Amazon Prime Day: ‘They need a sale’ amid inventory issues, analyst says

D.A. Davidson Senior Research Analyst Tom Forte joins Yahoo Finance Live to assess Amazon's e-commerce business during its Amazon Prime Day sales and the impact of inflationary and union pressures on Amazon.

影片文字轉錄稿

AKIKO FUJITA: Well, Amazon Prime Day is officially here, kicking off the e-commerce giant's two-day sale event for Prime members, which comes as the company faces high worker turnover in its warehouses and objections from multiple unions. Joining us now to discuss is Tom Forte. He's DA Davidson managing director and senior research analyst. Tom, this is always a huge day for Amazon. But you could argue that this comes at a time when they have seen a slowdown on their e-commerce side. How big of a bump are they likely to get?

TOM FORTE: Yeah, it's a great point. And the way to think about it is when they first came up with Prime Day, it was really intended to test the warehouse system to see how ready they were for what is historically their big sales period. Think Black Friday and Cyber Monday.

Then for a couple of years, they had to deal with pandemic related disruptions. This year, an argument can be made that they need a sale. And if you look at their expectations for the June quarter, which didn't include Prime Day, Amazon's core e-commerce business is pretty mature and growing at a very modest rate. So a sale when they need a sale, that's how I'm thinking about Prime Day this year.

BRIAN CHEUNG: Tom, it's Brian here. I wanted to ask about the inventory story. I mean, yes, you've mentioned the historical use for this specific event, but it seems like in this specific time, we've heard from a lot of major retailers like a Target, like a Walmart, that they need to get these big box items, in many cases, electronics out of the door. Based off the discounting you've seen at Amazon, are they dealing with the same inventory issues as well, based off of what they're choosing to heavily discount?

TOM FORTE: And I think the answer is yes. So, historically, if you look at Prime Day, a lot of smart televisions are on sale. And I think you're seeing that again this year. And I think you're seeing consumer electronics in general being an area of focus. So I do think it is consistent with what you've seen at Target, what you've seen at Walmart, that there's also an effort to move potentially excess inventory as part of Prime Day this year.

AKIKO FUJITA: Tom, we tend to really focus on, obviously, the sales come Prime Day, but Amazon, like many retailers, is facing a lot of headwinds, especially among their labor force. It's not just about unionization. They've had to pay more for the workers because of the shortage in labor. I mean, how is that gonna change your outlook for the company? Or do you see anything different than Amazon's going through compared to some of its other competitors?

TOM FORTE: So this is something that we've been thinking a lot about. We wrote a white paper on the impact of inflation on Amazon, including at the the blue collar and white collar level. And then we wrote another one on tech and talent. So the way that I think about it is, going back in time, when they did $15 wage at the warehouse level, I think that was a great example of Amazon playing offense, rather than defense. And you look today, the federal minimum wage, I think, is still 7 and 1/4, meaningfully below the $15.

And then more recently, with tech stocks weak, including Amazon's, they increase the cash comp to their white collar workers by more than 100%. So I'm of the belief-- and I think I'm in the minority here-- that if you snapped your fingers and tomorrow, Amazon was completely unionized in the US, that actually would be, I would say, more of a neutral event for Amazon. And the reason I think that is that we saw with the stimulus checks, what happens when you give a middle income or lower income consumer more money to spend, they spend it.

And then I also think that it would increase their pull in Washington, because they would be one of the largest unionized labor forces in the US. So, interesting times for Amazon. I think they're playing offense rather than defense by increasing the cash comp for their white collar employees. And I'm watching the unionization at the blue collar level.

BRIAN CHEUNG: Tom, for Amazon as a corporation, as a stock, it's been a rough 2022 so far. What do you see as the big structural issue facing this company and Andy Jassy, really, as they try to really make-- try to navigate what has been an extremely tough situation, not just for Amazon, but tech stocks at large?

TOM FORTE: So year in for Andy, I think it's still too early to evaluate. He clearly invested or inherited a mature e-commerce business. And I think that's what's weighing in the stock. AWS, the business he created, is doing amazingly well.

And this year, I'm watching for a preview of "The Lord of the Rings" series on Amazon, because I think their advertising business is also doing amazingly well. So I think that to the extent that this could reignite sales growth in the September quarter versus the June quarter, maybe that's what it's going to take to get the stock to work again, given how well AWS and advertising businesses are doing for Amazon.

BRIAN CHEUNG: All right, we'll have to have you back on once we get those earnings. Tom Forte of DA Davidson, managing director senior research analyst, thanks so much. Well, time now for our Chart of the Day. And this comes from--