Amazon Battered by Underwhelming Investment Decisions

The Amazon logo at the company's logistics centre in Boves, France on Oct. 6, 2021. Pascal Rossignol/Reuters

News Analysis

Amazon, the world’s largest online retailer outside China, has reported subpar financial results as well as significant layoffs. Its stock is down almost 50 percent over the past 12 months. A look under the hood of the trillion-dollar behemoth reveals a series of investment decisions that haven’t quite panned out.

Amazon has become a mainstay of consumerism in America and beyond, offering to deliver anything from a needle to a sofa within two days to paying subscribers. The business model took a boost during the COVID-19 pandemic as millions were locked in their homes by government mandate. This year, however, the company took a major hit.

Amazon’s core retail business finished the first three quarters of 2022 with a net loss of more than $8 billion. Some analysts argued that the company miscalculated how much people would stick to pandemic-level online shopping. As the economy fully reopened, it turned out that many people returned to brick-and-mortar stores, and Amazon found itself overinvested.

A few weeks ago, Amazon instituted a hiring freeze and reported layoffs of 3 percent of its workforce—some 10,000 workers—the largest layoff in the company’s history. The company also shut 68 of its physical stores, including all Amazon Books stores. Some expansion plans have been put on hold, too.

The company has been kept afloat by its web hosting service, which has raked in more than $17 billion in profit so far this year, up from more than $13 billion in the same period last year.

Amazon is still in the red overall, however, when it factored in the depreciation of its stake in Rivian. Amazon bet big on the electric car maker. It invested some $1.3 billion and agreed to buy 100,000 electric vans by 2030. At the beginning of the year, Amazon’s roughly 17 percent stake was worth around $17 billion, riding on Rivian’s promise to deliver 50,000 vehicles in 2022. Those promises fizzled out as the company repeatedly delayed deliveries, blaming supply woes. The stock dropped by about 70 percent, dealing an approximate $12 billion loss to Amazon.

Rivian still promises to deliver 25,000 vehicles this year, though it only managed about half that number in the first three quarters.

Another of Amazon’s problems is employee turnover. The company has become notorious for stressful working conditions at its warehouses, leading to high attrition. In the next few years, there may be nobody left willing to take a warehouse job at Amazon if business as usual continues, according to a 2021 internal research document obtained by Recode.

Meanwhile, Amazon has seen a decline in customer satisfaction. Its service used to lead the industry, with a score of 86 out of 100 on the American Customer Satisfaction Index (ACSI). That was five years ago. This year, it scored 78—a mediocre result given that the lowest score in the survey was 72, claimed by Walmart.

“Once the ACSI leader among online retailers, Amazon now fades to a record low for satisfaction,” ACSI stated in a March release.

Some analysts opined that Amazon may have undermined customer satisfaction by selling search result spots to advertisers, lowering result quality. The platform has also been plagued by fake reviews and low-quality products.

Amazon has managed to capture an increasing share of the video streaming market, offering the service with no additional fee to its Amazon Prime subscribers. Still, Amazon held less than 8 percent of the streaming audience in September, trailing YouTube, Netflix, and Hulu, according to Nielsen data.

Amazon’s latest attempt to establish itself in TV production brought mixed results. The studio is expected to sink upwards of $1 billion in the “Rings of Power” series—nearly $60 million per episode. But the first season’s rollout has been scourged by a backlash from fans complaining about poor writing and progressive messaging ham-fisted into the story. The show has drawn a large viewership, but it isn’t clear whether it was on par with Amazon’s gargantuan investment. HBO’s competing show “House of the Dragon” has drawn comparable viewership with a budget roughly three times smaller.

Amazon’s headwinds, to some degree, mirror those of other tech giants, particularly Alphabet and Meta. All three experienced major stock price declines as investor confidence ebbed amidst recession fears. Further, all three saw costs-growth outpace revenue-growth. Both Alphabet and Meta, however, reported comfortable profit—a bar Amazon failed to clear.

Amazon packages at the new Amazon warehouse on the outskirts of Mexico City on July 30, 2019. Carlos Jasso/Reuters

There may be more hardship for Amazon on the horizon.

Its founder and executive chairman, Jeff Bezos, recently warned Americans to hold on to cash and delay discretionary purchases due to the likelihood of an incoming recession.

“If you’re an individual and you’re thinking about buying a new large screen TV, maybe slow that down, keep that cash, see what happens. Same thing with a refrigerator or a new car, whatever. Just take some risk off the table,” he said in a recent CNN interview.

Yet, Amazon’s business model centers on discretionary spending, with gadgets, cosmetics, clothes, and appliances among the most-purchased items on the platform.

Some experts warn that Americans’ credit card debt has surged to a near-all-time-high in the third quarter, nearing a trillion dollars. Once those credit cards are maxed out, Americans will be forced to cut back.