3 Strategic Reasons For Amazon's $15 Minimum Wage

Amazon.com, Inc. AMZN received praise for its decision this week to raise its minimum wage for all employees to $15 per hour.

While the decision generated a ton of positive press for Amazon, D.A. Davidson analyst Tom Forte said Thursday there are at least three reasons why raising the minimum wage was a savvy move for Amazon and its investors.

The increased labor costs will certainly weigh on Amazon’s earnings and margins in the near-term, Forte said in a note, but profits have never been the primary concern for Amazon investors. Forte listed three reason why the wage increase is smart strategy for Amazon:

1. In an increasingly tight labor market, higher wages will help Amazon attract qualified entry-level talent as it expands its rapidly growing businesses.
2. Amazon’s push to add physical retail stores, such as Amazon Go Stores, bookstores and Whole Foods locations, will create new demand for low-level employees.
3. A $15 minimum wage provides Amazon with additional political influence as a leader in the living wage political movement.

For investors, Forte said payroll expenses will likely increase in the mid single-digits and will be partially offset by the company rolling back bonuses and stock compensation programs.

“Lastly, as a number of Amazon’s fastest growing business are its most profitable, such as advertising, AWS, and third-party retail, the wage increase may not have a significant negative impact on its near-term and longer-term profitability,” Forte said.

D.A. Davidson reiterated its Buy rating and $2,450 price target for Amazon's stock. Shares traded around $1,908 at time of publication.

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