Does the layoff pay off? Meta, Amazon, other tech stocks paint a mixed picture.
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Shares of several tech companies jumped after announcing mass layoffs this earnings season. Others not so much.
Barron’s looked at an example of top technology companies and the correlation between layoffs and stock price movements.
Here’s what the data shows.
Common stocks rallied in the session immediately following the layoff announcement — with an average gain of just over 5% from a sample of 12 well-known tech companies that said they plan to cut at least 500 employment in recent months. But the cuts don’t guarantee long-term benefits.
The largest cuts by number of workers are not necessarily the deepest.
Amazon
(ticker: AMZN) said it would cut more than 18,000 employees, about 6% of the company’s total staff. Cryptocurrency Exchange
Coinbase
(COIN) announced the corresponding deepest reduction in the sample, intending to cut 20% of its workforce, or 950 jobs.
Some companies with more layoffs received a more positive response from shareholders. Coinbase was rewarded with a gain of nearly 13% shortly after the layoff announcement in early January. Online furniture retailer
fair
(W) spiked more than 20% when it was announced to cut 1/10 of the workforce later that month.
On the other hand, deeper cuts do not guarantee larger gains.
Twilio
said earlier this month it will cut 17% of the workforce but the stock is up just 2% on the day. It could be a sign that a certain amount of fatigue with layoffs has muted the response. Twilio’s announcement is the second major layoff in several months.
Some layoffs failed to spark any rise in stocks.
Microsoft
(MSFT) shareholders met the company’s announcement of a 5% workforce cut in January with indifference, as shares ended that day. That reflects a feeling that the company is doing “tactical cost-cutting,” in the words of DA Davidson analyst Gil Luria, rather than looking to transform its business.
A more important question for investors may be whether layoffs lead to long-term gains.
Facebook owner
Meta . Platform
(META) is a case in point where the market will continue to cut jobs. In the time since Mark Zuckerberg announced the layoffs of 11,000 employees, or 13% of the workforce, in November last year, Meta stock is up nearly 80%. Zuckerberg’s assertion that 2023 will be a “productive year” at the social media company and hints of more layoffs have been positively welcomed by tickers.
However, Wayfair shows how quickly initial positivity can dissipate. Stocks gave up almost all profits after layoffs after reporting a larger loss in the fourth quarter than analysts expected on Thursday. That said, layoffs only help convince shareholders that losing companies are changing their ways.
That’s especially true for tech stocks that are still vulnerable to inflation expectations and interest rate expectations. The tech-heavy Nasdaq composite is up just over 9% this year but has given up much of its early momentum in January, with investors concerned that continued high inflation The Federal Reserve will continue to raise interest rates.
Companies that have already made layoffs may find themselves under pressure to do more. Google-parent
Alphabet
(GOOG) said by the end of January it will cut 12,000 jobs, or about 6% of its total workforce. leads to an initial increase in the stock. Stocks have fallen since then, in part because Google’s new chatbot pressured investors. Activist investor Chris Hohn has urged Alphabet to extend the job cuts to at least 20% of the company.
Write to Adam Clark at [email protected]