Amazon to cut 18,000 jobs: Where next for AMZN stock?

Josh Warner
By :  ,  Market Analyst

Amazon to cut 18,000 staff

Amazon is preparing to cut 18,000 jobs in response to the uncertain economic outlook and sharp slowdown in growth, according to an internal memo sent out by chief executive Andy Jassy that was published yesterday.

The ecommerce and cloud-computing giant announced its first round of layoffs back in November, primarily from teams working on its books and devices businesses, as well as its People, Experience & Technology (PXT) division that handles human resources. At the time, media reports suggested it was cutting around 10,000 roles. However, Amazon said that, between the reductions made in November and the latest cuts announced yesterday, it is cutting 18,000 roles.

That suggests that Amazon is making deeper cuts than previously expected, and will represent the biggest cull ever made by the company as well as the single biggest round of layoffs announced by any major tech firm since more challenging times emerged last year. It will begin communicating who will be laid off from January 18.

‘Several teams are impacted; however, the majority of role eliminations are in our Amazon Stores and PXT organizations,’ the memo said.

 

Why is Amazon cutting jobs?

Big Tech stocks, along with most businesses, are responding to the sharp and drastic shift in the economy that we saw in 2022, which has set the stage for another challenging year in 2023. With growth harder to come by and inflation still driving up costs, the focus is now gradually shifting to which companies can protect profitability during these tougher times by finding savings.

‘Amazon has weathered uncertain and difficult economies in the past, and we will continue to do so. These changes will help us pursue our long-term opportunities with a stronger cost structure; however, I’m also optimistic that we’ll be inventive, resourceful, and scrappy in this time when we’re not hiring expansively and eliminating some roles,’ Amazon said. ‘Companies that last a long time go through different phases. They’re not in heavy people expansion mode every year.’

Amazon has already warned that it will deliver the slowest growth on record for any holiday shopping season when it releases results later this month thanks to the slowdown in ecommerce, while Amazon Web Services – the cloud computing unit that drives profits – is also seeing growth slow and seeing margins squeezed.

Importantly, Amazon’s overall workforce has more than doubled since the start of the pandemic as the company aggressively recruited to meet the surge in demand that we saw in 2020. But now, with growth stalling and earnings under pressure, Amazon is having to reverse this and start trimming the fat. The 18,000 roles represent just 1.1% of its total workforce but around 5% to 6% of its 300,000 to 350,000 corporate workers, where the cuts are primarily being made.

Amazon has more than doubled its workforce since the start of the pandemic

(Source: Company reports. Figures compare December 2019 to December 2021, which are the latest available)

Amazon is not the only member of Big Tech to have started downsizing its workforce. Unsurprisingly, those that recruited most rampantly have been the first to try and shed staff.  Meta, which owns Facebook and Instagram and has also doubled its workforce since the start of the pandemic, confirmed it would cut 11,000 roles back in November and other members have started to hit the brakes when it comes to new hires. Other tech firms have also started to make cuts in the new year, with Salesforce announcing it will cut 10% of its workforce. Data from Layoffs.fyi suggest the tech industry as a whole cut over 150,000 roles in 2022 and that figure looks poised to continue growing in 2023.

 

Where next for AMZN stock?

Amazon shares have gained ground since news first broke about the job cuts earlier this week, with investors welcoming the plan to cut costs. That has allowed the stock to rise after hitting fresh post-pandemic lows on December 28.

The downtrend that can be traced back to mid-August remains in play and could limit further gains. A break above here would allow it to target the 50-day moving average and recapture it for the first time in almost five months. From here, it can attempt to move toward the floor we saw back in May 2022 of $101.80.

The post-pandemic low of $81.70 is still on the radar and must hold to avoid setting fresh lows. Slipping below here could see the stock slide to its lowest level since March 2019.

Can Amazon stock break out of the downtrend after rebounding from post-pandemic lows?

 

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