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Amazon Cost Cuts Under Jassy Reflect Changing Reality After 25 Years of Growth Over Profit

Rebekah Fuller

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Andy Jassy, CEO of Amazon and then CEO of Amazon Web Services, speaks at the WSJD Live conference in Laguna Beach, California, October 25, 2016.
Mike Blake | Reuters

Throughout its first 25 years as a public company, Amazon

Founder Jeff Bezos laid out that strategy in his first investor letter in 1997.

“We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions,” Bezos wrote.

But with three-quarters of 2022 in the books, it’s clear that the tone has changed. Andy Jassy, who took over as CEO in July 2021, has been in cost-cutting mode to preserve cash as Amazon confronts slowing sales and a gloomy global economy. The stock is down 33% for the year, more than the 25% drop in the S&P 500 and is on pace for its worst year since 2008.

Amazon’s 2022 slump
CNBC

The wave of frugality is unfamiliar to Amazon investors and an employee base that swelled to 1.6 million last year from under 650,000 in 2018. In recent months, Amazon has shut down its telehealth service, discontinued a quirky, video-calling projector for kids, closed all but one of its U.S. call centers, axed its roving delivery robot, shuttered underperforming brick-and-mortar chains, and is closing, canceling or delaying some new warehouse locations. Amazon has also considered drastically reducing the size of its secretive skunkworks lab Grand Challenge, Insider reported.

On the recruiting front, Amazon is freezing hiring for corporate roles in its retail business. And last month’s annual hardware event, which normally showcases a roster of gadgets and robots that may or may not still be around in a year or two, was noticeably constrained compared to prior launch events.

“If we look at everything collectively, Amazon seems to care a little more about margin than they have historically,” said Tom Forte, an analyst at D.A. Davidson who recommends buying the stock.

Jassy addressed the recent efforts to rein in costs at Amazon’s global all-hands meeting on Monday.

“Good companies that last a long period of time, who are thinking about the long term, always have this push and pull,” Jassy said at the meeting, according to excerpts shared with CNBC. “There are some years where they’re expanding really broadly. Some years where they’re checking in and working on profitability, tightening the belt a little bit. And sometimes when you have multiple businesses like we do at Amazon, some businesses are expanding at the same time that others are checking in.”

Amazon is far from alone in feeling the pinch. Fellow tech giants MetaAlphabet

Not that Amazon has put the brakes on all new spending. The company has been on a buying spree in recent months, agreeing to acquire primary care provider One Medical for $3.9 billion, Roomba maker iRobot for $1.7 billion and Belgian warehouse robotics company Cloostermans for an undisclosed amount. The company also said it would spend about $1 billion over the next year on wage increases and expanded benefits for front-line workers, and it has plans to hire 150,000 employees to help manage the holiday rush.

“We have an enormous amount of things that we’re investing in and that will continue,” Jassy said at the meeting, referencing Alexa, Prime Video and grocery as examples of some areas where Amazon continues to spend. “The trick for us during this time is just to balance those long-term investments and bets and customer experiences that we believe are the future of the company, along with really focusing on delivering along the way.”

The recent trend of belt-tightening has raised a longer-term question because it’s coincided with the company’s first ever change in leadership at the top after Bezos’ departure. The change on Jassy’s watch has prompted some analysts and former employees to wonder whether there’s a permanent shift in strategy underway or a temporary reset reflecting economic uncertainty.

Bezos built a reputation as a fearless entrepreneur willing to make big risky bets that could require hefty investment and may not generate meaningful revenue for years, if ever. No wager was bigger than Amazon Web Services, the cloud-computing unit that Amazon launched in 2006 and that Jassy led until his promotion last year.

More recent projects under Bezos included self-driving robotaxis, cashierless stores and delivery drones, all in pursuit of making life easier for customers.

Bezos ultimately axed plenty of products that didn’t pan out after launch. One of the most infamous examples is the Fire Phone, Amazon’s first smartphone that was discontinued in 2015, a year after its debut. Other endeavors with a short shelf life included a restaurant delivery service, social media feed, a device designed to replenish items with one click, a ticketing service, an auction site and an online wine store.

“They’re completely unafraid to kill something that’s not working,” said Craig Berman, a former Amazon vice president for global communications. “That’s never been a problem for them in the past.”

As the head of AWS, Jassy was at the center of Amazon’s profit engine, which gave the company the fuel to invest elsewhere. But since taking over as CEO of the parent company, Jassy has had to navigate the biggest jump in inflation in 40 years, supply shortages and an aggressive organized labor push that’s challenged the company’s long-standing anti-union stance.

More cuts may be coming

He’s putting in place cuts at a time when Wall Street has little appetite for the kind of experimental high-risk investing that defined the Bezos era. In July, Amazon reported its third straight quarter of single-digit revenue growth, largely due to weakening demand in its core online stores business.

