Throughout history, the greatest leaders knew the value of logistics.
Sun Tzu, the general and author of “The Art of War,” stated that “the line between disorder and order lies in logistics.”
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U.S. President Dwight Eisenhower, one of America’s most influential generals, said that “you will not find it difficult to prove that battles, campaigns, and even wars have been won or lost primarily because of logistics.”
And then there was Alexander the Great, king of Macedonia, who once reportedly said “my logisticians are a humorless lot … they know if my campaign fails, they are the first ones I will slay.”
Okay, that last one’s a little harsh, but at least in today’s business world we don’t have to worry about being executed…right?
Logistics, or detailed coordination of a complex operation involving many people, facilities, or supplies, was a key topic in a Bank of America Securities research note about e-commerce and entertainment giant Amazon (AMZN) .
The firm boosted its price target for Amazon shares to $220 from $210 and affirmed a buy rating.
Andy Jassy, Amazon president and CEO.
Analysts: ‘Amazon built a logistics powerhouse’
Analysts Justin Post and Michael McGovern said in the June 26 note that Amazon has built “a logistics powerhouse.” They projected it would ship 9 billion packages worldwide this year and could now be the largest U.S. shipper, surpassing UPS (UPS) .
“Delivery speed is also dramatically improved, with nearly 25% of estimated units now delivered same-or-next day,” the analysts said.
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“However, despite significant efficiency improvement in 2023, all five logistics utilization metrics that we track (such as units per square feet) remain below 2018 levels, suggesting more runway ahead for efficiency gains from here,” they added.
The analysts say that some of the metrics have been permanently affected by inflation, but for the most part, “we see opportunity for continued improvement from here, driving higher retail margins.”
Post and McGovern said they first dug into Amazon’s longer-term logistics cycles in 2022, given the dramatic retail operating margin pressure from the Covid-19 pandemic overbuild, and their views on the opportunity for retail margin upside from better use of assets.
“We noted that Amazon reached its peak efficiency in 2018, at a time when the logistics service was running at its highest capacity utilization, and that Amazon’s efficiencies were at or near historical lows on several metrics in 2022.”
CEO Andy Jassy has said that efficiency can exceed 2018 levels. He stated on the 2023 fourth-quarter earnings call that 2018 should not be the “North Star in Cost to Serve.”
After nearly 5 percentage points of year-over-year margin leverage in the first quarter, Wall Street projects only 1.2 percentage points of improvement for the second through fourth quarters compared with the year-earlier periods, Post and McGovern said.
“We think Amazon can drive upside, given another year of limited fulfillment expansion in 2024 (similar to 2023),” they said.
Amazon reaches a significant milestone
“Maintaining first-quarter margins through the end of the year would drive 3% upside to [Wall Street] profit estimates, but an upside case with 50 basis points [0.5 percentage point] of margin improvement from here could drive 8% upside.”
Noteworthy is that on June 26 Amazon reached a $2 trillion market valuation for the first time, with its shares rising 3.9% to close at $193.61, Bloomberg reported. The company joined the likes of Google parent Alphabet (GOOGL) and AI chipmaking titan Nvidia (NVDA) , which have crossed this threshold.
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Meanwhile, Amazon is reportedly planning to launch a section on its shopping site featuring cheap items that ship directly to overseas consumers from warehouses in China. That’s similar to the service offered by PDD’s (PDD) online marketplace Temu, according to The Information.
The new marketplace, which would mark “the e-commerce giant’s most aggressive response yet to the growth of bargain sites like Temu and Shein,” will offer unbranded fashion, home goods and daily necessities, the report said.
Amazon is scheduled to report earnings in a few weeks.
In April, the company reported first-quarter earnings of 98 cents a share, more than triple the 31 cents of the year-earlier period and beating the FactSet analyst consensus of 84 cents.
Revenue totaled $143.3 billion, up from $127.4 billion a year earlier and coming in ahead of FactSet’s call for $142.6 billion.
Amazon Web Services, the e-commerce giant’s cloud computing platform, posted quarterly revenue of $25 billion, up 17% year-over-year, beating Wall Street’s estimates of $24.5 billion.
Bank of America said that retail has been the big driver of recent estimate revisions — more than AWS — and with first-quarter efficiencies exceeding expectations, “we think Amazon is on a good path to drive more retail margin leverage upside in 2024.”
Post and McGovern said that Amazon remains their top pick for large-cap and so-called FANG stocks, an acronym for Facebook parent Meta Platforms (META) , Amazon, Netflix (NFLX) and Google.
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