Amazon (AMZN) Stock Price & Analysis: Tariffs Could Slash Up to $10B from Annual Profits
TLDR
Amazon could face $5-10 billion in annual operating profit losses due to Trump’s new tariffs
The tariffs could increase Amazon’s US merchandise costs by 15-20%
China will see reciprocal tariffs of 34%, on top of existing 20% duties, bringing total to 54%
Amazon shares have dropped nearly 7% following the tariff announcement and are down 20% year-to-date
Jim Cramer remains bullish on Amazon despite tariff concerns, recommending “Buy, Buy, Buy!”
Amazon is facing significant challenges as President Trump’s new tariff program threatens to take a substantial bite out of the e-commerce giant’s profits.
Goldman Sachs tech analyst Eric Sheridan warned that Amazon could see between $5 billion and $10 billion in annualized operating profit losses due to higher first-party merchandise costs resulting from the tariffs.
This potential hit comes despite Amazon’s enormous success with its Prime subscription service. Sheridan estimated that without mitigating factors such as cost-cutting measures or vendor negotiations, Amazon’s US merchandise costs could increase by 15% to 20%.
President Trump unveiled a baseline tariff rate of 10% that went into effect on April 5 in an event dubbed “Liberation Day.” A higher tariff rate will start on April 9 for about 60 countries the administration considers to be the worst trade offenders.
Some of these nations are critical sourcing and business regions for large US companies like Amazon, Walmart, and Target. China, for example, will face reciprocal tariffs of 34%.
Market Reaction and Stock Performance
These reciprocal tariffs are on top of existing duties, such as the 20% tax Trump previously imposed on Chinese goods. This brings the total rate on goods from China to 54%.
China has already retaliated, announcing 34% tariffs on US products.
Amazon’s stock has dropped nearly 7% in the two days following the announcement of Trump’s tariff scheme. The stock is now down 20% year to date.
Despite these challenges, Goldman’s Sheridan maintained a Buy rating and $255 price target for Amazon, suggesting about 43% upside from current levels.
The entire market has felt the impact of the tariff announcement. The stock market lost about $3.1 trillion just on Thursday, its worst day since 2020, with the S&P 500 dropping 4.8%.
Potential Mitigation Strategies
Sheridan believes Amazon will move to offset the tariffs through several measures. These include negotiating with vendors to avoid bearing 100% of the higher input costs, increasing prices on certain items for customers, and shifting their vendor base and products toward items facing lower tariffs or US domestic alternatives.
Amazon has been gradually moving from being an exclusively product-based company to embracing a more service-based model. In the fourth quarter of 2024, product-based sales accounted for about 68% of total revenue, which is still substantially higher than service-based revenue.
The e-commerce giant is better positioned than many retailers to handle price pressures. According to e-commerce analysis company Profitero, Amazon had the lowest prices during the 2024 holiday season for the eighth consecutive year, averaging about 14% lower than similar retailers.
The company recently launched Amazon Haul, which aggregates lower-priced items for easy shopping. This focus on value could help Amazon maintain its customer base even as prices rise.
Expert Opinions and Long-term Outlook
Jim Cramer, host of Mad Money, remains bullish on Amazon despite the tariff concerns. When asked about the potential impact on Amazon, Cramer stated: “Here’s my thinking: I think that the ones who can survive are the strongest and the biggest, and that’s what it’s coming to. This is Amazon, it’s from $242 down to $192. What can I say other than buy, buy, buy!”
Long-term investors might view the current price drop as an opportunity. The stock trades at its lowest P/E ratio in more than a decade, even after more than doubling from its 2022 lows when it lost 50% of its value.
Amazon posted 11% revenue growth to $638 billion in 2024, with AWS leading the charge, growing 19% year-over-year in Q4. The company’s proprietary AI chips and focus on automation helped expand its operating margin and fuel a 90% surge in GAAP net income.
The company continues to expand its same-day delivery infrastructure and has a booming advertising segment now generating an annual run rate of $69 billion.
Despite these strengths, some analysts have raised concerns about a potential recession triggered by the tariffs. J.P. Morgan analysts have increased their forecast for the likelihood of a recession to 60%.
As consumers potentially cut back on spending, Amazon could face challenges, particularly in discretionary categories like computers and electronics.
However, its scale, financial resources, and diversified business model give it advantages over smaller competitors facing the same economic headwinds.
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Filed under: News - @ April 4, 2025 10:24 pm