Layoff News Drags Amazon Stock Lower
Amazon.com Inc., the Internet’s largest retailer, on Friday announced the first layoffs in its five-year history, saying it will trim 150 employees, or about 2% of its work force.
The news sent Amazon shares down $5.25, or 7.8%, to $61.69. The downturn is the latest in a seven-week slide that has shaved more than $15 billion from the company’s market value. Amazon shares peaked Dec. 10 at $106.69.
The job cuts, the bulk of which will occur at the company’s Seattle headquarters, come five days before Amazon will report financial results for the critical holiday season. Wall Street is expecting a loss of about $163 million, or 48 cents a share, according to a poll by First Call/Thomson Financial. A year ago, Amazon lost $46.3 million, or 15 cents a share, on sales of $253 million.
For a company that has regarded profit as an afterthought, some analysts said the layoffs show some fiscal responsibility. Amazon hired 5,500 people last year, boosting its work force to 7,500.
“Our view is that this is a very good sign that Amazon is being run by professionals who want to keep the best people,” said Tom Wyman, a financial analyst for J.P. Morgan. “This is what prudent management does annually in well-run companies--trim its work force.” Wyman has a “buy” recommendation on Amazon and sees the stock reaching $160 over the next 12 months.
Wyman said Chief Financial Officer Warren Jenson, who came from Delta Air Lines in September, is making Amazon more disciplined in spending.
Amazon spokesman Bill Curry said the cutbacks represent an internal reorganization and is not related to seasonal staffing adjustments.
“We do ongoing organizational reviews to just ensure that we always have the right skills and the right number of people in line with the mission of the company,” Curry said.
Many analysts believe that Amazon will survive a coming shakeout of “e-tailers” and will remain a powerhouse in the online shopping world. But the company will experience some periodic bumps as it struggles to get its financial house in order.
Amazon is the second major online merchant to see its stock tumble in as many days. On Thursday, shares of Santa Monica-based EToys Inc. fell 20%. The company met Wall Street estimates of a 52-cents-a-share loss before charges but made investors nervous by announcing that it was bringing its stocking and shipping operations in-house. Company executives said the move will improve service, but investors are worried that it also will increase costs for a company that spent $1.75 for every $1 in sales last quarter. On Friday, EToys shares fell another 81 cents, to an all-time low of $16.06, in Nasdaq trading.
Amazon has lost money since it went online five years ago, a strategy that the electronic retailer is purposely pursuing as it plows money into marketing, inventory and distribution, and new investments. In the past year, the company added auctions to its site and began selling software, tools, toys, electronics and other goods.
But some investors are getting impatient. Revenue from the holiday quarter was $650 million, more than 2 1/2 times the year-earlier period, but still lower than what some investors were expecting. Other financial yardsticks such as the gross profit margin, which is revenue minus the cost of goods sold, fell to 19.8% in the third quarter, from 21.5% in the second period. And some analysts have estimated that Amazon’s profit per customer dropped sharply, to $5 from $14.
“I think the economics of the business have been deteriorating,” said Mark Rowen, a financial analyst for Prudential Securities. “They are selling the merchandise too low based on the services they are providing.”
