Amazon to Cut 1,300 Jobs in Bid for Profit
Online superstore Amazon.com beat analysts’ fourth-quarter earnings estimates Tuesday but at the same time said it will close some facilities and slash 15% of its work force to make the business profitable by the end of the year.
The announcement marked the first time Amazon has publicly set a target date for profitability, although company executives said they have long focused on the end of 2001 as a goal for getting the firm into the black.
Still, letting investors in on the strategy is an example of how companies are reacting to the market’s more conservative view of dot-com businesses. In the headier days of 1999 and 2000, Amazon founder and Chief Executive Jeff Bezos led a group of online business leaders who stressed that profits were unimportant in the short term compared with building the brand.
Now, however, many of those other businesses are no longer operating. Those that survive, such as Amazon, have suffered significant declines in market value.
Amazon on Tuesday also dramatically reduced its sales outlook for 2001, citing the slowing economy. Rather than projecting $4 billion in revenue for the year, as executives had done earlier, Amazon’s sales this year are more likely to be between $3.3 billion and $3.6 billion, they said.
Amazon said 1,300 jobs will be cut, mostly by closing a 450-employee Georgia distribution center and a Seattle customer service center with 400 employees.
Some employees at the Seattle center cried foul, questioning why a big chunk of the cuts were being made in the one area of the company that was trying to unionize.
“We believe some serious red flags are raised by the fact that the only customer service center impacted by layoffs was the one undergoing a union-organization drive,” said Marcus Courtney of the Washington Alliance of Technology Workers.
In addition, a Seattle distribution center will shift to seasonal operation, said Chief Financial Officer Warren Jensen. The rest of the job cuts will be spread throughout the company, he said.
Amazon will take a $150-million restructuring charge in the first half of this year, Jensen added.
“I think it’s not a surprise they had to lower their revenue guidance, because you could see in their earlier reports that there had been a shift in the trajectory of growth,” said Kevin Silverman, an analyst with ABN Amro in Chicago.
“That’s the bad news. The good news today is that the management . . . appears to be willing to move very swiftly to right-size the company,” he added.
Amazon’s projected revenue increase for 2001 is still 20% to 30% above last year’s $2.76 billion--but far short of the 68% gain it experienced between 1999 and 2000.
“I think their reduced growth is a little bit of a window to allowing them to understand for the first time what the scale of this business needs to be,” Silverman said. “Until now, they’ve been building as much as their money would let them.”
Bezos and Jensen said positive results from partnerships, such as the Web site Amazon runs with ToysRUs.com, could signal more such joint ventures. However, Bezos said future deals will not necessarily be structured like that project, in which ToysRUs essentially pays Amazon to be its distribution arm while retaining merchandising control.
Amazon’s fourth-quarter revenue rose 44% to $972.4 million, the company said, thanks to strong holiday sales.
That brought Amazon’s loss for the quarter, excluding charges, to $90.4 million, or 25 cents a share--a penny better than analysts’ average estimate.
Amazon.com added 4 million customers during the quarter, bringing its total to 29 million. Other than its already strong book, music and video categories, Amazon said its next-best performer was the electronics store, a more recent addition. International sales and revenues from the kitchen and tools divisions were also strong.
Bezos said cost controls and an ability to negotiate better deals with suppliers helped the company’s results.
Amazon also said it does not need new funding, unlike many of its dot-com cousins, “unless we choose to raise cash to further strengthen our balance sheet or for strategic flexibility.”
The company had $1.1 billion in cash and securities on hand at the end of the year. At the end of the first quarter, executives project the company will have $650 million.
Speculation about the results, reported after the market’s close, hurt Amazon’s shares. They were down $1.19 at $18.94 on Nasdaq, dropping to $18.08 in after-hours trade.