4 Big US Tech Companies Announced Layoffs: Are Their Growth Days Over?
It has not been an easy time for technology companies.
With the pandemic waning and risks of a recession rising, demand for consumer goods and services has also fallen off a cliff.
The bellwether NASDAQ Composite Index plunged by a third last year, underscoring widespread pessimism over these fast-growing companies.
In a sign of these changing times, major technology companies have been announcing layoffs to reduce their cost base and reposition the business.
Investors have eschewed growth stocks in favour of value and dividend stocks as the sell-off intensified last year.
However, it’s pertinent to ask if these technology companies can continue growing again after the storm has passed.
Let’s dig deeper to find out if their best days are still ahead.
Alphabet (NASDAQ: GOOGL)
The parent company of Google and YouTube announced 12,000 job cuts in late January.
CEO Sundar Pichai admitted that the business had hired aggressively in the last two years because of “dramatic” growth.
With demand plunging, the company is adapting to a new economic reality.
The current layoffs will reduce the company’s headcount by around 6.4%, based on the 186,779 employees that Alphabet reported as of 30 September 2022.
For its recent fiscal 2022’s third quarter (3Q2022), Alphabet reported just a 6% year on year rise in revenue to US$69.1 billion.
Its operating margin was crimped by higher expenses and came in at 25%, down from 32% in the previous corresponding quarter.
Net profit fell by 26.5% year on year to US$13.9 billion.
Microsoft (NASDAQ: MSFT)
Software leader Microsoft is going down the same road, shedding 10,000 jobs as the company braces for tepid growth.
Along the way, Microsoft will also take on a US$1.2 billion charge relating to lease consolidation and other activities.
The technology leader had previously let go of less than 1% of its staff in July last year, with another 1,000 or so workers laid off subsequently in October.
This round of 10,000 jobs lost is the biggest yet for the software behemoth and CEO Satya Nadella had reported that customers are “optimising their digital spend to do more with less”, implying a decline in demand for the company’s products and services.
Microsoft’s fiscal 2023’s second quarter ending 31 December 2022 saw revenue inch up just 2% year on year to US$52.7 billion.
Operating and net profit, however, fell by 8.3% and 12.5% year on year, respectively, to US$20.4 billion and US$16.4 billion.
Meta Platforms (NASDAQ: META)
Meta Platforms, which owns social media brands Facebook, WhatsApp and Instagram, announced its most significant job cuts ever.
11,000 employees will be let go, representing 13% of its workforce.
To put things in perspective, the social media giant had increased its staff count by 60% during the pandemic but its business has now been hurt by stronger competition from rivals such as TikTok and a slowdown in online ad spending.
CEO Mark Zuckerberg has expressed regret over this move but reiterated that Meta Platform’s goal is to become a “leaner and more efficient company”.
The company’s latest earnings report demonstrated the effects of slowing demand and higher costs arising from inflation.
For the fourth quarter of 2022 (4Q2022), revenue dipped by 4% year on year to US$32.2 billion while operating profit slid by 49% year on year to US$6.4 billion.
Net profit plunged by 55% year on year to US$4.6 billion.
On a positive note, daily active users hit a new milestone of two billion, up 4% year on year.
Salesforce.com (NYSE: CRM)
Salesforce, which offers a cloud platform for customer relationship management (CRM), is cutting 7,000 jobs or around 10% of its personnel as part of a restructuring plan.
A one-off charge of US$1 billion to US$1.4 billion will be taken in relation to this move.
Co-CEO Marc Benioff has commented that its business is seeing a slowdown as customers hold back on their purchases amid a “challenging macroeconomic environment”.
The CRM specialist still posted healthy growth for its fiscal 2023’s third quarter ending 31 October 2022.
Revenue of US$7.8 billion was up 14% year on year with remaining performance obligations rising by 11% year on year to US$20.9 billion.
What’s more, the first nine months of fiscal 2023 saw the company generate a free cash flow of US$3.7 billion.
Get Smart: Right-sizing the business for the future
While the news looks bad in the short term, investors should remember that these businesses are still giants in their respective fields.
Economic slowdowns are part and parcel of investing and are temporary.
It may be painful for these companies to implement sweeping job cuts, but over the long term, growth can return once these businesses are right-sized.
How do you decide if a growth stock is worth your money? There is no shortage of stock ideas today, but is a particular stock suitable for you? Find out more in our latest FREE report, How To Find The Best US Growth Stocks For Your Portfolio. Click HERE to download the report for free now!
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Disclosure: Royston Yang owns shares of Alphabet and Meta Platforms.
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