Amazon Tightens Its Belt as Consumers Do Too

From PYMNTS:

It took more than two and a half years, but Amazon’s round trip is now complete.

This, as the eCommerce and cloud computing giant’s double-digit, post-earnings dive Thursday evening (Oct 27) pushed its already battered stock price even lower, touching levels not seen since the COVID lows in March 2020.

While Amazon’s top line grew a respectable — albeit below estimates — 15% during the third quarter, strong dollar foreign exchange headwinds and rising expenses simply devoured most of its profits, leaving the company with razor thin margins and very little to show for 90 days’ work.

“As we’ve done in similar times in our history, we’re taking actions to tighten our belt,” Amazon CFO Brian Olsavsky told analysts, before pointing to unspecified corrective actions such as “pausing hiring in certain businesses” or “winding down products and services” where Amazon believes its resources would be better spent elsewhere.

As for a fast fix in the all-important holiday quarter, Olsavsky told investors that wasn’t likely, noting the company’s lowered Q4 forecast was the results of its expectation that the challenging global economic environment and forex headwinds that just crimped Q3 sales by more than 5% would be at least as harmful going forward.

. . . .

As much as Amazon said it is obsessed with the customer experience and making “their lives better and easier every day,” repairing the investor experience would seem to be an equal — if not more difficult — consideration.

This, as the company continues to pile on the Prime perks to expand its already massive 50+ percent share of online retail sales in the U.S. in an effort to keep members happy and coming back for more of the one-click, free delivery deals that have made Amazon the juggernaut that it is today.

By all accounts, the customer experience is good and loyalty remains high — but something clearly has to give as Amazon’s formula and expanding stable of blockbuster movies and media content, its coverage of NFL games, growth of palm reading cashierless stores, and expanding ecosystem of voice-powered Alexa devices are individually delightful but collectively unsustainable.

Said another way, Amazon spent $124 billion over the past three months en route to generating $127 billion of worldwide revenue, leaving it with just $2.5 billion of operating income to show for all of that effort.  Along the way, its margins have gone from 6.8% at the start of 2021, to 3.2% at the beginning of this year, to just 2.0% at the end of September, and presumably lower still as it winds down the year in peak promotional fashion.

The news did not sit well with investors who have now seen the tech giant’s stock drop more than 40% in a year and its market value slip below $1 trillion — down from $1.9 trillion at its peak last November.

. . . .

Certainly there is ample room and many large targets where Amazon could — and will — seek to accomplish “more with less,” but that process of squeezing efficiency out of the greater system is not likely to be easy or feel nice for customers or its 1.5 million employees.

To be sure, belt-tightening is never fun, but that process is being made even more difficult at Amazon, at the moment, given the fact that it will be happening concurrently with a similar phase of budgetary constraint that households and businesses are undergoing.

“The continuing impacts of broad-scale inflation, heightened fuel prices, and rising energy costs have impacted our sales growth as consumers assess the purchasing power and organizations of all sizes evaluate their technology and advertising spend,” Olsavsky cautioned in speaking to the trend of a slowing top line growth rate.

Link to the rest at PYMNTS

11 thoughts on “Amazon Tightens Its Belt as Consumers Do Too”

  1. Certainly there is ample room and many large targets where Amazon could — and will — seek to accomplish “more with less,”

    “More with less” is code for WTF Happened??

    • I read that as more work per wardhouse, less warehouses.
      And when it comes to choosing which close, we can figure out which go first, right? Higher costs, lower local incentives.

    • Oh, they’ll be firings.
      In january.
      Starting with the holiday temps, many of which get hired fulltime in better times but this year holiday temps are just that, temps.

      They won’t be alone: every well run company will be retrenching.
      The tech industry already has a name for the inflation-induced cuts: tech winter.
      SiliValley companids will be the hardest hit because they’ve been the most spendthrift snd perk liberal. And to add to the “fun” employees that get stock options as part of pay will find the options underwater and worthless.

      https://www.businessinsider.com/silicon-valley-workers-rude-awakening-meta-google-budget-cuts-2022-10

      Europe’s “tech winter” came in the summer because their tech sector is smaller and less profitable. Plus their high(er) cost of energy means their recession started earlier.

    • Musk is perhaps the best experimenter we have. He kept sending the rockets up, and then analyzing why they came down so quickly and spectacularly. Each time, he got higher and higher.

      And yet, he’s now firing half the Twitter employees.

  2. The first of the unspecified moves has been announced, a hiring freeze at corporate:

    https://www.cnet.com/tech/amazon-freezes-hiring-due-to-uncertain-economy/

    White collar workers, not warehouse or delivery staff.
    Yet.
    Once the holiday season is over, the other shoe will drop.
    The same can be expected more broadly after the election, when inflation data is recalculated and announced.
    (Also, the FED isn’t done raising interest rates.)

    Winter is coming for most industries.

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