Updated at 11:59 am EST
Amazon (AMZN) – Get Free Report shares surged higher Thursday amid a broader rally in big tech stocks and a report from the Wall Street Journal that suggested the online retailer is looking to pare some of its unprofitable businesses.
The Journal reported that Amazon, which became the first public company is history to shed more than a $1 trillion in market value earlier this week, will being a cost-cutting review lead by CEO Andy Jassy over the coming months, with a focus on its voice-assistant Alexa business, which houses around 10,000 employees.
Late last month, Amazon issued a disappointing holiday revenue forecast, and unveiled slowing growth in its lucrative Web Services business, both of which clouded a better-than-expected third quarter earnings report.
Amazon missed Street forecasts for both holiday quarter earnings, which it sees in the region of zero to $4 billion, as well as sales, which were pegged between $40 billion to $148 billion. For the three months ending in September, Amazon said profits were $2.9 billion, or 28 cents per share, while revenues rose 14.7% from last year to $127.1 billion.
Jassy told investors at the time that while he was “encouraged” by the third quarter progress, “we recognize there’s still a lot of opportunity to continue to improve productivity and drive cost efficiencies throughout our networks.”
“We have identified initiatives that the teams continue to work hard on, and we expect to see further improvement in the quarters ahead,” he added.
CFO Brian Olsavksy said Amazon would “as we’ve done at similar times in our history … tighten our belt, including pausing hiring in certain businesses and winding down products and services where we believe our resources are better spent elsewhere.”
Amazon shares were marked 13.4% higher in mid-day trading Thursday to change hands at $97.67 each, a move that would cut the stock’s six-month decline to around 10.4%.
Amazon unveiled pay increases in late September for warehouse and transportation workers just days after it added another ‘mini Prime day’ event in October to capture demand from value-focused consumers and focus on members of its Prime program.
Amazon said employees would earn between $16 and $26 per hour, with average starting salaries rising by $1, to $19 per hour, as it gears-up for the peak of the holiday retail season.
Amazon, one of the biggest private employers in the United States, said the pay increases would cost around $1 billion over the next year.
“Though we believe investors were anticipating a slowdown due to macro challenges internationally and growing recession fears in the U.S., we see AWS and retail top-line deceleration and the profit margin miss as the key concerns near term,” said JMP Securities analyst Nicholas Jones, who carries a ‘market outperform’ rating and a $140 price target on the stock.
“Overall, while all of Amazon’s business units are likely exposed to broader macro pressures, we do not view 3Q results or 4Q guidance as thesis changing,” he added. “We see Amazon as a best-in-class internet business that can not only weather the macro storm, but emerge primed to reaccelerate growth.”
