Amazon, Meta, Alphabet and Microsoft will collectively incur more than $10 billion (€9.25 billion) in charges related to mass redundancies, real estate and other cost-saving measures, as the Big Tech companies reveal the hefty price they incur to rein in spending.
The US companies that have been implementing the largest job cuts in the tech sector disclosed the high costs related to their restructuring efforts in earnings statements released this week.
The four groups had previously announced 50,000 job cuts to convince Wall Street they were heading into a “year of efficiency”, as Meta chief executive Mark Zuckerberg described it. This trend comes after more than a decade of heavy spending in a focus on aggressive top-line growth.
Despite the companies’ high upfront costs such as severance payments, investors appear encouraged by the steps taken.
Since formally announcing their cuts, the companies have together added more than $800 billion to their market capitalisations. Meta, the earliest mover among the Big Tech groups, has seen its value almost double since detailing its job cuts in November.
While savings could have been made by implementing more gradual cost reductions, tech companies were being rewarded by the markets for “ripping the Band Aid off”, said Wedbush analyst Dan Ives.
[ Amazon kicks off round of job cuts affecting 18,000 peopleOpens in new window ]
“Big Tech has been spending money like ‘80s rock stars for the last four to five years,” he said. “It feels like there’s adults in the room now.”
The process to become leaner in the wake of macroeconomic pressure contrasts starkly with the pandemic-era hiring boom, with headcounts increasing rapidly at tech companies that were responding to a rise in demand in digital products and services.
Apple remains the only large tech company that has not announced any job cuts or a cost-cutting programme, despite on Thursday reporting its first decline in quarterly revenues in 3½ years.
According to Layoffs.fyi, a tracker logging instances of tech redundancies, almost 250,000 employees have been let go across the sector since the start of last year.
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Some of the most recent, from this past week, include software group Okta, which laid off 300 employees, data analysis company Splunk, with 325, and image-sharing social network Pinterest, which said 150 roles would go.
The deepest cuts have come from the biggest names. In November, Meta announced it would let go 11,000 of its employees, as well as dump office space and data centres.
[ Microsoft to cut 10,000 jobsOpens in new window ]
On Wednesday, the Facebook parent detailed charges of $4.6 billion related to restructuring. Severance costs ran to $975 million, according to a company filing, though that cost was offset by “decreases in payroll, bonus and other benefits expenses”. A further $1 billion in charges related to reducing office footprint is expected in 2023.
Amazon chief executive Andy Jassy told employees in January the company would eliminate 18,000 roles.
Speaking to investors on Thursday, Amazon’s chief financial officer Brian Olsavsky said $640 million had been spent on severance in the fourth quarter of 2022, as well as an additional $720 million on abandoning real estate, primarily due to pulling back on opening new physical grocery stores. The company did not share further details on charges it might incur in the current quarter and beyond.
Google parent Alphabet, which is laying off 12,000 people, said it expected to incur severance costs ranging from $1.9 billion to $2.3 billion, with most of the impact in the current quarter. At the high end of that guidance, the cost of severance will work out at about $191,000 per employee. Alphabet faces a further $500 million in costs relating to office space reduction in the current quarter, it said.
Despite the cuts, Alphabet chief financial officer Ruth Porat told investors on Thursday the company would continue “hiring in priority areas, with a particular focus on top engineering and technical talent, as well as on the global footprint of our talent”.
[ Google owner to cut thousands of staff globallyOpens in new window ]
Microsoft’s planned savings – which include 10,000 job cuts – have resulted in it incurring a $1.2 billion charge in the final three months of 2022, $800 million of which was from severance pay.
Salesforce, which will not report earnings until March, is expected to be another company facing significant restructuring costs, having announced a 10 per cent reduction in its workforce last month.
That move came as activist investor Elliott Management took a multibillion-dollar stake in the company, saying it intended to work “constructively with Salesforce to realise the value befitting a company of its stature”.
Likewise, Alphabet has drawn attention from activist Sir Christopher Hohn, of TCI Fund Management, who wrote to chief executive Sundar Pichai, saying he needed to make further headcount cuts and trim “excessive employee compensation”. – Copyright The Financial Times Limited 2023
