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Friday, September 9, 2022
Today’s newsletter is by Myles Udland, senior markets editor at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn.
The tech industry has had one refrain all summer long — the party is over.
It remains unclear if investors are listening. Or if they really care. Or if the message is for them.
This week, at the Code Conference in Los Angeles, Alphabet CEO Sundar Pichai, Snap CEO Evan Spiegel, and Amazon CEO Andy Jassy all flagged some version of the need for a slowdown in how their companies think about spending, hiring, and the future that lies ahead.
Meanwhile, The Wall Street Journal reported this week that Netflix is looking to cuts costs across its business, notably its cloud-computing costs paid to Amazon Web Services, but also in areas as far flung as how much company swag employees are gifted each year.
Pichai’s comments from Code might have sent the biggest chill through the industry and with good reason — Alphabet employed some 174,014 people at the end of the second quarter.
Pichai told the Code Conference his company feels “very uncertain” about the current macroeconomic picture and is working to “figure out how to make the company 20% more productive,” according to CNBC. These comments were followed by a report from The Information, which cited an email sent to Google managers last week outlining the need to better control expenses, with particular scrutiny placed on business travel.
Speaking at the Code Conference on Wednesday, Snap’s Spiegel said: “We don’t see a lot of things that make us optimistic and so what we’ve had to do is really restructure our business,” according to the Wall Street Journal.
Spiegel’s comments came after Snap announced late last month it had cut about 20% of staff and rolled back a number of initiatives as part of a plan set to save the company about $500 million per year.
In its quarterly letter to shareholders ahead of these layoffs, Snap wrote: “We intend to substantially slow our rate of hiring, as well as the rate of operating expense growth. We will reprioritize our investments and drive a renewed focus on productivity… We may incur transition costs in the near term as we execute on these changes, but we expect to emerge with a more focused cost structure as a result.”
Snap shares have lost 70% so far this year. The Nasdaq has lost 24% in 2022.
Jassy’s comments at Code were a relative bright spot, with Amazon’s chief telling the audience, “I don’t think that you’ll see us hiring at the same rates that we did. But we’ll be hiring,” The Journal noted.
This rash of tech exec commentary on belt-tightening is merely the latest in what has now been a months-long campaign from the industry to make clear that times have changed.
Go back to June and Meta Platforms CEO Mark Zuckerberg was telling his employees to brace for “one of the worst downturns that we’ve seen in recent history.” Tesla CEO Elon Musk said that same month he had a “super bad feeling” about the global economy and announced plans to cut 10% of Tesla’s workforce.
We’ve argued previously that the audience for these comments is not investors, but employees.
This remains the case.
Rising interest rates raise the cost of capital for all businesses, requiring teams to make more intentional spending decisions. Every misstep in this environment is amplified.
For many tech companies, headline growth has been enough to keep investors and staff excited about the business — and to keep the bean counters in the finance department at bay.
High salaries, loose budgets, and perpetually growing teams are the norm when capital is abundant and the business is growing. For many employees and leaders at these companies, this is the only environment they’ve ever known.
As the screws tighten on all businesses, not just tech, leadership has tried to impart on staff the harsher realities of this new environment. Fewer or no backfills. T&E budgets shrinking. And in many cases, outright staff cuts.
Look at the stock market and we know investors have had their say about the tech sector.
Public comments from these same companies’ executives, however, suggest there remains work to do when it comes to employees truly hearing the message.
What to Watch Today
Economic calendar
Wholesale Trade Sales, month-over-month, July (1.8% previously)
Wholesale Inventories, month-over-month, July final (0.8% expected, 0.8% previously)
Household Change in Net Worth, Q2 (-$544.0 billion previously)
Earnings
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Source: https://finance.yahoo.com/news/tech-executives-party-is-over-morning-brief-092626470.html