[ad_1]
Visitors take photos in front of the Meta sign at its headquarters in Menlo Park, California, December 29, 2022.
Tayfun Coskun | Anadolu Agency | Getty Images
Technology companies are learning an old lesson from Wall Street: maturing means shrinking.
Meta and Amazon saw their shares spike on Friday following their fourth-quarter earnings reports. While revenue for both topped estimates, the story for investors is that they’re showing their ability to do more with less, an alluring equation for shareholders.
There’s also a recognition that investors value cash, in many cases, above all else. The tech industry has long preferred to reinvest excess cash back into growth, ramping up hiring and experimenting with the next big thing. But following a year of hefty layoffs and capital preservation, Meta on Thursday announced that, for the first time, it will pay a quarterly dividend of 50 cents per share, while also authorizing an additional $50 billion stock repurchase plan.
“The key with these companies is really that they’re able to reinvent themselves,” said Daniel Flax, an analyst at Neuberger Berman, in an interview with CNBC’s “Squawk Box” on Friday. They “continue to invest for the future and play offense while at the same time manage expenses in this tough environment,” he said.
Amazon is less aggressively moving to send cash to shareholders, but the topic is certainly being discussed. The company instituted a $10 billion buyback program in 2022 and hasn’t announced anything since. On Thursday’s earnings call, Morgan Stanley analyst Brian Nowak asked about plans for additional capital returns.
“Just really excited to actually have that question,” finance chief Brian Olsavsky said in response. “No one has asked me that in three years.”
Olsavsky added that “we do debate and discuss capital structure policies annually or more often,” but said the company doesn’t have anything to announce. “We’re glad to have the better liquidity at the end of 2023 and we’re going to try to continue to build that,” he said.
After years of seemingly unfettered growth, the biggest internet companies in the world are firmly into a new era. They’re still out hunting for the best technical talent, particularly in areas like artificial intelligence, but headcount growth is measured. Staffing up in certain parts of the business likely means scaling back elsewhere.
‘Playing to win’
For example, Meta CEO Mark Zuckerberg told investors that when it comes to AI, “We’re playing to win here and I expect us to continue investing aggressively in this area in order to build the most advanced clusters.”
Later on the call, when asked about expanding headcount, Zuckerberg said new hiring will be “relatively minimal compared to what we would have done historically,” adding that, “I kind of want to keep things lean.”
Olsavsky said most teams at Amazon are “looking to hold the line on headcount, perhaps go down as we can drive efficiencies in the size of our business.”
The story is playing out across Silicon Valley. January was the busiest month for tech job cuts since March, according to the website Layoffs.fyi, with almost 31,000 layoffs at 118 companies. Amazon and Alphabet added to their 2023 job cuts with more layoffs last month, as did Microsoft, which eliminated 1,900 roles in its gaming unit shortly after closing the acquisition of Activision Blizzard.
SAN FRANCISCO, CALIFORNIA – JUNE 23: XBOX CEO Phil Spencer arrives at federal court on June 23, 2023 in San Francisco, California. Top executives from Microsoft and Activision/Blizzard will be testifying during a five day hearing against the FTC to determine the fate of a $68.7B merger of the two companies. (Photo by Justin Sullivan/Getty Images)
Justin Sullivan | Getty Images News | Getty Images
Downsizing this week hit the cloud software market, where Okta announced it was cutting about 400 jobs, or 7% of its staff, and Zoom confirmed it was eliminating less than 2% of its workforce, amounting to close to 150 positions. Zuora announced a plan to cut 8% of jobs, or almost 125 positions based on the most recent headcount figures.
Evan Sohn, chairman of Recruiter.com, called it a “very confusing job market.” Last year, tech companies were responding to dramatically changing market conditions — soaring inflation, rising interest rates, rotation out of risk — after an extended bull market. Meta slashed over 20,000 jobs in 2023, Amazon laid off more than 27,000 people, And Alphabet cut over 12,000 positions.
The economy is in a very different place today. Growth is back at a healthy clip, inflation appears under control and the Federal Reserve is indicating rate cuts are on the horizon this year. Unemployment held at 3.7% in January, down from 6.4% three years earlier, when the economy was just opening up from pandemic lockdowns. And nonfarm payrolls expanded by 353,000 last month, the Labor Department’s Bureau of Labor Statistics reported Friday.
Tech stocks are booming, with Meta, Alphabet and Microsoft all at or near record levels.
But the downsizing in the industry continues.
“Companies are still in the cleanup from ’23,” Sohn told CNBC’s “Worldwide Exchange” this week. “There could be a flipping of skills, different skills necessary to really handle the new world of 2024.”
Wall Street is rewarding tech companies for improved discipline and cash distribution, but it raises the question about where they can turn for significant growth. Other than Nvidia, which had a banner 2023 due to soaring demand for its AI chips, none of the other mega-cap tech companies have been growing at their historic averages.
Even Meta’s better-than-expected 25% growth for the fourth quarter is a bit misleading, because the comparable number a year ago was depressed due to a slowing digital advertising market and Apple’s iOS update, which made it harder to target ads. Finance chief Susan Li reminded analysts on Thursday that as 2024 progresses, the company will be “lapping periods of increasingly strong demand.”
By late this year, analysts are projecting growth at Meta will be back down to the low teens at best. Growth estimates for Amazon and Alphabet are even lower, a good indication that calls for capital allocation measures may only get louder.
Ben Barringer, technology analyst at Quilter Cheviot, told CNBC that Meta’s decision to pay a dividend was a “symbolic moment” in that regard.
“Mark Zuckerberg is showing that he wants to bring shareholders along with him and is highlighting that Meta is now a mature, grown-up business,” Barringer said.
— CNBC’s Annie Palmer contributed to this report
WATCH: Meta’s Q4 report suggests it’s putting Nvidia’s chips to great use
[ad_2]
Source link
