Amazon stock drops double digits as it prepares to ‘tighten its belt’

Amazon’s stock dropped more than 15% in after-hours trading Thursday as the company told investors it is preparing for a period of slowing growth.

The dip came despite Amazon’s reporting its best quarterly financial performance of the year, with $127 billion in sales and $2.9 billion in net income for the three months between July and September.

Amazon is “taking actions to tighten our belts, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere,” Chief Financial Officer Brian Olsavsky said Thursday. “We aim to strike the right balance between the best thing for our customers for the long term, while driving operational efficiency improvements, and accomplishing more with less.”

CEO Andy Jassy said in a statement Amazon has “a set of initiatives that we’re methodically working through that we believe will yield a stronger cost structure for the business moving forward.”

So far this year, Amazon has already taken steps to cut costs. It implemented a corporate hiring freeze for its stores business, the retail division that includes online and physical stores, its marketplace for third-party sellers and Amazon Prime subscription service. The company has also cut back on several projects, including delivery robots, a virtual travel experience and a video device for kids. In August, Amazon announced it would end its healthcare venture, Amazon Care, at the end of this year.

“We are seeing signs all around that people’s budgets are tight, inflation is still high, energy costs are an additional layer on top of that,” Olsavsky told reporters Thursday. “We are preparing for what could be a slower growth period, like most companies.” 

Facing economic pressures, many other big tech giants are looking at similar cost-cutting measures. Google’s parent company Alphabet said in July it would slow hiring for the rest of the year. Meta, the parent company of Facebook, said last month it was reducing its head count for the first time in company history. Microsoft said this month it will lay off about 1,000 employees, its second round of job cuts this year.

Jeff Bezos spoke up on Twitter this month, writing “the probabilities in this economy tell you to batten down the hatches.”

In the third quarter this year, Amazon reported net income of $2.9 billion, or $0.28 per diluted share. That’s a decrease from the same quarter in 2021, when the company reported net income of $3.2 billion, or $0.31 per diluted share. 

But it’s a shift away from the net losses it had reported the first two quarters this year. Amazon lost nearly $4 billion in the first three months of 2022 and reported a $2 billion net loss in the second quarter this year.

Amazon attributed those losses to its investment in Rivian, an electric vehicle startup that has struggled with production delays and market upheaval. Amazon cited a $7.6 billion loss because of Rivian’s shrinking valuation in the first quarter of 2022 and a $3.9 billion loss from its investment in the second quarter of 2022.

This quarter, Amazon reported a gain of $1.1 billion from its investment in Rivian.

Net sales increased 15% in the third quarter this year to $127.1 billion, compared to $110.8 billion in the same quarter of 2021. Taking out the impact of changes in foreign exchange rates, Amazon says sales increased 19%. Amazon Web Services, the company’s cloud computing division, saw sales increase 27% year over year to $20.5 billion. 

Amazon’s operating income decreased to $2.5 billion in the third quarter of 2022, from $4.9 billion in the third quarter of 2021. AWS reported operating income of $5.4 billion.

“There is obviously a lot happening in the macroeconomic environment and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets,” Jassy said Thursday. “What won’t change is our maniacal focus on the customer experience.”

Earlier this year Amazon offered billions of dollars to acquire new companies. In July, Amazon announced it would acquire primary care organization One Medical in a $3.9 billion deal. The next month, it announced plans to acquire iRobot, the company behind the Roomba vacuum that scoots around households, in a $1.7 billion deal.

In its warehouses, Amazon is ramping up hiring to prepare for a surge in online orders ahead of the holiday shopping season. It plans to hire 150,000 seasonal workers, about the same as last year. 

In September, the company pledged to increase pay for hourly workers in the U.S.. Amazon says the raises will cost it about $1 billion over the next year. Workers say the raise equals about $0.50 to $1 more per hour.

Amazon said Thursday it expects net sales in the fourth quarter this year to increase between 2% and 8% compared to the same quarter in 2021, to somewhere between $140 billion and $148 billion. It expects operating income to land between $0 and $4 billion.