Amazon, the world’s largest online retailer outside of China, has struggled financially and has made massive layoffs. Its shares have fallen nearly 50% in the past 12 months. Digging deeper into this multi-trillion-dollar behemoth reveals a series of investment decisions that haven’t quite worked out yet.
Amazon has become a mainstay of consumerism in the US and beyond, offering to deliver anything from a needle to a sofa to paying customers within two days. The business model has been boosted during the COVID-19 pandemic as governments ordered millions of people to stay locked at home. This year, however, the company has suffered a major blow.
Amazon’s core retail business will end the first three quarters of 2022 with a net loss of more than $8 billion. Some analysts believe the company miscalculated how many people would stick with pandemic-level online shopping. As the economy fully reopens, many people are proving to be returning to brick-and-mortar stores, and Amazon has found itself overinvesting.
A few weeks ago, Amazon froze hiring and announced layoffs of 3% of its workforce — about 10,000 employees — the largest layoff in the company’s history. The company also closed 68 brick-and-mortar stores, including all of Amazon Books. Some expansion plans have also been put on hold.
The company, which has been living off its web hosting services, has made more than $17 billion in profits so far this year, up from more than $13 billion a year earlier.
However, given the depreciation of its stake in Rivian, Amazon remains in the red overall. Amazon is betting big on the electric car maker. It invested about $1.3 billion and agreed to buy 100,000 electric vans by 2030. Earlier this year, Rivian pledged to deliver 50,000 vehicles by 2022, and Amazon’s roughly 17% stake is worth about $17 billion. Those promises come as companies have repeatedly delayed deliveries, blaming supply difficulties. The stock fell about 70%, costing Amazon about $12 billion.
Rivian is still promising to deliver 25,000 vehicles this year, though it only delivered about half that number in the first three quarters.
Another problem for Amazon is employee turnover. The company is notorious for its stressful working conditions in its warehouses, leading to high turnover. According to a 2021 internal research document obtained by Recode, if business as usual, no one may want to work in warehouses at Amazon in the next few years.
At the same time, Amazon’s customer satisfaction has declined. Its service has led the industry, earning an 86 out of 100 on the American Customer Satisfaction Index (ACSI). That was five years ago. This year, it got a score of 78 — a mediocre result since the lowest score in the survey was 72, which Walmart claims.
“Amazon, once the ACSI leader among online retailers, is now at an all-time low in satisfaction,” ACSI said in a March release.
Some analysts believe that Amazon may be reducing customer satisfaction by selling search result points to advertisers and lowering the quality of results. The platform is also plagued by fake reviews and low-quality products.
Amazon has managed to capture a growing slice of the video streaming market, offering the service for free to its Amazon Prime subscribers. Still, Amazon accounted for less than 8% of streaming viewers in September, trailing YouTube, Netflix and Hulu, according to Nielsen.
Amazon’s recent attempts to gain a foothold in television production have had mixed results. The studio is expected to spend more than $1 billion on the “Rings of Power” franchise — nearly $60 million per episode. But the launch of the first season was met with a backlash from fans who complained that the story was poorly written and the message of progress was clumsy. The show has attracted a large audience, but it’s unclear if it’s going to match Amazon’s massive investment. HBO’s competing show, “House of the Dragon,” pulled in considerable ratings for about three times its budget.
In a way, Amazon’s headwinds mirror those of other tech giants, notably Alphabet and Meta. Shares of all three companies fell sharply as investors’ fears of a recession waned. Moreover, all three have seen cost growth outpace revenue growth. However, both Alphabet and Meta reported solid profits — a hurdle Amazon has failed to clear.
Amazon may face more difficulties.
Its founder and executive chairman, Jeff Bezos, recently warned Americans to hold cash and hold off on discretionary purchases due to the possibility of a recession.
“If you’re an individual and you’re thinking about buying a new big-screen TV, maybe slow down, save the cash, and see what happens. The same goes for a refrigerator or a new car. Just take some risk off the table,” he said. said in a recent CNN interview.
However, Amazon’s business model centers around discretionary spending, with gadgets, cosmetics, clothes and appliances being the most purchased items on the platform.
Some experts warn that Americans’ credit card debt soared to an all-time high of nearly $1 trillion in the third quarter. Once those credit cards run out, Americans will be forced to cut back on spending.