For most of the last year, technology companies have plummeted. Digital ad sales plummeted. E-commerce faltered. Production of iPhones stalled. And investors lost faith.
It was the worst year for the technology industry on Wall Street since the 2008 financial crisis. Apple, Amazon, Alphabet, Microsoft and Meta all lost $3.9 trillion in market value.
Now, humiliated, many of these companies started the year defending a new and unknown business strategy: austerity.
In recent months, several companies have said they are looking for ways to cut costs and eliminate futuristic projects that have become cash drains. Amazon, Alphabet, Microsoft and Meta have each announced plans to lay off more than 10,000 workers.
It’s an abrupt turnaround for an industry made famous by its big salaries, extravagant offices and generous benefits, from buses to the office to free laundry services for employees. But as the 15-year boom comes to an end, profits have shrunk and tech executives are having to rethink what they thought were important tools in industry-wide competition for attracting tech talent.
On Thursday, Sundar Pichai, CEO of Alphabet, Google’s parent company, said he was “committed to investing responsibly with great discipline.” Tim Cook, Apple’s CEO, assured investors that the company will be “sensible and deliberate”. And Andy Jassy, Amazon’s CEO, made his first appearance on an analyst call since taking over from Jeff Bezos about 18 months ago, noting that the company had worked hard to contain costs that seemed rampant.
2023, ‘the year of efficiency’
Their message reinforced the tone that Meta CEO Mark Zuckerberg set for the industry on Wednesday when he called 2023 “the year of efficiency.” During a call with analysts, in which “efficiency” was mentioned more than 30 times, Zuckerberg spoke of spending less on infrastructure, removing layers of administration and canceling stalled projects.
Investors are applauding techies’ newfound faith in discipline. Shares in Meta, which owns Facebook, Instagram and WhatsApp, rose more than 23% on Thursday, its biggest daily gain in nearly a decade. Amazon, Alphabet, Microsoft and Apple all rebounded, and the tech-heavy Nasdaq index rose 3%.
“People wanted to come back, and they wanted to know when the water was safe to come in,” said Mark Mahaney, an analyst at investment firm Evercore ISI. He added that the Federal Reserve’s decision on Wednesday to raise interest rates by a modest 0.25% also helped tech companies, as it suggested the central bank was controlling inflation.
“You don’t need a lot of good news for stocks to improve,” Mahaney said.
But shares of several of those companies fell in after-market trading on Thursday night after they reported poor earnings in the last quarter, making it clear that challenges for companies persist.
On Thursday, Google reported its second-largest decline in advertising. Amazon said its lucrative cloud computing business has slowed and its sales in the core e-commerce business have slowed. And Apple reported its biggest decline in iPhone sales over the Christmas season since 2018.
Earlier in the day, Meta reported that its sales in the final quarter of last year were down 4%. Last week, Microsoft said cloud computing spending was weakening.
The market’s reaction to tepid gains in technology may be an indication of what awaits the economy in general. Economists are trying to gauge whether the economy can avoid a deep recession and achieve what some call a soft landing. If tech, as the most prominent industry to weaken last year, bottoms out and starts to recover, it would be an illustration of the relative strength of the broader economy, said Jason Furman, an economist at Harvard.
“Six months ago, the economy was contracting and interest rates were going up, and there was a rebalancing after the epidemic,” Furman said. “That perfect storm is gone,” he added.
Alphabet, Amazon and Apple reported quarterly results on Thursday that broadly missed Wall Street expectations.
Alphabet posted its fourth straight interest rate decline as it grapples with a digital advertising slump. Ad sales on YouTube, Google’s video platform, fell nearly 8% to $7.96 billion, short of the $8.2 billion expected by analysts.
As Google’s sales slow, Pichai said, the company is making various efforts to rein in expenses. They include improving the financial performance of its phones and other equipment, trying to make its cloud division profitable and bolstering YouTube’s business.
“I see this as an important journey to reorganize the company’s cost base in a lasting way,” said Pichai.
no free shipping
At Amazon, Jassy has been trying to cut costs for the past year. The company has been drawing up plans to lay off 18,000 corporate and technology employees, has added fees to the delivery of goods that were previously free, and has backed off the expansion of warehouses that left it with surplus space.
But Amazon barely made a profit, producing just $278 million in net revenue during the December quarter, while sales rose 9% year-over-year to $149.2 billion.
During the call with analysts, Jassy said he was focused on reducing costs associated with packing and delivering orders. The company vastly expanded its warehouses and hiring during the pandemic to keep pace with demand. Even after nearly a year of holding back the expansion, he said, “there’s a lot to figure out to optimize and be more efficient.”
Apple lost about $7 billion in iPhone sales during the December quarter when its biggest factory in China was locked down because of a Covid outbreak. The company made up for those losses with strong iPad sales, which were up 30%, and services like Apple Music subscriptions.
Cook said macroeconomic factors, including inflation and the war in Ukraine, had contributed to the company’s difficulties. In the face of these challenges, he said, the company is reining in spending, which will help it improve its profit margins.
“We’re working hard on costs,” said Luca Maestri, Apple’s chief financial officer. “It’s paying off.”
Translated by Luiz Roberto M. Gonçalves
I have over 10 years of experience working in the news industry. I have worked for several different news organizations, including a large news website like News Bulletin 247. I am an expert in the field of economics and have written several books on the subject. I am a highly skilled writer and editor, and have a strong knowledge of social media. I am a highly respected member of the news industry, and my work has been featured in many major publications.