Amazon's Holiday Hiring Spree Signals Strong Consumer Demand, Expects Strong Q4 Growth: BofA Analyst

BofA Securities analyst Justin Post reiterated a Buy rating on Amazon.Com, Inc AMZN with a price target 174.

Amazon announced that the company will hire 250,000 full-time, seasonal, and part-time logistics employees in the U.S. before the Holiday season, up from 150k in 2022, which Post thinks turned out to be the worst Holiday season vs. early year expectations since the Great Financial Crisis, with Amazon's North America Q/Q revenue growth at just 18% (26% in 2021). 

Per Bloomberg, the workers will earn between $17-$28 per hour depending on location, with the average being $20.50/hr (up from $19/hr a year ago), and some new hires are reportedly eligible for bonuses up to $3,000. 

The additional 250k workers, if all hired, would represent about 17% of the 1.46 million employees disclosed in 2Q. However, Post notes that headcount only increased by 18k from 2Q to 4Q in 2022 despite the announcement of plans to hire 150k, so he thinks many workers will be seasonal.

Amazon's announcement indicates Holiday hiring is increasing 67% Y/Y from 150k in 2022 and potentially signals strong consumer demand for the upcoming Holiday season. 

Key Holiday sales events include Big Deal Days (October 10-11) and Cyber 5 (November 23-27), with Amazon potentially releasing disclosures that imply above-industry unit growth.

At an average hourly wage of $20.50, assuming 11 weeks per added worker for the quarter and a 40-hour work week, incremental Q/Q labor costs could represent $2.25 billion in 4Q. 

Post estimates this is up $1 billion from a year ago, assuming Holiday labor costs at $19/hr and similar work weeks potentially yielding $1.25 billion in Q/Q incremental costs in 2022. 

While Amazon's "largest ever annual investment in U.S. hourly pay" could be a headwind to margins, Post expects 4Q'23 gross profit to be up $12 billion Y/Y vs. 4Q'22, more than enough to absorb the incremental labor costs if Amazon can effectively manage S&M and G&A expense.

Amazon's hiring levels relative to other retailers suggest the company anticipates strong Holiday season revenue trends. 

Post reiterates his view that 4Q'22 was the worst eCommerce Holiday season vs. early year expectations since the GFC (inflation, store reopening, travel a priority for spend), with Department of Commerce data suggesting eComm spending slowed to just 7% Y/Y. For Amazon's U.S. retail segment, Post projects Y/Y growth to accelerate into 4Q, with Offline store closures in large urban areas, logistics regionalization, and delivery speed improvements fueling share gains. 

The price target based on Post's SOTP analysis that values the 1P retail business at 0.9x 2024E Revenue (including subscription/Prime membership fees), the 3P retail business at 3.0x 2024E Revenue, AWS at 7.5x 2024 Sales, and the advertising business at 4.0x 2024 Sales. For 2024E, the analyst's 7.5x AWS multiple is a slight discount to his SaaS comps at 8.1x, our 0.9x GMV multiple is a discount to his retail comps at 1.2x, and our 4.0x advertising multiple is in line with his digital advertising comps at 4.1x. 

Price Action: AMZN shares traded lower by 1.31% at $135.84 on the last check Wednesday.