Amazon.com caught Wall Street by surprise last Friday when it nonchalantly announced layoffs for the first time in its five-year history.
Even though the 150 lost jobs represent only about two percent of Amazon’s 7,500 workers, the mere fact that the online merchant decided to cut back at all seemed to startle many investors. After all, Amazon’s revenues more than doubled to about $1.6 billion (US$) last year, while its work force tripled in size.
Stock Goes South
Despite assurances by Amazon spokesman Bill Curry that the layoffs were no more than a minor tweaking, the company’s shares plummeted $5.25 to $61.69 in Nasdaq Stock Market trading Friday. Additionally, a brisk 13.7 million shares of the stock changed hands.
No Longer Immune
While most analysts feel that the layoffs are not significant in the big picture, investors seem to be learning that Amazon is no longer immune from the troubles that have been plaguing other e-tailers lately.
For example, recent stock disasters like Value America and eToys — whose market caps as of January 11, 2000 were down $3.1 billion and $7.7 billion from 1999 highs — serve as bad omens for online stores that lack a unique approach or technology.
In addition, a report released Monday by Forrester Research, Inc. points out that Amazon’s action could have been triggered by the reality that its honeymoon with Wall Street is finally over.
“Financial markets exasperated with non-existent online profits will turn a deaf ear to persistent ‘investment mode’ rhetoric and soundly punish merchants who bleed red ink,” the report says. “To please the Street, online merchants will balance marketing blitzes with a new focus on company fundamentals following their first-quarter earnings announcements. They will follow the lead of Priceline.com, which scaled back expansion plans last fall to grow margins and reduce operating costs.”
Shifting From Growth to Profits
Amazon CEO Jeff Bezos seemed to shift his focus from expansion to profits earlier this month when he told reporters that Amazon.com would like its three longest-established stores to become profitable by this year.
It seems to me that Bezos is reading Wall Street correctly and should also be quickly looking for ways to leverage Amazon.com by building a strong alliance with a well-established brick-and-mortar retailer.
However, if the layoffs turn out to be nothing more than a cosmetic change — and Amazon does not curtail its spending and expansion spree — then stockholders had better fasten their seatbelts, because a roller coaster ride is about to begin.
What do you think? Let’s talk about it.