Jassy is also working to dial back Amazon’s Covid expansion, which left it saddled with too much warehouse space and too many staffers. Amazon reduced its headcount by 99,000 people to 1.52 million employees at the end of the second quarter after almost doubling in size during the pandemic.

More slashing could be on the docket.

Amazon is in the middle of its annual planning process, which occurs in two phases, referred to as “OP-1” and “OP-2.” OP stands for “Operating Plan.” Former Amazon employees Colin Bryar and Bill Carr wrote about the process in their 2021 book, “Working Backwards: Insights, Stories, and Secrets from Inside Amazon.”

OP-1 typically begins during the summer and involves months of preparation and planning. Each team puts together a proposal outlining key initiatives for the upcoming year, including any requests for funding or new hires. OP-1 documents are typically submitted before the start of the fourth quarter, which covers the critical holiday shopping period, and are reviewed by Amazon’s senior leadership team, called the S-Team.

The second phase, OP-2, takes place in January. That’s when teams finalize their annual plans, potentially tweaking them depending on fourth-quarter performance.

With the risk of recession on the rise, Amazon could be looking at further reductions in its investments if the holiday quarter is weaker than anticipated, a former Amazon manager told CNBC. Another ex-manager from the company said Jassy may be more deliberate about what spending requests he approves as a signal for where Amazon plans to focus given the uncertainty. Both former employees requested anonymity in order to speak candidly.

An Amazon spokesperson said in a statement that the company continuously evaluates “the progress and potential of our products and services to deliver customer value, and we regularly make adjustments based on those assessments.”

Layoffs unlikely

Still, don’t expect to see mass layoffs from Amazon even as the company curtails spending, or pulls the plug on some projects.

When Amazon winds down a business, it typically offers employees the chance to apply for a job elsewhere in the company, several former employees told CNBC. They’re usually given a window of one to three months to look for another role and have the opportunity to meet with various business leaders during that time.

“Amazon is not going to let good talent walk out the door,” said Andrea Leigh, a former Amazon executive who spent almost a decade at the company across a number of different businesses.

There can still be job losses. After Amazon announced it was winding down its telehealth service Amazon Care, it said 159 employees could be laid off. Another 236 employees will be let go from Care Medical, an independent company that was contracted by Amazon to treat Care patients.

One new invention that Jassy may be counting on to goose revenue is a second Prime Day sale. Taking place Tuesday and Wednesday of this week, it’s the first time Amazon has had two of its discount bonanzas in the same year since it launched Prime Day in 2015.

Ahead of its third-quarter earnings report later this month, the multiday shopping event may provide Amazon with an early sneak peek at what’s coming in 2023.

WATCH: CNBC’s interview with Amazon CEO Andy Jassy

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Original Article: cnbc.com

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Investor Sarat Sethi Is Finding Buying Opportunities in Cheap Stocks That Just Reported Earnings

Rebekah Fuller

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Corporations are in the thick of earnings season this week and, while reports are mixed, there are good opportunities in some of them for investors, according to Sarat Sethi, portfolio manager at Douglas C. Lane & Associates. Boeing and AT & T are among the big names that posted their numbers Wednesday, following Microsoft, which reported late Tuesday. Going by profit numbers alone, Boeing posted the bleakest report of the three, including a loss for the fourth quarter as labor and supply strains overshadowed an increase in jet demand. “They’ve been supply constrained for a while so I do think it’s an interesting story and the stock is getting punished a little bit, but their demand going forward for travel is getting pretty big,” Sethi said of Boeing on CNBC’s “Squawk Box” Wednesday morning. “The cheaper it gets, for us, the better we like the story.” Sethi, who doesn’t currently own Boeing, also noted the airplane builder was cash flow positive for the first time “in a long time” and he’s eager to see if it can meet its demand and push operating margins higher. Elsewhere, AT & T’s report showed an increase in subscribers, but the company forecasted annual profit below analyst expectations, according to Refinitiv. Still, the investors are looking for companies that, like AT & T, are cheap and will grow cash flow and income, Sethi said. “AT & T is a cheap stock, so is Verizon. … The market is looking to see who has the proper valuation at this point, given where we are with the discount rate,” he said. “That’s going to be really important for our earnings going forward.” “One of the things that we need to watch for now is – companies cannot grow by acquisition, the government is now allowing it,” he added. “That is really tough for companies especially [with] interest rates going up. You have to focus on your customer base, organic growth and what you have given valuation metrics people have.” Those may be better opportunities than a stock like Microsoft, which reported mixed results Tuesday after the bell. The company also said it expects could revenue growth to further slow down. Sethi didn’t say whether he’d sell his shares but that he’s “looking at it very carefully.” “There are going to be other opportunities there,” he said. “I don’t know I would own it in the size that it is in the market. I like the company, there are a lot of attributes – cashflow positive, a lot of recurring revenue. But I think you can look for other opportunities, especially if it’s a sizable position.”Read More

Article: cnbc.com

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Tesla Reports Earnings After the Bell Wednesday

Rebekah Fuller

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TSLA

Hong Kong, China, 13 Sept 2022, A red Tesla car passes in front of a Tesla dealership in Wanchai. (Photo by Marc Fernandes/NurPhoto via Getty Images)
Nurphoto | Nurphoto | Getty Images

Electric vehicle maker Tesla plans to report fourth-quarter results after market close on Wednesday.

