Amazon Scales Up Job Cuts in 2023 Amid ‘Uncertain Economy’

Amazon (NYSE: AMZN) has said that it would lay off over 18,000 employees which are higher than what was planned previously. The wave of tech layoffs that we saw in the fourth quarter of 2022 has extended into 2023 as well.

Salesforce has also announced that it would lay off 10% of its global workforce which would impact over 7,000 people. In November 2022, Meta Platforms announced that it would lay off 11,000 people which was 13% of its workforce.

As for Amazon, the layoffs are just above 1% of its global workforce of 1.5 million. However, in absolute terms, it is the biggest job cut in the current economic downturn.

Amazon to layoff over 18,000 people

In a blog post, Amazon CEO Andy Jassy said, “We typically wait to communicate about these outcomes until we can speak with the people who are directly impacted.” He however added, “because one of our teammates leaked this information externally, we decided it was better to share this news earlier so you can hear the details directly from me.”

He said that Amazon does an annual planning process for the investment and workforce levels. He added, “This year’s review has been more difficult given the uncertain economy and that we’ve hired rapidly over the last several years.”

Jassy said that while the layoffs would be across multiple teams, PXT (People, Experience, and Technology) organization and Amazon stores would be the worst affected.

Jassy increased the scope of layoffs

Sounding upbeat about Amazon’s long-term outlook, Jassy said, “Amazon has weathered uncertain and difficult economies in the past, and we will continue to do so. These changes will help us pursue our long-term opportunities with a stronger cost structure.”

Previously also, Jassy admitted that the company overhired during the pandemic. It also overinvested in warehouse capacity and now finds itself saddled with excess capacity and workforce.

In his blog post, Jassy said, “Amazon has weathered uncertain and difficult economies in the past, and we will continue to do so. These changes will help us pursue our long-term opportunities with a stronger cost structure.”

Amazon stock crashed in 2022

Amazon stock fell by around 50% in 2022 and underperformed the markets by a wide margin. AMZN earned the dubious distinction of losing $1 trillion in its market cap from the peak. Its market cap is still below $1 trillion. The company joins Meta Platforms and Tesla who have also lost their status as $1 trillion dollar companies. Meanwhile, Apple too joined Amazon and lost $1 trillion in market cap from its peak.

While the tech sell-off began in 2022, Amazon stock underperformed the markets in 2021 as well. It rose just around 2.4% in the year while the S&P 500 rose 27%.

Amazon earnings lagged estimates in the third quarter

Amazon’s Q3 2022 revenues rose 15% YoY to $127.10 billion. However, they fell short of the $127.46 billion that analysts were expecting. During the quarter, AWS’s revenues rose 27% YoY to $20.5 billion. The segment posted an operating profit of $5.4 billion. Both the revenues and operating profits fell short of estimates.

For the fourth quarter, Amazon guided for sales growth between 2-8%. The guidance fell short of estimates. Notably, in the fourth quarter, Amazon held its second Prime Day of the year. While the company said that consumer reaction to the event was “great” the guidance does not seem to reflect that.

Amazon’s CFO Brian Olsavsky said, “As the third quarter progressed, we saw moderating sales growth across many of our businesses, as well as increased foreign-currency headwinds … and we expect these impacts to persist throughout the fourth quarter.”

He was also circumspect on the holiday spending in the US and said “we’re realistic that there’s various factors weighing on people’s wallets, and we’re not quite sure how strong holiday spending will be versus last year. And we’re ready for a variety of outcomes.”

AMZN is witnessing a slowdown in sales

In 2021, Amazon’s founder Jeff Bezos handed over the baton to Andy Jassy. The stock has been underperforming since then. That said, the underperformance is related to the general pessimism toward the so-called stay-at-home names that rallied handsomely in 2020. Like fellow names in the stay-at-home universe, Amazon is also battling a slowdown in growth. In the second quarter of 2022, its revenue growth fell to the lowest level in two decades.

To make things worse, we have a general slowdown in the US and global economy which is taking a toll on Amazon’s earnings. While slowing retail sales is hurting the sales of its e-commerce business, corporates too have been cutting down on their spending which has hurt the AWS segment.

In the third quarter of 2022, AWS’s sales growth fell to the lowest-ever level since the company started to report the results separately from 2015.

Analyst predicts Jeff Bezos would replace Jassy in 2023

Michael Batnick, the managing partner at Ritholtz Wealth Management, who correctly predicted the double-digit fall in US stocks in 2022, has now made another bold prediction. He said, “Jeff Bezos spent 27 years at Amazon and has been gone for less than two. In 2023 he pulls a Bob Iger and returns to steady the ship.”

Batnick was referring to Bob Iger who returned as Disney CEO in November 2022 and replaced Bob Chapek. Iger was Disney’s CEO before Chapek but after Disney stock crashed in 2022, the board replaced Chapek with immediate effect.

Wall Street finds AMZN stock a top 2023 pick

JPMorgan named Amazon as a top idea for 2023. It cited favorable comps, multiple growth drivers, and a secular shift towards cloud and e-commerce as the reasons for its bullishness. It also highlighted the recent discipline shown by Amazon management.

Argus Research analyst Jim Kelleher also advises dollar cost averaging in Amazon stock and termed it an “undisputed category leader.”

Citi and Goldman Sachs are also among the brokerages that have listed AMZN as a top 2023 pick. There is a caveat emptor warning here though and many of these brokerages had Amazon as a top 2022 pick as well. However, the stock continued to slide and underperformed the markets as well as FAANG peers last year.