Twitch, a video game streaming division within Amazon (NASDAQ:AMZN), will reportedly cut 500 jobs or about 35% of its workforce. The Twitch layoffs come after multiple rounds of job cuts and other cost reduction measures in 2023 by the unit. While Twitch is still unprofitable, AMZN stock has nonetheless skyrocketed more than 60% higher over the past one year.
These job cuts were officially unveiled today in a blog post from CEO Dan Clancy, Bloomberg reports. Last month, Twitch also announced that it was closing operations in South Korea, dismissing around 400 employees as a result. Finally, also noteworthy is that Twitch, which remains unprofitable, disclosed last quarter that its chief product officer, chief customer officer and chief content officer had all left the unit.
In 2022, Twitch generated $2.8 billion of revenue, up from $2.675 billion of sales in 2021. That represented about 0.5% of Amazon’s overall top line, which came in at about $514 billion for 2022.
The Twitch Layoffs and Implications for Investors
Amazon has made many major cost-cutting moves during the tenure of CEO Andy Jassy, who first took the helm back in 2021. Last August, CNBC noted that Jassy had “pared back underperforming projects in riskier, newer verticals like health care and grocery, froze corporate hiring, and eliminated 27,000 jobs.”
This strategy has bore fruit, as the firm’s net income jumped to $9.9 billion in the third quarter, up from $2.9 billion during Q3 2022. Amazon’s overall profit margin came in at 6.9% as well, which is historically high for the company.
With this in mind, Twitch’s latest moves and the Twitch layoffs appear to be in-line with Jassy’s cost-cutting strategies, which have in turn proven to be positive for Amazon and AMZN stock so far. Further, as already noted, Twitch’s revenue is a tiny part of Amazon’s top line. Therefore, if anything, today’s news should actually strengthen the outlook of AMZN stock.
On the other hand, the information still suggests that demand for video games and video game streaming may be weakening. That potentially bodes poorly for companies like Electronic Arts (NASDAQ:EA) and Take-Two Interactive (NASDAQ:TTWO). Microsoft (NASDAQ:MSFT) and Nvidia (NASDAQ:NVDA) — which generate much more revenue from video games than Amazon — could also be negatively impacted by a possible decline in demand. Finally, any weakness in the sector would likely not be a good sign for video game retailer GameStop (NYSE:GME).
On the date of publication, Larry Ramer did not hold (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.
