Shares of e-commerce and cloud giant Amazon (NASDAQ: AMZN) fell as much as 3.2% in today’s trading before recovering to a decline of 2.7% as of 12:44 PM ET.
With stock prices rising so much this year (after all, the return was 67% in 2023), it seems that even minor concerns can be magnified by a drop in stock prices.
That appears to be the case today, as Amazon issued a press release that could have been interpreted as good news, but was interpreted as bad news by the investment community.
Today, Amazon announced it would hire 250,000 people in full-time, seasonal and part-time positions this holiday season, including 30,000 in the state of California. Additionally, Amazon will increase its hourly pay for these workers to between $17 and $28 per hour, up from an average of $19 per hour last year.
The number of 250,000 was 67% higher than last year, when the company hired 150,000 employees for the holidays. The company also announced it would invest $1.3 billion this year in pay increases for employees in the fulfillment and transportation sectors.
On the one hand, the fact that Amazon is raising wages and hiring many more people could mean the company is optimistic about consumer spending this holiday season. While the fourth quarter of last year was marked by fears of rate hikes and the possibility of a recession, North American e-commerce growth in North America was quite good, up 13% from 2021, a acceleration compared to the 9% growth in the previous year. was in the pandemic quarter of 2020. Given increased hiring, could Amazon’s North American segment expect even better growth this year?
On the other hand, Amazon’s e-commerce business is already capital intensive and achieves relatively low margins. So investors may be a little nervous that increases in employee wages and benefits will hurt the company’s bottom line.
The pivot also marks a contrast to the past year and a half, during which CEO Andy Jassy and his team have done an excellent job cutting costs and streamlining the company’s e-commerce operations. So the shift from cost cutting to reinvestment in growth may deter some investors, especially as fears of a possible recession are still high.
Furthermore, given what’s happening in Detroit right now with the United Auto Workers strike, Amazon could potentially get ahead of any potential criticism of its labor practices before it arises, at a possible sacrifice to the company’s bottom line.
Investors have long wondered what Amazon’s e-commerce profits will actually be at maturity, making it difficult to value the tech giant. Today’s news can certainly be considered negative.
However, Amazon has long defied the skeptics with how much it has still been able to grow despite its large size. Overall, management insists it has a long road ahead and has maintained growth-oriented investments. While the post-pandemic tightening and streamlining has been welcomed by investors, the past 18 months have been more the exception than the rule for Amazon.
Given the company’s track record, I would still trust Amazon to spend money where it sees fit, as its long-term performance has clearly shown that it has been able to grow sales and gross profit over the past to grow significantly over the years.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Billy Duberstein has positions on Amazon.com. His clients may own shares of the companies mentioned. The Motley Fool holds positions in and recommends Amazon.com. The Motley Fool has a disclosure policy.
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