Opinion: Amazon cuts jobs to reset tech giant after monster pandemic growth, but investors still worried

Wall Street analysts are applauding cost-cutting moves by two tech giants over the past two days amid a major revenue slowdown, but investors appear more worried about Amazon, where its highly profitable cloud business and growth helped to cushion it. in the old days.

Late Wednesday, Amazon.com Inc. AMZN,
confirmed a Wall Street Journal report that it planned to cut 18,000 jobs. That was far more than initial reports and estimates that the company would cut around 10,000 jobs, thousands of which began late last year. Amazon shares fell 2.37% on the news.

So far, Amazon’s cuts are the steepest among tech companies, which are seeing a sharp drop from the double-digit percentage growth rates that many big companies have seen during the pandemic. The company only said the majority of job cuts were in its Amazon stores and PXT organizations, which it calls its people experience and technology solutions teams. It did not say whether any cuts came from its cloud services business, Amazon Web Services (AWS).

Wednesday, Salesforce.com Inc. CRM,
a leading cloud-based software vendor and a cloud software pioneer, said it would cut 10% of its workforce. Investors sent Salesforce shares higher on the news yesterday.

Both companies have been making big hires as their revenues have grown, to help meet a surge in demand, which has slowed along with the macro economy. For Salesforce, this is its first big pothole after more than a decade of double-digit growth ranging from 22% to 37%. Now, in fiscal 2023 and fiscal 2024, analysts expect Salesforce revenue to slow to 16.92% and 10.48%, respectively, as business demand slows. and that companies are reducing their sales and marketing teams.

Amazon has seen serious monster growth in the pandemic, when many consumers have used e-commerce to buy things instead of going out to stores, and the company has ramped up hiring to match. Its workforce jumped to more than one million in 2020, its most profitable year and a year in which revenue jumped 37.62% to $386.1 billion. But its AWS cloud business has always been its biggest earner, with more operating income than Amazon’s other e-commerce, media and retail businesses.

Earlier this week, UBS analyst Lloyd Walmsley cut his estimates on Amazon, noting that he thinks Wall Street consensus estimates for AWS are “significantly too high.” It now expects AWS to grow at rates of around 21% in the fourth quarter, then slow to 18.4% annually for 2023 and 19.3% in 2024. That’s down from previous growth rate ranging from 33% to 39% in the last four quarters.

Walmsley cited a broader report from the UBS software team, and “deteriorating cloud checks around (1) client efforts to optimize/reduce cloud spend, (2) delays in migrating the new workload to avoid upfront costs, and (3) beyond the cyclical/
macro, a transition to a more mature “phase two” of market development. »

That’s consistent with what MarketWatch has been reporting on an upcoming downturn in cloud activity and executive comments on recent earnings calls. In October 2022, Amazon CFO Brian Olsavsky spoke of a slowdown in the growth rate at the end of AWS’ third quarter.

Now, the big question is whether Amazon’s overall revenue estimates will drop further in the coming weeks, before or after the company announces earnings later this month. Currently, the Wall Street consensus, according to Factset, is that Amazon sees its overall revenue growth rate bottoming out at 8.6% in 2022 for total revenue of $510.3 billion, and growth of 10.13% for a turnover in 2023 of 562 billion dollars. Some investors don’t stick around to find out.

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