12:37 PM EDT, 08/06/2024 (MT Newswires) -- Amazon.com ( AMZN ) merchandise margin will be pressured more than expected due to consumer and product mix weakness, coupled with slower-than-expected improvement in high-margin advertising and cost to serve, Morgan Stanley said in a note Tuesday.

"We were wrong about the slope of retail profit improvements," Morgan Stanley said, referring to Amazon's ( AMZN ) Q2 results as "disappointing."

Consumer trade-down and the company's ongoing efforts to grow its lower-margin everyday essentials business are expected to pressure profitability, the investment firm said. Morgan Stanley also raised its 2024 and 2025 estimates for the company's fulfillment costs and lowered ad revenue estimates for the same years.

Morgan Stanley removed Amazon ( AMZN ) as its Top Pick and cut its 2025 EPS estimate by 11%. The investment firm also lowered its price target for Amazon ( AMZN ) to $210, but maintained its overweight rating.

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