Amazon’s stock price fell as much as 20 percent on Thursday afternoon after the tech giant released a weak forecast for the holiday quarter. The company’s chief financial officer said Amazon is trying to cut costs as it sees signs that both business and consumer customers are watching their spending.
“We are taking steps to tighten our belts,” Amazon’s chief financial officer Brian Olsavsky said in an interview with reporters on Thursday.
Amazon said in its earnings release it expected $140 billion to $148 billion in revenue in the last quarter of 2022, a disappointment to Wall Street stock analysts who had expected a revenue forecast of about $155 billion. The revenue growth of Amazon’s highly profitable Amazon Web Services cloud computing unit slowed in the third quarter as enterprise customers tried to cut spending — “I think every business is trying to save money,” Olsavsky said — and Amazon’s core business softened as consumers began to lose out. spend less, especially in Europe.
“Europe has been weaker than North America, although we are seeing the impact of consumers worldwide tightening their belts,” Olsavsky said. He referred to a period of ‘unknown waters’, with tighter budgets, still high inflation and high energy costs.
Words of warning from a chief executive of one of the world’s most valuable companies and largest U.S. employers, coupled with worse-than-expected holiday forecasts, could be a sign that the worst days of the current economic slowdown are ahead. And that should be a concern for everyone, whether they’re an Amazon fan or a critic who doesn’t want the company to succeed.
And it’s not just Amazon. Other tech companies recently gave similar ominous signals. Google and Microsoft both told investors this week they would slow hiring, and Amazon said earlier this month it would stop hiring its core retail business, the most mature business unit, but also the slowest-growing and least profitable.
Like Amazon, Microsoft this week reported to Wall Street that enterprise customers of its Azure cloud computing company were seeking cutbacks, pointing to a broader connection to the corporate world. And as medium and large companies with large workforces prepare for the deteriorating economic climate, that could be a sign that more people are at risk of losing their jobs and that smaller companies with less stable bases may have a tough road ahead of them.
Silicon Valley also faces problems in the advertising sector, which is a huge source of income for the top tech companies. Amazon, Google and Facebook – the three largest ad sales companies in the US – also revealed slowdowns in their advertising activities. Part of that is due to changes in privacy controls that Apple began offering to iPhone users last year, which could make it harder for marketers to use advertising tools from the tech giants to target these users with ads.
But that’s not the whole story. Amazon’s advertising business has been largely isolated from Apple’s privacy changes, but the company’s CFO said the division continues to see declining demand from consumer brands and merchants looking to sell their goods to Amazon customers, with these advertisers spending less per digital. ad display. Amazon’s ad revenue was still up 30 percent in the third quarter, but that’s down from 52 percent in the same period in 2021.
“We are preparing for what could be a slower growth period, like most companies,” Olsavsky said.
And if tech giants like Amazon, which once seemed invincible amid record sales and profits boosted by the early days of the pandemic, prepare for a worsening economy, the rest of us probably should too.