Amazon, Meta, Alphabet and Microsoft will collectively face more than $10 billion in costs related to mass layoffs, real estate and other austerity measures as big tech companies reveal the huge cost they are incurring to curb spending.
US companies, which have made the largest job cuts in the tech sector, disclosed high costs associated with their restructuring efforts in their earnings reports this week.
The four groups had previously announced 50,000 job cuts to reassure Wall Street that they were approaching a “year of efficiency,”as Meta chief executive Mark Zuckerberg described it. This trend comes after more than a decade of heavy spending to drive aggressive revenue growth.
Despite high upfront costs for companies, such as severance pay, the moves are encouraging investors.
Together, the companies have increased their market capitalization by more than $800 billion since the official announcement of the cuts. Meta, the earliest company among major tech groups, has nearly doubled in value since it announced job cuts in November.
While the savings could have come from more gradual cost reductions, tech companies have been rewarded by the markets for “tearing off the band-aid,”said Wedbush analyst Dan Ives.
“Big tech has been spending money like 80s rock stars for the last four to five years,” he said. “It feels like adults are in the room right now.”
The process of spending cuts in the wake of macroeconomic pressures contrasts sharply with the hiring boom during the pandemic era, when workforce numbers were rapidly increasing at technology companies that were responding to rising demand for digital products and services.
Apple remains the only major tech company to not announce job cuts or a cost-cutting program, despite reporting the first quarterly revenue decline in three and a half years on Thursday.
Nearly 250,000 employees have been laid off in the sector since the beginning of last year, according to Layoffs.fyi, a tracker that records tech resource cuts.
Some of the latest to emerge last week include software group Okta, which laid off 300 employees, data analytics company Splunk, with 325 employees, and image-sharing social network Pinterest, which said it would be leaving 150 roles.
The biggest cuts came from the biggest names. In November, Meta announced that it would be laying off 11,000 of its employees, as well as getting rid of office space and data centers.
On Wednesday, Facebook’s parent company detailed the $4.6 billion allegations related to the restructuring. Exit expenses totaled $975 million, according to the company, although those expenses were offset by “reduced spending on salaries, bonuses and other entitlements.”In 2023, another $1 billion in costs associated with the reduction of office space is expected.
In January, Amazon chief executive Andy Jassi told employees that the company would cut 18,000 jobs.
Speaking to investors on Thursday, Amazon CFO Brian Olsawsky said $640 million was spent on severance pay in the fourth quarter of 2022, as well as another $720 million in real estate divestiture, largely due to the failure to open new physical grocery stores. the shops. The company did not share additional information about charges that may be billed in the current quarter and beyond.
Alphabet, Google’s parent company, which is laying off 12,000 people, said it expects severance payouts of between $1.9 billion and $2.3 billion, with most of the impact in the current quarter. At the top of this projection, the cost of severance pay will be approximately $191,000 per worker. Alphabet will face additional costs of $500 million related to the reduction of office space in the current quarter.
Despite the cuts, Alphabet CFO Ruth Porat told investors on Thursday that the company will continue to “hire in priority areas, with a focus on top engineering and technical talent, and the global reach of our talent.”
Microsoft’s planned savings, which include cutting 10,000 jobs, saw it incur $1.2 billion in spending in the last three months of 2022, of which $800 million came from severance pay.
Salesforce, which won’t report earnings until March, is expected to be another company facing significant restructuring costs as it announced a 10 percent layoff last month. The move comes after activist investor Elliott Management acquired a multi-billion dollar stake in the company, saying it intends to “work constructively with Salesforce to realize value at a company of its stature.”
Similarly, Alphabet has come to the attention of activist Sir Christopher Hon of TCI Fund Management, who wrote to chief executive Sundar Pichai stating that he needed to implement further staff cuts and cut back on “excessive”employee pay.