Retail companies turn their eyes every year to the last quarter, which is traditionally considered the largest of the other quarters of the year. So are the companies that depend on retail – such as advertising companies or consumer products. The fourth quarter is the most active shopping quarter and includes everything between Halloween at the end of October and the New Year celebrations at the end of December – including the shopping days of the Chinese Singles’ Day, Black Friday and Cyber Monday held in November.
Until last year, she broke Amazon New records every fourth quarter, which allowed it to continue to ride the dream of growth almost since its inception – until now in fact. For the first time in years, she delivered Amazon Last October, a disappointing forecast for the fourth quarter: 140-148 billion dollars, which reflects a growth of up to 8% compared to the corresponding quarter last year. If the lower forecast is realized, the annual growth will be only 2% – something that does not characterize technology companies, and in fact leaves Amazon as a retailer with reasonable growth rates that are no different from any ordinary department store. Certainly not a growth rate that investors in technology stocks expect, and these did punish Amazon in the form of an 18% decrease in its value in just three weeks since the publication of the forecast.
The tide brought by the corona is over
Why, then, did Amazon choose to embark on a wave of layoffs right now? Despite encouraging inflation and employment data in the US, the rise in prices, as well as the strengthening of the dollar, is causing many Americans to buy a little less – certainly not at the rates they were used to during the happy Corona years.
Amazon’s warehouses suffer from logistical problems due to excess supply – the company rented too much space and committed to too many buildings. It also hired too many workers, like most technology in the Corona years, and became the second largest employer in the US, with one and a half million workers. On the eve of the outbreak of the Corona epidemic, in the fourth quarter of 2019 it employed no more than 700 thousand people. It wouldn’t hurt the company to lay off a few percent to “clear the table” for the new year and start it off on the right foot in terms of profitability.
A second reason for the current timing may actually be optical. Among the waves of layoffs that are coming from all over – giants like Meta , TwitterSSnap , Microsoft andSalesforce – Who might even remember the move at Amazon?
Where do you cut from?
Like every company these days – Amazon is also examining itself internally. Its managers search with candles for the profitable places, the unprofitable pockets of activity, and there are plenty of such. Apart from inefficiency in the logistics system, one of the projects that received the most internal criticism in the company is the Alexa and Echo personal assistants that took the form of a smart speaker, in which the company had high expectations. Already in 2017, some in the company thought that smart speakers would become the popular gadget and the main interface between man and machine, more than between a man and his phone. Alexa has quite a few places to cut: between 2017 and 2018 the Alexa team doubled to 10,000 people.
But even though Amazon has sold hundreds of millions of the device, the profitability of the operation remains low. According to the New York Times, Amazon lost $5 billion on its smart speaker business in 2018.
Amazon hoped that Alexa would become a new engine of growth, just as its cloud business – Amazon AWS – made it within a few years the market leader in the field of cloud computing, with a profitable and growing product, but this did not happen to the same extent. Even the cloud business is no longer what it used to be, as a growth engine: the annual growth rate from the sale of cloud computing dropped from a peak of 80% in 2015 to 30% with the outbreak of the corona virus.
The growth rate rose immediately afterwards to 40% as more and more organizations moved to the cloud following the pandemic, but this is again on a downward trend starting in the first quarter of 2022.
The cloud service is still a major growth engine for the company – and indeed the cloud activity is not expected to be affected by the current wave of layoffs, if the leaks from the move are correct. But in a company where the engines of growth are running out and the fantastic growth rates that once characterized it are comparable to those of shoe stores, it’s hard not to think about extreme moves like the one Amazon is implementing these days.