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What happened

Shares of e-commerce and cloud giant Amazon (NASDAQ: AMZN) were falling in today’s trading, down by as much as 3.2%, before recovering to a 2.7% decline as of 12:44 p.m. ET.

With the stock up so much this year — it has returned 67% in 2023, after all — it appears even small concerns may get magnified in a pullback for shares.

That seems to be the case today, as Amazon issued a press release that could be construed as good news, but that the investment community took as bad news.

So what

Today, Amazon announced it would hire 250,000 people this holiday season across full-time, seasonal, and part-time roles, including 30,000 in the state of California. In addition, Amazon will raise its hourly wages to those workers to between $17 and $28 per hour, compared with an average of $19 per hour last year.

The 250,000 figure was 67% higher than last year, when it hired 150,000 workers for the holiday season. The company also announced it would invest $1.3 billion in pay increases for fulfillment and transportation workers this year.

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 last year’s fourth quarter was marked by fears over interest rate hikes and the potential of recession, Amazon’s North American e-commerce growth was actually pretty good, up 13% over 2021, an acceleration over the prior-year quarter’s 9% growth, which was lapping the pandemic-era quarter of 2020. Given the increased hiring, could Amazon’s North American segment be in for even better growth this year?

On the other hand, Amazon’s e-commerce business is already capital-intensive and makes relatively low margins. So, investors may be a bit nervous that the step-up in employee wages and benefits may eat into the bottom line.

The pivot also marks a contrast from the past 18 months or so, during which time CEO Andy Jassy and his team have done a great job of cutting costs and streamlining the company’s e-commerce operations. So, the pivot from cost-cutting to reinvestment for growth may be throwing some investors off here, especially as fears over a potential recession remain top of mind.

In addition, given what is going on in Detroit right now with the United Auto Workers strike, Amazon may be trying to get ahead of any potential critique over its labor practices before it happens, with a potential sacrifice to its bottom line.

Now what

Investors have long wondered what Amazon’s bottom line in its e-commerce operations will really be at maturity, which makes the large tech giant hard to value. Certainly, today’s news might be seen as a negative.

However, Amazon has long defied skeptics with the amount it has still been able to grow in spite of its large size. Generally, management maintains it still has a long runway ahead of it, and has kept with growth-minded investments. While the post-pandemic belt-tightening and streamlining has been welcomed by investors, the past 18-month period has been more the exception than the rule for Amazon.

Given the company’s track record, I would still trust Amazon to spend where it deems necessary, as its long-term performance has clearly shown it has been able to grow revenue and gross profit significantly over many years.

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