Amazon layoffs were mostly ‘done at the e-commerce level,’ analyst explains

D.A. Davidson Managing Director and Senior Research Analyst Tom Forte joins Yahoo Finance Live to discuss Amazon layoffs and the broader cutbacks in tech this year.

Video Transcript

SEANA SMITH: Shares of Amazon, they're off just about 2% here in the final hour of trading. Big news out today, CEO Andy Jassy announcing another round of layoffs. This time, the tech giant planning to cut 9,000 jobs. That's on top of the 18,000 that the company announced back in January. Joining us now is Tom Forte. He's DA Davidson senior research analyst. And Tom, I know you're closely monitoring the hiring or laying off efforts that we have certainly seen at Amazon over the last several months. What do you make of today's announcement and how much that's really going to help improve their efficiency plan going forward?

TOM FORTE: Yes, so I think what you're seeing in big tech in general is companies like Amazon, Alphabet, Meta Platforms, they're all trying to determine what is the proper amount of headcount for the current level of demand. And I think what you're seeing here with this announcement following the turmoil we've had in the banks is that they are-- there is some interrelation. So to the extent that the bank turmoil has a greater chance of resulting in either a recession or more significant recession, I think you see another round of layoffs in big tech.

DAVE BRIGGS: What's surprising about these cuts is they appear to be in some typically profitable areas, including advertising and Amazon Web Services. Why in those sectors and your reaction to that?

TOM FORTE: So I think that's an excellent point. And what you saw in the earnings the last couple of quarters is that some of their more economically sensitive units that are the higher margin, faster growing cloud computing and advertising are starting to see slower growth. So on the cloud computing front, they give customers the opportunity to scale back usage as needed. So I think that this is a reflection of what you saw in earnings in the last two quarters, that the higher margin units were seeing slower growth because of the economy.

DAVE BRIGGS: But aren't we seeing a slowing e-commerce business, leading one to believe where the hiring was ramped up is primarily in the e-commerce, and in warehouse, we're not seeing the layoffs there, why?

TOM FORTE: Because I think that a lot of layoffs were done at the e-commerce level. So if you look in particular at the March quarter and the June quarter last year, they had about 100,000 attrition between those two quarters, and it was mostly not rehiring someone to replace someone who left at the fulfillment center level. So first, you had the cuts in the fulfillment center level. Now you're starting to see them call it at the headquarter level.

SEANA SMITH: Tom, you mentioned more cuts are likely in tech. Do you think even more cuts are likely at Amazon specifically?

TOM FORTE: Definitely. So if you think about Amazon's approach, generally speaking, they have an iterative approach where they'll try something, and then they'll try again and differently and things of that nature. But I do think that if the economy were to improve, then this could be the last round of cuts. But I think, unfortunately, the next step for the economy is a step down. And I think there could be more cuts at Amazon.

DAVE BRIGGS: The stock, as we mentioned, down around 2%. Some feel that's at a reaction to a political story about Lina Khan and the FTC continuing to pursue Amazon, in particular, eyeing this iRobot deal. What is the uncertainty there? What is the impact of the Biden administration and Lina Khan looking into Amazon?

TOM FORTE: Yeah, so I think that there are some anticompetitive concerns for Amazon that are concerning, in particular, to the extent that it uses its data to the disadvantage of the 58% of the third party sold on the platform. Big tech in general, I think it's a worry, it's a risk. But I don't expect anything on a near-term basis. More interesting to see if they're going to ban TikTok right now than if they're going to limit Amazon.

DAVE BRIGGS: Well, then, why is the stock down?

TOM FORTE: I think the stock's down because this suggests that the March quarter is not very good. So the fact that here we are, in March 20th, and they're doing another round of layoffs, suggests that things are not going very well at Amazon, including the higher margin businesses, cloud computing and advertising.

SEANA SMITH: What are you expecting from the March quarter? How bad could it potentially be?

TOM FORTE: I think there could be continued weakness in the quarter. We're about to publish a white paper where we look at e-commerce sales in general. And our thesis is that e-commerce in the future will grow at a slower rate. One reason is because the largest player, Amazon, is significantly scaling back its investment spending.

DAVE BRIGGS: And you have-- what's your rating and price target?

TOM FORTE: Buy rating and a $143 price target.

SEANA SMITH: What's going to get it there?

TOM FORTE: I think what's going to get there is an improvement in the economy, and then to the extent that you see the consumers who are-- or the businesses that are turning off their cloud computing and turning it back on and improving economy, but not margin expansion.

DAVE BRIGGS: All right, Tom Forte, good to see you, sir. Appreciate that.

TOM FORTE: Thank you.