E-commerce giant Amazon.com Inc. has held to a unique creed that has irked Wall Street

For 25 years since it went public, e-commerce giant Amazon.com Inc. has held to a unique creed that has irked Wall Street, that growth is more important than profit. In 1997, Amazon founder Jeff Bezos sent his first letter to investors when the company went public, laying out a company strategy focused on long-term growth.

"We will continue to base our investment decisions on long-term market leadership, not short-term profit margins or Wall Street's short-term reaction," he said.

However, after the first three quarters of the year, Amazon's tone has clearly changed. Amazon’s sales have slowed amid a sluggish global economy, and its shares have fallen 33% this year, outpacing the S&P 500’s 25% drop and on track for its worst year since 2008. Amazon's new CEO, Andy Jassy, ​​took over from Bezos last July, but he seems to have forgotten Bezos's creed. Right now, he's in cost-cutting mode to maintain the company's cash flow. Amazon's wave of frugality is foreign to investors, more familiar with the expansion model. Amazon's workforce has ballooned from less than 650,000 in 2018 to 1.6 million last year.

Bezos' strategy subverted?

Amazon's recent belt-tightening trend raises a longer-term question, and it comes as Bezos leaves in the first top leadership change in the company's history. Jassy's post-employment adjustment has prompted some analysts and former employees to wonder if this is a permanent strategic shift in progress or if is it just a temporary reset reflecting economic uncertainty.

Bezos has built a reputation as a fearless entrepreneur who is willing to make risky bets that may require huge investments and may not generate meaningful revenue for years. His biggest bet was Amazon's cloud computing service AWS, which launched in 2006 and was a success. Jassy led AWS until his promotion last year.

Other projects Bezos has launched in recent years include self-driving Robo-taxis, cashier-less stores, and delivery drones, all of which are meant to make life easier for customers.

He also chopped off a lot of products that didn't have a successful launch. One of the most notorious examples is the Fire Phone. It was Amazon's first smartphone, and it was discontinued in 2015, a year after it went on sale. Other short-lived projects include restaurant delivery services, social media feeds, a device that can restock items with one click, ticketing services, auction sites, and online wine stores.

“They’re not at all afraid to end products that don’t work,” said Craig Berman, a former Amazon vice president of global communications. “It’s never been an issue for them in the past.”

off, off, off

Jassy's previous cloud computing service, AWS, is Amazon's profit engine, providing ammunition for the company's investments in other areas. But since taking over as Amazon's CEO, Jassy has had to contend with the biggest inflation in 40 years, supply shortages and an aggressive union movement that has challenged the company's longstanding anti-union stance.

In recent months, Amazon has shut down telehealth services, discontinued the sale of a video-calling projector for children, closed nearly all U.S. call centers to keep just one, disbanded its delivery robot team, and shuttered underperforming brick-and-mortar chains. , and is closing, canceling, or delaying the opening of some new warehouse facilities. Amazon is also considering drastically reducing the size of its secret lab, the Grand Challenge. On the hiring front, Amazon froze corporate job postings in its retail business.

Amazon last month held its annual hardware event, an event that typically showcases gadgets and robots that won't necessarily exist in a year or two. But the event was noticeably limited in size compared to previous launch events.

"On the whole, Amazon seems to care more about margins than ever," said Tom Forte, an analyst at investment services firm DADavidson, who recommends buying Amazon stock.

On Monday, Amazon CEO Jassy spoke about recent efforts to rein in costs at a worldwide all-hands meeting. "There's always this kind of ups and downs in old, great companies with a long-term vision. There are years when they expand broadly. There are years when they look at themselves and focus on profitability and tighten their belts a little bit. Sometimes when you have something like Amazon When you have multiple businesses like a company, you will find that some businesses are expanding while others are looking at themselves," Jassi said.

Amazon isn't the only company feeling the pinch. Facebook parent Meta and Google parent Alphabet are also cutting costs in response to a challenging macro environment and a sharp slowdown after a decade of consistent growth. Tech companies have announced layoffs, frozen hiring, or lowered hiring targets for the next few months.

Non-stop acquisition

That doesn't mean Amazon is halting all new spending, though. The company has been on an acquisition spree in recent months, first agreeing to buy primary care provider One Medical for $3.9 billion, sweeping robot maker iRobot for $1.7 billion, and a Belgian warehouse for an undisclosed sum. Robotics company Clostermans.

Amazon also said it would spend about $1 billion over the next year on boosting wages and benefits for frontline workers and plans to hire 150,000 workers to handle the holiday shopping rush.

"We're investing in a lot of projects and will continue to do so," said Jassy, ​​citing areas where Amazon continues to invest, including voice assistant Alexa, video service Prime Video and groceries. "Our trick during this time is to balance Those we see as long-term investments, bets, and customer experience for the future of the company, while really focusing on delivering on it.”

More cost-cutting measures

In July, Amazon suffered a third straight quarter of single-digit revenue growth, largely due to weaker demand in its core online store business. In the Amazon of the Bezos era, it was typically characterized by experimental, high-risk investments. But these days, Wall Street has little appetite for this development model, and Jassy is choosing to cut costs at this time.

Jassy is also working to scale back Amazon's expansion during the pandemic, which has overburdened the company with too much warehouse space and employees. Amazon's workforce fell by 99,000 to 1.52 million at the end of the second quarter. During the pandemic, Amazon's workforce has nearly doubled.

More austerity measures are in the pipeline. Right now, Amazon is conducting annual planning, a process that takes place in two phases, called "OP-1" and "OP-2." OP stands for "Operating Plan". Former Amazon employees Colin Bryar and Bill Carr describe the process in their 2021 book Reverse Working: Insights, Stories, and Secrets from Inside Amazon.

OP-1 typically begins in the summer and involves months of preparation and planning. Each team comes up with a proposal outlining major plans for the next year, including any requests for funding or new hires. OP-1 filings are typically filed before the start of the fourth quarter, which covers the all-important holiday shopping season, and are then reviewed by Amazon's senior leadership team, the S-Team. The second phase, OP-2, will take place in January. This is when teams finalize their annual plans, which may be adjusted based on fourth-quarter performance.

As the risk of a recession rises, Amazon may consider further cuts if the holiday season is weaker than expected, a former Amazon manager said in an interview. Given the uncertainty, Jassy may be more careful about which spending requests to approve, a signal of where Amazon plans to focus, another former manager at the company said.

In a statement, an Amazon spokesperson said the company continually evaluates "the progress and potential of our products and services to create value for customers and regularly makes adjustments based on those evaluations."

Mass layoffs unlikely

Still, even if Amazon slashes spending and shuts down some projects, the company doesn't expect mass layoffs. When Amazon winds up a business, it often offers employees the opportunity to apply for jobs in other parts of the company, several former Amazon employees said. They usually have a window of one to three months to look for another job, during which they have the opportunity to meet various business leaders.

“Amazon doesn’t let good people go,” said Andrea Leigh, a former Amazon executive. She has worked at Amazon for nearly 10 years in a number of different businesses.

However, Amazon employees could still lose their jobs. After Amazon announced it was shutting down its telehealth service Amazon Care, the company said it could lay off 159 employees. Another 236 employees from the independent company Care Medical, which has a contract with Amazon to treat Amazon Care patients, will be fired.

One new invention that Jassie might be able to count on to boost revenue is a second Prime Day sale. This is the first time Amazon has held two discounts in the same year since Prime Day in 2015.

Amazon will report third-quarter earnings later this month. Until then, the multi-day shopping event could give Amazon an early glimpse into the outlook for operations in 2023.