Amazon to Lay Off over 17,000 Workers, More Than First Planned

"It's a recession when your neighbor loses their job. It's a depression when you lose yours."

I think this is just availability bias. Ordinary people - the ones who aren't glued to CNBC or the WSJ - tend to measure the strength of the economy by the job market for their friends and neighbors. The job market, right now, is pretty strong for ordinary people. Hence it "feels" like boom times, and that all the chicken littles are nuts.

Here in Silicon Valley, working for a FAANG, it's definitely recession time. And interestingly, it seems like the higher you get up the corporate ladder, the more you're worried. The ordinary employees basically just do their jobs and gripe about how bonuses are smaller this year, holiday parties are wimpier, and travel budgets have been cut. Managers complain about how we have to stack-rank employees and fret about whether we'll eventually have to execute a layoff. Directors worry about how their headcount and budgets have been cut. Our CEO seems visibly anxious.

I've learned that it's a bad sign when the people with the most information are the most worried. My cue to stock up on toilet paper pre-COVID was when I heard a leak that the CDC had told all their own employees to make sure they had at least a 3 month stock of everything. I realized the Ukraine war was serious when Biden snapped "We're trying to avoid WW3 here" while the official party line was that this was a regional conflict that would be over in a couple weeks. I'm a bit worried about this Bay Area storm going on right now because the meteorologists seem more freaked out than the general public. Similarly, it's worrying when CEOs are more anxious than their employees about economic conditions.

The popular narrative is that these are just a bunch of bloated tech companies laying off surplus employees that don't do anything useful. I don't buy that. I think the American populace has no idea what's about to hit them, and the economy's going to go straight off a cliff in 2023H1.

Yesterday Jan 3, Amazon borrowed another $8B at 0.75% plus SOFR (which is basically Fed Funds rate at ~4.3%) through a short term credit facility.

Also, Amazon has ~$69B in long term lease liabilities. That’s about ~3x the combined long term lease liabilities of Walmart and Costco (~$20B combined). Walmart and Costco are the world’s #1 and #3 retailer, Amazon being #2.

From the beginning when Jassy took the job, the problem has always been the cost of the excess warehouse capacity. Once they realized the true demand from this holiday season, they can now rightsize capacity for 2024 and beyond. Until then, they need to tighten the belt. Just like if you realized you swallowed a bigger mortgage than you can handle.

“The last issue relates to our fixed cost leverage. Despite still seeing strong customer demand and expansion of our FBA business, we currently have excess capacity in our fulfillment and transportation network. Capacity decisions are made years in advance, and we made conscious decisions in 2020 and early 2021 to not let space be a constraint on our business.”

- Brian Olsavsky CFO Apr 28, 2022 earnings call

??? was "monetize skills" to which they could take a cut of it.

The problem was that it was rather difficult to do for a while and the "here's a great ecosystem of games and tools" never materialized for echo devices.

Part of that is that people really don't know how to to do voice interfaces well.

Another part is that it has to run on AWS which has all the AWS sizing and billing problems that need to be solved by programmers (we're programmers - not SREs - and its really easy to rack up a too large bill on AWS).

As such, in order to try to monetize a skill (which wasn't possible at first) you needed to commit to spending some AWS money to try to get it. Discovery of Alexa skills was poor at best. Free skills normally end up costing money (and not just time) for the programmer.

And so, a possible revenue stream for Alexa has never realized.

Yes, but the stock price is based on using that money efficiently, and building an engine which can (at least if desired) generate profits. And when 50% of corporate employee comp is RSUs... a stock price collapse is a huge pay cut for the rest of your workforce.

Is it good to give 100% of your corporate employees a 25% pay cut, to avoid 5-10% layoffs? I think that's a less clear-cut value call.

The capital markets rewarded growth companies that were hiring in a zero interest rate environment and will reward them for firing as cost of capital increases, slowing growth. That which the market giveth, the market will taketh away.