite the opportunities, MoffettNathanson, which has a buy rating on Amazon (AMZN), believes the challenges from AWS merit a lower valuation for the stock. The firm is decreasing its price target from $191 to $189. The analysts maintain their buy rating and see potential upside of about 46%.


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