Amazon (AMZN -1.35%) is tightening its belt once again.
After announcing plans to lay off 10,000 corporate employees in November, the company is now cutting payrolls in its white-collar workforce by another 8,000.
In the initial announcement back in November, the company said more layoffs would come, but the additional 8,000 seemed to surprise investors, who initially welcomed the news as the stock rose nearly 2% in after-hours trading on Wednesday. On Thursday, the stock fell in line with a broad-market sell-off.
After shares fell 50% last year, it's clear that investors and the company are looking for a catalyst to drive a recovery in the business and the stock, and rightsizing its workforce is one component of that.
Image source: Amazon.
The dirty details
Amazon's first round of layoffs was primarily directed at its books and devices division, coming after reports that Alexa was losing $10 billion a year. The latest round will mostly be focused on its corporate e-commerce segment and human resources.
In a letter to Amazon employees, CEO Andy Jassy said the uncertain economy as well as the company's decision to hire aggressively during the pandemic boom made this year's annual planning process more difficult than usual.
Jassy had not planned to announce the layoffs yet, but the news was leaked first to The Wall Street Journal so Amazon went public with it. The company is still putting together severance packages and related information and plans to notify affected employees starting on Jan. 18.
Amazon struggled throughout 2022. Losses widened in its e-commerce division as it overexpanded capacity during the pandemic, and growth has nearly ground to a halt as the company projected revenue growth of just 2% to 8% in the fourth quarter. In addition to the earlier round of layoffs, Amazon has also taken a number of cost-cutting measures including shutting down once-promising businesses like Amazon Care, its in-person and online health clinic, and Scout, its home delivery robot. The company also canceled or closed dozens of warehouses, taking steps to rightsize its logistics footprint, and it announced a hiring freeze.
What it means for investors
Combined, the 18,000 employee dismissals represent roughly 6% of Amazon's corporate workforce. It's a significant cost-cutting effort, targeting its highest-paid employees.
Amazon hasn't provided details on how much money it will save, but a conservative estimate of $100,000 per employee would equal $1.8 billion in annual cost savings, which doesn't include potential associated expenses like real estate.
Layoffs are the worst way for a company to cut costs as real people are losing their jobs, but cost-cutting at Amazon seems overdue, and slimming down its workforce after last year's stock plunge makes sense.
Amazon doesn't break out its corporate workforce from its frontline workers on its reports, but total employment nearly doubled from 798,000 in Q4 2019, before the pandemic started, to 1.54 million by Q3 2022, even as underlying sales growth was slower.
The market also seems to have changed its view of Amazon over the last year. For a long time, investors were willing to give the company the benefit of the doubt as it grew its top line briskly while profits were generally slim. However, with growth slowing and the company's annual revenue now reaching $500 billion, it's become more important than ever for the company to deliver meaningful profits.
At the same time that revenue growth has shrunk, losses are mounting outside of Amazon Web Services (AWS), its cloud infrastructure division, as the company's non-AWS businesses have lost more than $8 billion through the first three quarters of 2022. The report of the $10 billion loss in Alexa also begs the question of what other business lines are bloated.
Prime Video, which has a budget of around $15 billion in 2022, seems like one target, while its international e-commerce segment, a money-loser in most years, also seems worthy of the chopping block.
Investors were right in their instinct to bid the stock higher on the layoff news. Amazon could be much more profitable than it is as high-margin businesses like AWS and advertising alone likely justify its current market cap, which is now less than $900 billion. The stock is arguably a bargain, but Amazon needs to do more to reassure investors that it can get the bottom line moving in the right direction.
Investors will hopefully get some details from Jassy about how the layoffs will affect Amazon's bottom line. After the broad cost-cutting effort, profits seem set for a rebound in 2023, which is good news for the stock.
