Market rewards layoffs in technology companies

Most US technology stocks took a breather the day after announcing massive payroll cuts to cut costs and stay profitable in uncertain economic conditions.

In a sample of 10 public companies, which began with the first layoffs in 2022, seven registered profits on the stock market that ranged between 2 and 8%, immediately after making their decision public.

The Snapchat app stock rose the most (+8.69%) after it shed 1,000 jobs in August. Another broadcaster that had a good response from the market was Alphabet, parent of Google, which just on Friday announced that it will lay off 12,000 workers and its shares rebounded 5.34 percent.

Another one with a better performance after having made a similar announcement was Meta, which in 2022 had a bad year on NASDAQ. Its titles rebounded 5.18% on November 9.

With the economic outlook for 2023 still uncertain, companies in the technology sector have taken various measures to improve their profitability and reduce their costs, including layoffs, which is always well received by investors, specialists explained.

Big tech is realigning its workforce after hiring surged during the Covid-19 pandemic when more technology services were required to facilitate remote work, as well as logistics to meet demand for online shopping.

An example is Alphabet, which before the pandemic had 118,899 employees and by September 2022 it had a workforce of 186,799. In that period, its workforce increased by around 57% or 67,900 jobs.

“The latest announcements of cuts in some technology companies reveal a restructuring to remain profitable for investors through good cost management and to prepare for a possible recession in the economy,” said Jacobo Rodríguez, director of Analysis at Black Wall Street Capital.

“The main reason for the layoffs is because of the economic situation, because of the prospect of a recession in the United States this year. These types of measures by technology companies are also to reduce their costs”, said Alejandro Fuentes, Director of Short-Term Strategy at Actinver.

“In fact, the share price of most of the companies that have announced layoffs has jumped after the announcement and has been well received by the market because their balance sheet and income statement automatically improve,” he added.

Spotify’s shares rose 2.07% on Monday after it announced it was cutting 6% of jobs, or about 600 employees, to control costs at a tough economic time.

In total, the 10 US public companies such as Alphabet, Microsoft, Amazon, Netflix and Meta, have laid off more than 70,000 workers in less than a year. Of these, 22,600 were announced between Wednesday the 18th and Monday the 23rd of January. While in 2022 there were a total of 154,000 fewer jobs in this sector.

layoffs continue

According to the Layoffs.fyi portal, around 215,521 employees have been laid off throughout the technology industry in the United States as of January 23, already counting on those announced by Spotify.

The information technology industry employs about 2% of all jobs in the United States or about 5 million people, according to AXIOS, a specialized information site.

“We are seeing a greater supply of jobs among technology companies and higher salaries, but layoffs are also being announced,” said Jacobo Rodríguez.

Tech firms whose shares fell after announcing the layoffs of much of their staff were responding to the moment the markets were experiencing, especially last year when markets were volatile due to the effects of inflation, rising interest rates and fears of a economic recession.

According to the specialists consulted, the layoffs could spread to other sectors of the economy.

judith.santiago@eleconomista.mx