The Wall Street Journal reports that Amazon CEO Andy Jassy has launched a “cost-cutting review of the tech giant and paring back on businesses at the company that haven’t been profitable.”
According to the story, “The review reflects Mr. Jassy’s intense interest in reducing expenses and focus on profits in recent months, some of the people said. Amazon has lost $3 billion this year after posting net income of about $33 billion in 2021 and $21 billion in 2020.”
Among the components being evaluated is the Alexa business, which “has more than 10,000 employees and is a major recipient of investment capital.” However, the Journal says that “Amazon’s devices unit, which includes Alexa, had an operating loss of more than $5 billion a year.
“The company is currently considering whether it should focus on trying to add new capabilities to Alexa, a voice assistant available on a variety of Amazon devices. Adding capabilities would require greater investment, and many customers use the device for only a few functions.”
The Journal writes that “as part of the monthslong cost-cutting review, Amazon has told employees in certain unprofitable divisions to look for jobs elsewhere in the company, because the teams they were working on were being suspended or closed.”
The announcement was certainly was good for Amazon’s stock price, which saw a 12 percent gain after the Journal story came out; Amazon’s stock price was down 48 percent since the beginning of the year.
Bloomberg adds to the story:
“Amazon said Thursday that it remains confident in its overall operations, as well as initiatives such as Prime Video, Alexa, Grocery, Kuiper, Zoox and its health-care efforts.
Most big tech companies are hitting the brakes on hiring plans, but Amazon is dealing with an especially severe pandemic hangover. The company almost doubled its headcount during Covid-19 restrictions to handle a surge in orders from home-bound consumers.
“When shoppers returned to their previous habits this year, Amazon had to pare back its logistics operations. As the economic outlook darkened and it became clear that a slowdown in online sales growth was here to stay, the cutbacks spread to Amazon’s corporate offices.”
In related news, the Boston Globe reports that “Bedford-based iRobot has laid off employees and plans to trim its real estate footprint in an effort to cut costs, as the maker of the Roomba vacuum faces declining revenue and a pending acquisition by Amazon.
‘The company said in a regulatory filing Thursday that it terminated about 100 employees, or 8 percent of its workforce, in August and eliminated a ‘number of open positions.’ When iRobot originally announced the Amazon acquisition on Aug. 5, it hinted that future layoffs would affect about 10 percent of its workforce.”
Also, to keep things in perspective, Amazon still is moving forward. Bloomberg reports that Amazon “unveiled a new delivery drone design on Thursday that’s smaller, makes less noise and can fly through light rain, the latest effort to get the troubled and long-developing project off the ground. The company has spent nearly a decade pursuing founder Jeff Bezos’ vision of autonomous drones that can deliver a package weighing less than 5 pounds as little as 30 minutes after a customer places an order. Beyond speeding delivery times, drones could significantly cut the cost of delivery which still mostly requires a person driving a vehicle to someone’s home.
“The new drone, dubbed MK30, will go into service in 2024 and replace the existing MK27-2, the model that will be used to make deliveries in Lockeford, California, and College Station, Texas, this year. The new unit has a longer range, can fly in a wider range of temperatures and has new safety features, Amazon said.”
KC’s View:
Amazon hardly is alone in examining expenses – both Meta and Google have just announced major layoffs because of cost-cutting initiatives. It is easy to imagine that Jassy will be announcing some layoffs at some point, since he’s already said the company has a corporate hiring freeze.
Three comments about this, if I may…
1. It is a pretty good bet that when a lot of these cost-cutting initiatives are complete, companies (including Amazon) are going to find themselves at pre-pandemic levels. Which means that the massive growth that took place as a result of Covid has ended, as businesses slammed into inflation and, maybe, recession. The underlying businesses, however, remain strong, and it would be a mistake to think otherwise.
2. As Amazon engages in cost-cutting and re-evaluation of its various business units, this is a good time for its retail competition to consider where and when they should invest in new initiatives. Any hint that Amazon is taking its foot off the gas is an opportunity for its competition to innovate around and past it.
3. Layoffs inevitably will mean that some great tech talent is coming on the market. Maybe this is a good time to ring up your executive search firm and talk about your plans and what they mean in terms of accessing some of this talent. (A number of these folks are going to be starting their own businesses, which gives retailers an opportunity to invest in entities that could help them down the road.)
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