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Companies such as Meta Platforms Inc. are waking up to investor demands that they cut costs in the face of a looming recession…
Companies such as Meta Platforms Inc. are waking up to investor demands that they cut costs in the face of a looming recession, but shareholders looking for relief from the relentless tech-stock selloff can only take so much comfort from that.
Facebook parent Meta plans to cut thousands of jobs beginning this week, the Wall Street Journal reported. That comes after Apple Inc., Alphabet Inc.’s Google and Microsoft Corp. either froze hiring or said they’re re-evaluating staffing needs as the breakneck growth that the tech industry has enjoyed fades in the face of inflation and rising interest rates.
While layoffs bring economic pain to households, investors tend to look favorably on them because they mean lower costs and higher profits. Still, the environment that’s dragged the Nasdaq 100 Index down by 33% this year shows no sign of improving.
“Layoffs will stabilize things and improve sentiment in technology stocks, but interest rates will still go higher next year and the economy will likely flirt with a recession, lowering growth expectations,” said Peter Garnry, head of equity strategy at Saxo Bank. There are “still many forces playing against technology companies.”
About 100,000 tech jobs at have been cut this year, according to Layoffs.fyi, which tracks the industry.
Companies including Intel Corp., Apple and Amazon pledged cost controls in announcing earnings over the past few weeks, while Lyft Inc., Stripe Inc. and Opendoor Technologies Inc. said they will reduce employment by at least 13%.
Meta rose 3.7% after the report and the Nasdaq 100 was up 0.6% on Monday. The company has reported a sharp slowdown in growth at the same time that Chief Executive Officer Mark Zuckerberg is investing billions in developing the metaverse, an immersive virtual world. Its shares have fallen 73% this year.
While companies are cutting costs, and stock prices are beginning to reflect the slowdown in the economy and earnings, valuations in tech still aren’t wildly cheap, arguing against a big rally at this point. The Nasdaq 100 is priced at about 19.5 times estimated earnings, below its average of 20.4 for the past decade but well above the 10-year low of 13.3.
Businesses may be reluctant to make even deeper cuts, since they struggled to fill roles in the economic rebound from the pandemic. Twitter Inc., no longer a listed company after Elon Musk acquired it for $44 billion, cut almost 3,700 jobs last week, but now is reaching out to dozens of employees who lost their jobs and asking them to return.
“Companies will choose to reduce headcount by less than expected, given how challenging it was for companies to hire people in the first place,” Chris Shipley, chief investment strategist for North America at Northern Trust Asset Management, said last week. “We’re hearing about hiring freezes in tech, more, I think, than layoffs. I expect that will continue.”
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