The Amazon Question: Will Investors Trade Growth for Profits?

Amazon chief executive officer Jeff Bezos and other executives blamed a cooling U.S. economy for the slowing sales. However, analysts said the more likely culprit is the company's core business in books, music and videos, which has matured to a point where earlier growth rates are no longer possible.

Instead of sales of US$4 billion for 2001, as the company had earlier predicted, Amazon said it would have sales of $3.3 billion to $3.5 billion, or growth of about 20 to 30 percent.

While still strong growth compared to other retailers, the 2001 forecast is well below the 50 percent growth that had been expected and even farther from the 79 percent growth Amazon saw in the third quarter of 2000.

"I think it does cast a shadow over all of e-tail to some extent," Morningstar.com analyst David Kathman told the E-Commerce Times. "If Amazon can't keep its growth rate going, the thinking goes, then nobody can."

Growth or Profits?

Other analysts were still weighing the trade-off between profits and growth, with most lamenting the loss of top-line expansion.

"They're on track to becoming an efficient retailer," said Adria Markus, an analyst with Epoch Partners. "But the fact that they're cutting and shutting down facilities means that efficiency will come at the expense of growth."

Slower growth may mean that Amazon stock will be stuck at its current price.

"It is probably fully valued right now, given what we expect going forward," Markus added.

Layoffs Weighed

Kristine Koerber, an analyst with W.R. Hambrecht, said the layoffs and the planned closing of a Georgia distribution facility may disrupt business at Amazon in the short term and that slowing revenue may make true, long-term profitability harder to achieve.

"We're definitely disappointed in the guidance for this year," Koerber said in a research note. "We see some disruption near-term."

Others discounted the claims by Bezos that the economy was the main reason for the slowdown.

"That can't account for all of it," Fay Landes, an analyst with Sanford C. Bernstein, told the E-Commerce Times. "There's something else going on there. It's probably just a function of the business maturing."

Union Cries Foul

Meanwhile, Amazon faces questions on another front about its 15 percent workforce reduction.

Just minutes after Amazon announced the cuts, the Washington Alliance of Technology Workers called a news conference to announce it would seek a National Labor Relations Board investigation into Amazon's job cuts in the customer service department, where an on-and-off labor organization effort has been underway for nearly three years.

"We are going to call for and demand an investigation as to why the most senior representatives are the ones most affected," WashTech organizer Marcus Courtney said.

Amazon said it had established a trust fund for laid off workers with $2.5 million work of stock. Fired employees will also receive severance packages of up to 12 weeks salary.