Just one day after becoming the first publicly traded company to lose $1 trillion in value, Amazon shares are surging on reports of a major cost-cutting review at the largest online retailer in the world. This comes just one day after Amazon became the first public company to lose $1 trillion in value.
On Thursday, shares of Amazon (AMZN) soared higher in response to a broad-based rally in major technology stocks as well as a report from the Wall Street Journal that suggested the online retailer may be looking to reduce some of its less profitable sectors.
According to The Wall Street Journal, Amazon, which earlier this week became the first publicly traded company in history to lose more than a trillion dollars in market value, will begin a cost-cutting review led by CEO Andy Jassy over the coming months, with a focus on its voice-assistant Alexa business, which houses approximately 10,000 employees. The review will reportedly begin with a focus on its voice-assistant Alexa business.
Both Amazon’s dismal Christmas revenue projection and the unveiling of slowing growth in its lucrative Web Services sector marred the company’s better-than-expected earnings announcement for the third quarter. Amazon’s holiday revenue forecast was given at the end of the previous month.
Both the earnings prediction for the holiday quarter, which Amazon places in the range of zero to four billion dollars, and the sales forecast, which ranged from forty billion to one hundred forty eight billion dollars, were missed by Amazon. Amazon reported quarterly profits of $2.9 billion, or 28 cents per share, for the period ending in September. At the same time, the company’s revenue increased by 14.7% from the previous year to $127.1 billion.
Although Jassy was “encouraged” by the progress made during the third quarter, he told investors at the time that “we know there’s still a lot of opportunity to continue to enhance productivity and drive cost reductions throughout our networks.”
He continued by saying, “We have identified projects that the teams continue to work very hard on, and we anticipate to see additional improvement in the quarters that are to come.”
CFO Brian Olsavsky stated that Amazon would “tighten our belt, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere.” This is something that Amazon has done in the past during times that were comparable to the current one in the company’s history.
During midday trading on Thursday, shares of Amazon were marked 13.4% higher to change hands at $97.67 per. This rise would trim the stock’s six-month drop to approximately 10.4% if it continues.
Amazon announced wage raises for warehouse and transportation workers at the end of September, just a few days after adding another ‘mini Prime Day‘ event in October. This move was made to capture demand from consumers who are focused on value and to focus on members of Amazon’s Prime program.
Amazon has stated that employees will earn between $16 and $26 per hour, with the average beginning salary increasing by $1, to $19 per hour, as the company prepares for the busiest time of the year for retail, the holiday shopping season.
Amazon, which is one of the largest private employers in the United States, estimated that the pay raises will cost the company approximately one billion dollars over the course of the following year.
According to JMP Securities analyst Nicholas Jones, who has a’market outperform’ rating on the stock and a price target of $140 on it, “Even though we believe investors were anticipating a slowdown due to macro challenges internationally and growing recession fears in the U.S., we see AWS and retail top-line deceleration and the profit margin miss as the key concerns near term.”
“Overall, while all of Amazon’s business segments are likely susceptible to larger macro challenges, we do not regard the outcomes of the third quarter or the projection for the fourth quarter as significantly altering our thesis,” he continued. “We see Amazon as a best-in-class internet business that can not only weather the macro storm, but emerge poised to reaccelerate growth,” said one analyst. “We see Amazon as a leader in the industry.”