The surprise layoff announcements of Amazon (AMZN) and Salesforce (CRM) kicking off in 2023 may not make their battered stocks a big buy just yet.
As veteran tech watcher Paul Meeks explains on Yahoo Finance Live (video above): “So they put their bloodshed out, whether it’s operational costs that include trimming more heads or not, and then they’re in a situation where they can’t lower their street earnings and EPS estimates. increase.”
Meeks said the layoffs were “bad for employees, but good for investors,” after seeing brutal double-digit loss rates for Apple and others in 2022. He said several convergence factors are needed to make tech stocks attractive. others.
“We also need clarity on when the Fed’s final rate hike will be,” the portfolio manager added. “Actually, I think it will be in the May timeframe, with inflation subdued, the last of the Federal Reserve rate hikes, and all the possible recessions reflected in tech companies’ forecasts. If it’s the most annoying thing of all, I’d feel pretty good. [about buying the stocks].”
Now, tech giants are grappling with the first aspect of Meeks’ investment theme: the part they have the most control over: cutting costs to bolster stagnant profits.
Salesforce announced Wednesday morning that it will cut 10% of its workforce, including about 7,000 employees, withdrawing some real estate and reducing office space. The company declined to comment to Yahoo Finance on the properties it is exiting or the offices it will cut.
The company estimates that it will incur costs of $1.4 billion to $2.1 billion related to this action.
In a letter to employees, Salesforce co-founder and CEO Marc Benioff said, “I’ve been thinking a lot about how we got to this moment.” , has led to this economic downturn we are facing, and I am responsible for it.”
Investors welcomed the savings news and the stock price rose 3.5% in the session.
Amazon joined Salesforce on Wednesday night, revealing it has cut 18,000 jobs, mostly in corporate functions. A spokesperson for Amazon did not respond to a request for comment from Yahoo Finance about the fees the company will incur as a result of this operation.
“Amazon has navigated uncertain and challenging economies in the past and will continue to do so,” Amazon CEO Andy Jassy said in a letter to employees. “These changes will help us pursue long-term opportunities with a stronger cost structure. And I’m also optimistic about being resourceful and cunning. Any long-running company goes through different stages, not in massive headcount expansion mode every year.”
Amazon shares jumped in pre-market trading on Thursday as traders could get better profits later this year, as did Salesforce.
Others in the tech industry have also discovered a Jesus Christ moment on costs in recent months as sales growth slows and stock prices languish, as investors seek better profit margins. did.
Snap (SNAP) laid off 20% of its workforce in August, while Robinhood (HOOD) cut ties with 23% of its employee base in the same month. In November, Meta announced it would cut 11,000 employees after another weak quarter. Twitter CEO Elon Musk moved swiftly to cut 3,700 Twitter employees following the termination of a deal with his media platform Social in November.
Meeks estimates that the tech industry will have eliminated an estimated 300,000 jobs in 2022 alone. Additionally, Meeks believes companies like Amazon and Salesforce have yet to cut costs to appease Wall Street.
“I think there will be more layoffs,” Meeks said, adding, “These companies have probably grown bloated over the last few years, so I expect the cuts to continue.”
Brian Sotzi general editor, Yahoo Finance anchorFollow Sozzi on Twitter @BrianSozzi and LinkedIn.
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