Amazon Announces Further Cuts Amid Economic Uncertainty
As Amazon CEO Andy Jassy warns of an ‘uncertainty that exists in the near future,’ existing employees face reduced pay and job loss. The expected job cuts in particular will impact a number of roles across the company’s AMZ Web Services (AWS), Twitch streaming, human resources, online book store, and advertising businesses.
Fresh Round of Layoffs
Amazon has recently concluded the second stage of its yearly budgeting procedure, known internally as “OP2.”
“The overriding tenet of our annual planning this year was to be leaner while doing so in a way that enables us to still invest robustly in the key long-term customer experiences that we believe can meaningfully improve customers’ lives and Amazon as a whole,” Jassy said.
Amazon’s workforce is being downsized as the company adjusts its hiring practices following a surge in employment during the pandemic. Its global headcount exceeded 1.6 million by the end of 2021, up from 798,000 in the fourth quarter of 2019.
As part of an extensive review of expenses, Jassy is implementing measures to address the economic downturn and slowing growth in the core retail business. Hiring in the corporate workforce has been frozen, certain experimental projects have been terminated, and warehouse expansion has been slowed down.
Despite these changes, Jassy remains optimistic about Amazon’s key business segments, including retail and AWS, as well as new divisions that continue to receive investment.
Reduced Employee Stock Awards
Aside from job cuts, Amazon announced it will also reduce employee Restricted Stock Units (RSU) awards by “a small amount” in 2025.
According to an initial report by Business Insider, Amazon is considering making changes to its employee pay structure, with plans to reevaluate compensation in Q1 of the following year to account for potential stock fluctuations.
The company is said to be exploring options for a more balanced compensation model, taking into consideration the current economic uncertainty and its compensation budget, as stated by an Amazon spokesperson.
Attempting to Make a Remarkable Recovery in 2023
After experiencing a sharp decline of nearly 50% in 2022, Amazon’s shares have made an outstanding recovery, surging 19% this year – thanks primarily to the 27,000 job cuts that helped to stimulate business performance.
By eliminating inefficiencies, for instance, the quality of work may improve and more cash will be available to the company, which could then result in increased profits and higher payouts for shareholders.
“While some may view these job cuts as a sign of a gloomier macro outlook, especially as it relates to cloud computing and digital advertising, we believe investors will appreciate Amazon’s heightened focus on cost savings and free cash flow,” Arun Sundaram, senior equity analyst at CFRA, said in a note to his clients.
Shares may be up 19%, but the company’s Q4 2022 financial results missed analysts’ expectations by a significant margin, with earnings falling well short. Additionally, the growth in AWS was slower than anticipated, resulting in a subdued forecast for the current quarter.
If revenue continues to decelerate through the end of Q2, we may still see Amazon announce additional cuts in the coming months to achieve a healthier level of profitability.
Amazon will release its latest quarterly earnings report on April 27, 2023 at 2:30pm PT with its virtual Q1 2023 Earnings Call.