For years, Wall Street has fretted about Silicon Valley’s refusal to pay dividends and buy back shares as tech companies grow into cash-generating machines.
That’s no longer a problem, even though those tech companies are making less money than they were in previous years. In fact, some tech companies are basically pushing on Wall Street even as they laid off the workers that made them multi-billion-dollar tech giants in the first place.
Meta Platforms Inc. META,
The latest was a promise that salary cuts would return to investors, announcing a new $40 billion stock buyback authorization even though there was more than $10 billion left in the buyback coffers. The news overwhelmed Earnings loss and Meta’s third consecutive quarter of declining sales and earningsAnd the effects were hard to miss — shares rose nearly 20% in after-hours trading, a move that would add nearly $80 billion to Facebook’s parent company’s market capitalization.
Meta’s massive stock purchase guarantee adds to Intel Corp. INTC,
The executives’ decision to hold a dividend paid $6 billion to investors last year, despite the chipmaker’s free cash flow dropping to negative in 2022 and expectations it will be in the red again in the first quarter. While LayoffsAnd Pay cut And putting off some plans to grow its manufacturing business in order to remove $3 billion in costs, Intel is expected to pay out nearly $1.5 billion in earnings in the first quarter.
For more: Intel stock dividends are distributed among the chipmakers
The disconnect between the money spent pacifying Wall Street and the money saved by cutting payroll is more uneven for Facebook. The company said its restructuring efforts cost $4.2 billion in the fourth quarter, including real estate consolidation, retirements and a write-down of data center assets — barely 10% of the new share buyback authorization.
Meta still expects an additional $1 billion in restructuring costs in 2023, after that It laid off more than 11,000 employees, or about 13% of its global workforce. CEO Mark Zuckerberg blamed the cuts when they were announced, accelerating the overall economic downturn and making Meta’s explosive growth look like wasteful spending.
More from Therese: Intel just had its worst year since the dot-com crash, and it’s not getting better anytime soon
On Wednesday, Zuckerberg appeared to be really happy with the cuts. He said that while layoffs were difficult, he found Meta was already doing better and the company would be more focused on profitability, and the company couldn’t “treat everything like it’s hypergrowth.”
“For the first 18 years, I think we grew it 20% or 30% or more every year, right?” Zuckerberg told analysts about the company’s call. “And that obviously changed very dramatically in 2022 as our earnings were negative to growth for the first time in the company’s history.”
But he said that when Meta started doing the cost-cutting work, he admitted, “I actually think it makes us better.”
Thus Meta is an example of the good and bad influence of Wall Street on a company. It is clear that some tech giants have become so inflated in size during the COVID-19 pandemic that they cannot continue to operate at the same levels of profitability in an economic downturn. The company has already listened to investors who advocated cutting some costs, Even if that hasn’t dampened Zuckerberg’s vision of metaphysics just yet.
Read also: Facebook and Google grew into titans by ignoring Wall Street
These cuts should be felt by everyone involved, not just the employees. When a company shrinks—Intel’s profits fell more than 60% last year, while Meta fell more than 40%—the pain should be felt by everyone involved, rather than passing that pain onto workers while rewarding investors. However, King Zuckerberg will now see the value of his private founder’s shares rise, while the workers he laid off scramble to get a new job so they can make their mortgage payments.
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