UPS faces a major setback, but analysts see a path forward
Shares of United Parcel Service $UPS (UPS) dropped 15% on Thursday, marking its worst day ever, after the company announced a significant reduction in its business with Amazon $AMZN (AMZN), its largest customer. The move, which will see UPS lower its Amazon-related revenue by more than 50% by the second half of 2026, has rattled Wall Street.
While the loss of Amazon’s business might appear to be a major blow, UPS justified the decision as part of a broader strategy to prioritize more profitable deliveries.
“Amazon is our largest customer, but it’s not our most profitable customer,” UPS CEO Carol Tomé said during the company’s Jan. 30 earnings call. “Its margin is very dilutive to the U.S. domestic business.”
Amazon accounted for 11.8% of UPS’s total revenue – roughly $10.7 billion – but its low profit margins have been a drag on the company’s overall profitability. UPS is now focusing on higher-margin opportunities despite the short-term financial hit.
UPS and Amazon have been partners for nearly 30 years, and Tomé stressed that UPS “holds the company [Amazon] in high regard” but that “it was time to step back and reassess our relationship.” The announcement, which left investors unsettled, was coupled with a warning of lower-than-expected 2025 revenue.
Bernstein (AB) analyst David Vernon defended the company’s strategy, arguing the market’s negative reaction was an overreaction. In a research note, Vernon said UPS “didn’t pull the football, but definitely moved the goal posts,” adding that the shift toward higher-margin operations would ultimately strengthen UPS’s financial health. He maintained a “Buy” rating on UPS with a price target of $179 per share, though he revised his 2025 revenue estimates down by 4-5%.
UBS (UBS) analyst Stephen Ju also weighed in, suggesting that Amazon may be entering a phase of “lower capital intensity” in its e-commerce business, which could signal further changes in its relationships with delivery companies.
Evercore ISI (EVR) analyst Jonathan Chappell noted that while UPS’s fourth-quarter results showed positive signs, including stronger-than-expected profits and improved margins in its domestic business, the decision to cut Amazon’s volumes by over 50% was a “surprise.” Chappell added that the move accelerated the decline of a business segment that had long been seen as a “tail risk” for UPS.
UPS’s big Amazon reduction isn’t all that’s changing. The company also made changes to its UPS SurePost service. Effective Jan. 1, 2025, UPS moved all of SurePost operations in-house, ending its reliance on the U.S. Postal Service for last-minute delivery. UPS explained that the changes to the USPS operating model, which would increase delivery times and raise costs, made the partnership less viable. “The value proposition of an increased cost as well as deteriorating service didn’t work for us,” Tomé said.
UPS expects to justify the change by focusing more on higher-margin, complex services like its healthcare sector. To offset declining volume, the company closed 11 facilities in 2024, which is expected to save $1 billion.
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