Here’s what analysts were expecting as of Wednesday morning, according to Refinitiv:

Earnings (adjusted): $1.13 per shareRevenue: $24.16 billion

In the year-ago quarter, Tesla reported revenue of $17.72 billion and adjusted earnings of $2.52 per share.

Earlier this month, Teslavehicle delivery and production numbers for the fourth quarter of 2022 that set a new record for the company, but fell shy of the company’s goals and analysts’ expectations, despite having cut prices on its cars in December to spur customers to take deliveries before the year’s end.

Tesla reported 405,278 vehicle deliveries and production of 439,701 vehicles in the period ending December 31, 2022. Full year deliveries amounted to around 1.31 million, a record for Tesla, after the company started production at its new factories in Austin, Texas, and Brandenburg, Germany.

Last year, Musk said the factories were akin to “money-burning furnaces” in an interview with an owners’ club posted to YouTube in June.

So far in 2023, Tesla has continued to cut prices on its cars around the world, upsetting customers in the US and China who recently bought new Teslas at higher prices, and triggering an instant decline in used Tesla prices in the US as well.

Tesla solicits questions ahead of their earnings calls via a site called Say.com from both retail and institutional investors.

Among other things, investors on that site say they want to know what the recent price cuts will do to Tesla’s automotive gross margins, how much the company expects to grow sales of its cars in 2023, and when Tesla plans to start mass production and deliveries of its long-delayed, sci-fi inspired, pickup truck the Cybertruck.

Throughout the fourth quarter of 2022, shareholders also sought answers from Tesla and Elon Musk about his intentions at the automaker as the price of Tesla shares declined. Tesla’s share price has dropped more than 40% over the past six months.

Musk is currently splitting his time, attention and resources between Tesla, SpaceX, the defense contractor where he is CEO, and Twitter, the social media business he recently acquired.

The celebrity CEO sold billions of dollars worth of his Tesla holdings last year, including $3.6 billion in the fourth quarter, in part to finance the Twitter deal, which closed in late October 2022. He immediately appointed himself “Chief Twit,” and CEO there.

Since taking over Twitter, he has made sweeping changes to the business and the service, including allowing people who had been permanently suspended from the platform to come back online.

Musk’s moves at Twitter, and his political statements on the social media platform, have correlated with a sharp decline in Musk’s and Tesla’s reputation, especially among liberal- to very liberal-leaning people in the US, according to research by YouGov shared with CNBC.

This is breaking news. Please check back for updates.

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Source Here: cnbc.com

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Southwest CEO Maps Out a Recovery After Holiday Meltdown: ‘We Have Work to Do’

Rebekah Fuller

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LUV

A Southwest Airlines traveler looks for her baggage in a pile of lost suitcases after an arctic blast and a massive winter storm dubbed Elliott swept over much of the United States in the lead-up to the Christmas holiday weekend, at Chicago Midway International Airport in Chicago, Illinois, December 27, 2022.
Kamil Krzaczynski | Reuters

Southwestmeltdown derailed the travel plans of millions, is clear: “I can’t say it enough. We messed up.”

His focus now is ensuring a similar crisis never happens again. The airline has hired consulting firm Oliver Wyman to review its processes, interview staff and union members, lay out what went wrong, and how to avoid it in the future. The low-cost airline is working with General Electric

The event was jarring for many travelers used to Southwest customer service, which includes policies like free checked bags, a rarity for domestic U.S. travel. Lawmakers and Transportation Secretary Pete Buttigieg said they want to look further into the disruptions.

Less a year into the airline’s top job, in the aftermath of travel chaos he hadn’t seen in his more than three decades at Southwest, Jordan is now tasked with making things right with passengers and employees.

“We took good will out of the bank. We know that,” Jordan said in an interview earlier this month. “We have work to do to repair trust, but our customers are very loyal and we’re seeing that loyalty.”

Southwest said it offered premium pay to flight attendants and $45 million in “gratitude pay” to pilots because of the meltdown. Both groups have warned about inadequate technology and scheduling for years.

The carrier has also handed out 25,000 Rapid Rewards points each, which the company estimates at a roughly $300 value, to about 2 million people who had flights booked over the chaotic holiday period, Jordan said.

