Tech giants Meta and Amazon reported a better than expected earnings on Thursday, sending their stocks soaring. This comes as a validation to their belt-tightening strategies that included layoffs.
Both Meta and Amazon throughout 2023, had been involved in cost-cutting efforts and restructuring their business. Though this became a risk for the employees, many facing layoffs, investors have reaped the profits.
Meta in 2023 reduced its headcount by 22%. However, it unveiled plans for a $50 billion stock buyback, and even announced its first ever quarterly dividend. This encouraged investors to stick to the stock.
Likewise, Amazon also intiated its biggest-ever round of corporate job cuts beginning in 2022 that affected about 35,000 people last year. For 2024, the company has said more positions will be eliminated in its Prime Video, studios and Twitch livestreaming businesses. However, the firm remained non-committal when the investors asked about any plans to return capital to shareholders.
As per Bloomberg, investors were happy to see tech companies — often prone to splurge on moonshot projects with no foreseeable payout — narrow their investments on profitable business lines, said Gil Luria, managing director at D.A. Davidson & Co.
“This new found cost discipline is paying off for investors as these companies were able to prune less productive businesses while still being able to invest some of those savings in the faster growing parts of their business,” Luria told Bloomberg. “At the same time, these companies have been able to accelerate revenue growth, thus significantly increasing margins.”
Both Meta and Amazon, reported holiday quarter revenue growth surpassing the estimates in their central businesses - digital advertising for Meta and e-commerce sales for Amazon. After this, Meta’s shares went up 15% in extended trading while Amazon’s stock rose more than 7%.
Bloomberg in its report mentioned that Meta's CEO Mark Zuckerberg is refraining from investing big despite the strong business.
“The biggest thing that’s holding me back from doing that is that at this point I feel like I’ve really come around to thinking that we operate better as a leaner company,” he said Thursday. “There are always these questions about adding a few people here or there to do something, and I guess I just have more of an appreciation about how all of that adds up.”
A more focussed version of Meta would mean big investments into artificial intelligence advancements, both in generative AI and on the background technologies to help feed it social media products and power its ad targeting. As per Bloomberg, Zuckerberg is also still committed to VR and AR headsets, and the company’s Reality Labs division building these kinds of technologies still lost $16 billion in 2023.
Despite this, Zuckerberg has mentioned that the company is planning to keep headcount growth “relatively minimal” for 2024.
Meanwhile, Amazon's CFO Brian Olsavsky said the company would be cautious about new investments. “Where we can find efficiencies and do more with less, we’re going to do that as well,” he said.
For years, both Meta and Amazon had been re-investing profits into its companies which fueled hiring and expanding into new technologies and business lines.