Amazon profits to drop 16% as labour costs set to jump $4 billion says Morgan Stanley

Amazon’s share price took a battering yesterday after Morgan Stanley warned that increases in both wages and workforce will drive down its profit margins.

On Monday the investment bank lowered its price target for Amazon from $4300 to $4100, seeing shares in the retail giant dip over two per cent to $3349 before recovering throughout the day.

Morgan Stanley warned its investors that “Amazon’s 700,000 person US logistics workforce and rising wages reveals more profit pressure ahead”, adding that while its growing workforce will enable more ecommerce share gains “the cost of labour is rising”.

It estimated that Amazon’s labour costs will rise a whopping 60 per cent, or roughly $4 billion, between the final quarter of 2020 and the same period this year.

The analysts, led by Brian Nowak, went on to lower their profit growth expectations for 2021 and 2022 by 16 per cent and 19 per cent respectively.

READ MORE: Amazon raises minimum wage to $18 as it struggles to attract some 125,000 staff

Earlier this month Amazon boosted its average starting wage for warehouse and transportation workers to $18 an hour as it scrambles to hire 125,000 new staff.

According to Reuters, Amazon is also offering welcome bonuses of up to $3000, some three times what it was offering four months ago as it struggles with the industry-wide recruitment crisis.

It comes as the retail, hospitality and logistics industries in both the US and UK struggle desperately to find staff, with vacancies in both markets recently hitting record highs.

Its latest recruitment drive comes as Amazon gets poised to launch 100 new logistics facilities throughout the US this month, following the launch of 250 opened this year already.

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