He said that a recent fare sale was successful and that many customers are redeeming the frequently flyer points for Southwest flights.

Southwest said the chaos will likely mean a hit of between $725 million and $825 million to its pretax results and a rare quarterly loss. Executives will face questions from analysts and reporters when the carrier reports results, scheduled for Thursday morning.

Cascading cancellations

Southwest said it canceled about 16,700 flights between Dec. 21 through Dec. 31, a tally that swelled after it failed to recover from severe winter weather that crippled travel across the country, stabilizing days later. Airline executives had expected it to be the busiest travel period since the Covid-19 pandemic began.

Hydraulic fluid turned so thick in the brutal cold that jet bridges couldn’t move. Snow and high winds suspended operations at airports across the country. Airplane engines iced over.

Most airlines had largely recovered from the bad weather by Christmas Day, but Southwest’s problems worsened when crews had to call in to get new assignments or hotel rooms, causing a backup.

The carrier’s aircraft and crews were left out of place and at the mercy of crew scheduling systems that were designed to handle current or future flight disruptions, not a pileup of flight changes in the past.

“We needed a larger answer to reset the network,” Jordan said. “That was basically pulling the schedule down.”

Southwest flew around just a third of its planned schedule for several days after Christmas to get crews and planes where they needed to go.

“The GE Digital tool that is integrated into Southwest’s systems performed as designed throughout the event, and we are working with them to define new functionality as they improve their crew rescheduling capability,” a GE spokesman said Tuesday.

Still, scheduling chaos after bad weather isn’t new for the airline industry. JetBluenew carrier in the U.S., called Breeze Airways.)

Southwest itself had a smaller-scale cascade of flight disruptions in October 2021 that cost it around $75 million. Months earlier, Spirit Airlines$50 million hit from mass disruptions.

“Every airline has its fall, and from that they rise with new perspectives,” said Samuel Engel, a senior vice president at consulting firm ICF. “The airline reaches a certain point of complexity and has a disruption event of such scale that it causes them to look deep inside.”

Both Spirit and Southwest operate so-called point-to-point networks that don’t rely on hubs, like larger airlines, and instead have planes hopscotching around the country. The model generally works and helps keep costs down, but it can compound disruptions during extreme events.

Jordan defended the model and said the network is usually easier to recover because travelers don’t have to rely on connections to get to their destinations.

“The issue here wasn’t the network, the issue was how many places got hit with weather and how many cancellations that drove, basically continuously,” he said.

Making amends

Even those travelers burned by an airline in an event like this one face few alternatives when booking airline tickets and are often focused on price and schedule, ICF’s Engel said.

Southwest, UnitedDeltaAmerican

“Customers just consistently choose their flights based on fare and schedule,” he said. “As they’re going through a disrupted trip they’ll say ‘never again’ — and then they do.”

Mark Ahasic, an aviation consultant who worked with JetBlue during the 2007 meltdown, said the airline’s reputation “took a hit, but it didn’t destroy the brand.”

Southwest has to solve the issues that caused the holiday trouble and make amends with customers, but many travelers — particularly those at airports where Southwest has a strong foothold — typically have few airline choices, Ahasic said.

Southwest has nearly finished processing customer refunds and is working through the more complex task of reimbursements, which Jordan said includes everything from meals to dog-sitting fees. Some travelers who were left to pay high fares for scarce seats on other airlines are still waiting for their money back.

Codi Smith, a 28-year-old artist who lives in Los Angeles, paid $578.60 for a Delta flight back to LA from his mother’s house in St. Louis after Southwest canceled part of his return trip after Christmas. Southwest offered Smith an alternative flight on New Year’s Eve, but Smith said he has multiple sclerosis and needed to get back to Los Angeles sooner to get his medication.

“I just didn’t know what could happen,” Smith said.

Southwest refunded Smith for the portion of his trip on its airline, but as of last week hadn’t refunded him what he spent on the Delta flight. He said Southwest sent him four inflight drink coupons.

“Why would I use drink tickets when you owe me $600?” he said. “I really just want this money back.”

Cameron Brainard, a voiceover artist and country music radio host, said he paid more than $1,000 to get back to New York from Nashville, Tennessee, including a rental car from Louisville, Kentucky. Southwest offered him $540.02, noting in a Jan. 19 email, which Brainard shared with CNBC, that he hasn’t claimed the reimbursement yet.

“Make sure to claim this payment before it expires” in July, the email reads. “This payment constitutes full and final settlement of your claim with Southwest Airlines.”

Brainard said he flies Southwest frequently and isn’t planning to quit the airline after his cancellation, though he would “second guess it” depending on how his reimbursement pans out.

“I hope it makes them a better airline,” he said.

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Source: cnbc.com

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