Amazon’s Snub of Frontline Workers Could Hurt AMZN Stock
On the surface, the news that Amazon (NASDAQ:AMZN) is upping its maximum base pay for corporate and tech workers to $350,000 from $160,000 is a win for current and future employees. However, I’m not sure anyone holding AMZN stock should be sold on the move.
Here’s why I feel this way.
AMZN Stock and Latest Earnings
There’s no question investors reacted positively to the company’s fourth quarter 2021 earnings report released on Feb. 3. As a result, AMZN stock closed up more than 13.5% the next day, pushing it back over $3,000.
The big driver of growth in the quarter was a 40% jump in revenue at Amazon Web Services (AWS), the company’s highly profitable cloud business. AWS is now generating $71 billion in annualized revenue. In fiscal 2021, AWS generated an operating profit of $18.5 billion on $62.2 billion, good for a 29.7% operating margin.
In addition, its advertising business had annual revenue of $31.2 billion in 2021, considerably higher than in 2020. As a result, the company is undoubtedly diversifying its revenue streams.
“Amazon has evolved into a true platform, as more than 50 per cent of its revenue now comes from areas outside of first-party retailing, such as cloud computing and advertising,” Deren Baker the CEO of Edge, a market research firm, said Thursday after the earnings report per Bloomberg‘s reporting.
It looks like I was wrong about the company’s future.
In March 2018, I said that Amazon.com, Inc. Will Own Your Home Sooner Than You Think. It turns out it will own your office, too.
But not everything was rosy about earnings. Its operating income at its North American e-commerce unit declined 16% year-over-year to $7.27 billion on an 18.4% increase in sales to $279.8 billion. Internationally, it lost $924 million on $127.8 billion in sales.
But, yes, for the most part, it’s hard to complain about the company’s performance in 2021.
If it didn’t have a successful year, there is no way employees would have gotten a sniff at a 119% increase in the base maximum pay.
The Elephant in the Room
While it’s great news if you work at one of Amazon’s corporate offices or are in the process of interviewing for a corporate gig in Seattle or elsewhere, it hardly absolves the company of its complete disregard for its frontline workers.
Sure, the company raised its hourly minimum wage from $15 to $18 in September 2021, but that pales compared to the 119% potential increase for white-collar workers. I say potential because that’s a maximum for base pay. Of course, not everyone will get that significant bump. But enough will, which is why Amazon is doing it. To provide a lucrative carrot for the best and brightest.
It doesn’t matter that the warehouse workers and Amazon drivers do the really heavy lifting at the company — both figuratively and literally.
When you have billions of dollars at your disposal — Amazon had $47.3 billion in net cash at the end of December — it’s easy to paint a pretty picture of your business. But, unfortunately, it’s far from perfect.
Amazon’s Workers Are Struggling
In fact, not only are frontline workers struggling, so too is its leadership. At least, that’s according to reports from Bloomberg contributor Brad Stone.
“According to media reports, the turnover rate inside the company is reaching crisis levels, and a record 50 vice presidents departed last year. ‘Like any company, we’re affected by macro trends, and what we’re seeing is in line with what’s happening across the industry,’ an Amazon spokesperson said in a statement,” Stone wrote on Jan. 24.
I don’t think it’s coincidental that Stone’s words were heard loud and clear in Seattle. Just days after reporting an Amazon “exodus” underway, management doubled the $160,000 cap.
Stone went on to say that the company’s promise to become the “World’s Best Employer” has gone by the wayside. Instead, it continues to push even corporate employees at a punishing rate.
At least if you’re a corporate employee, you have the potential to earn $350,000 or move somewhere that will treat you like a human being. But, unfortunately, frontline workers probably don’t.
The Bottom Line on AMZN Stock
As I’ve said many times in the past, if you can stomach the crappy way Amazon treats its employees, it remains an excellent stock to own.
I couldn’t. So, you won’t see me buying its stock no matter how much money it makes from advertising and AWS.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’’ appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
