The good news Tuesday from Amazon.com Inc.'s year-end earnings announcement is that the company finally divulged a long-awaited target date for achieving profitability, with company execs predicting they'll be the black in the fourth quarter of this year. The bad news is that it apparently will take sizable layoffs to make this possible.
Amid a relatively upbeat earnings report highlighted by growing sales and declining losses, Amazon execs said they're cutting 1,300 jobs, or 15% of the company's workforce, by closing distribution and customer-service centers in McDonough, Ga., and Seattle, respectively, and operating the Seattle distribution center on a seasonal basis. The layoffs are part of a restructuring believed necessary to achieve profitability. "It's always difficult and painful, but it was clearly the right decision," CEO Jeff Bezos says.
During a conference call, Bezos told analysts this was the first time he felt comfortable offering a profitability projection, but he was careful not to make any assurances. "We know these types of goals are never guaranteed."
ABN-Amro analyst Kevin Silverman isn't surprised that Amazon is taking such drastic steps to turn a profit, and he says the layoffs are a sound business decision for a bloated company. "They've recognized that the capacity they've taken on is too big," he says. "It's a sign of good management." Silverman says the company's expectation that sales would grow 20% to 30% in 2001, down from previous projections of 40% to 45%, shows it's recognizing the reality of consumers' online buying habits. "It means you'll have a company that's half as large as they thought they'd be in four years."
For the fourth quarter ended Dec. 31, Amazon reported a pro forma loss, which excludes nonoperating losses, of $90.4 million, or 25 cents a share, on revenue of $972 million. That compares with a pro forma loss of $184.9 million, or 55 cents a share, on revenue of $676 million for the same quarter last year. Pro forma operating margin for the quarter improved to negative 6% from negative 26% last year. For the year, Amazon's pro forma loss was $417.2 million, or $1.19 a share, on revenue of $2.76 billion, compared with a pro forma loss of $389.8 million, $1.19, on revenue of $1.64 billion for 1999.
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