(San Francisco) For much of the past year, tech companies have faltered. Digital advertising sales have plunged. E-commerce has stalled. iPhone production has stopped. And investors have lost confidence.
It’s the worst year the tech industry has seen on Wall Street since the 2008 financial crisis. Apple, Amazon, Alphabet, Microsoft and Meta together lost $3.9 trillion in market value.
Now chilled, many tech companies started the year championing a new and unfamiliar business strategy: austerity.
Over the past few months, many companies have said they are looking for ways to cut costs and weed out futuristic projects that have become money pits.
Amazon, Alphabet, Microsoft and Meta have each announced plans to lay off more than 10,000 people.
It’s an abrupt turn for an industry that has become famous for its big salaries, extravagant offices and lavish perks, from free shuttles to free laundry services for employees. But as the 15-year boom comes to an end, shrinking profits are causing industry executives to rethink what they saw as important tools in an industry competition to attract tech talent.
On Thursday, Sundar Pichai, CEO of Alphabet, Google’s parent company, said it was “committed to investing responsibly, with great discipline.” Tim Cook, Apple’s CEO, assured investors that the company would make “well-considered” decisions.
And Andy Jassy, the CEO of Amazon, made his first appearance on a conference call with analysts since taking over from Jeff Bezos about 18 months ago, and highlighted the company’s efforts to control what appeared to be excessive costs.
Their message follows the tone that Meta CEO Mark Zuckerberg gave the industry on Wednesday when he called 2023 the “year of efficiency.” In a conference call with analysts, in which the word “efficiency” was uttered more than 30 times, Mark Zuckerberg talked about cutting infrastructure spending, removing management layers, and eliminating dead-end projects.
Investors applaud the tech family’s new belief in financial discipline.
Shares of Meta, owner of Facebook, Instagram and WhatsApp, jumped more than 23% on Thursday, their biggest daily rise in nearly a decade. Amazon, Alphabet, Microsoft and Apple all rallied, and the tech-heavy NASDAQ rose 3%.
“People wanted to get back into the market, and they wanted to know when the water was safe to wade in,” said Mark Mahaney, analyst at Evercore ISI, an investment firm. He added that the Federal Reserve’s decision on Wednesday to raise interest rates by a modest quarter point also helped tech companies, as it suggested the central bank was keeping inflation under control.
“You don’t have to have a lot of good news for stocks to perform better,” Mahaney said.
But the shares of many of these companies fell Thursday night after the close of trading, following the announcement of disappointing results for the last quarter, clearly showing that the technology’s business challenges remain.
On Thursday, Google announced the second drop in advertising revenue. Amazon said its lucrative cloud computing business slowed and sales in its core e-commerce business declined. And Apple posted its biggest drop in Christmas season iPhone sales since 2018.
Earlier today, Meta reported that its sales in the last three months of last year fell 4%. Last week, Microsoft said cloud computing spending was weakening.
The market’s reaction to lackluster tech results could be an indication of what’s to come for the broader economy.
Economists are trying to assess whether the economy can avoid a deep recession and achieve what some call a soft landing. According to Jason Furman, an economist at Harvard, if technology, which was the main sector to weaken last year, found a bottom and started to rebound, it would illustrate the relative strength of the economy in general.
“Six months ago the economy was contracting and interest rates were rising, and there was a rebalancing from the pandemic,” Furman said. “This perfect storm, he added, is no longer true today. »
Alphabet, Amazon and Apple all released quarterly results on Thursday that fell well short of Wall Street expectations.
Alphabet posted its fourth consecutive decline in profit, struggling with a slowdown in digital advertising. Advertising sales on YouTube, Google’s video platform, fell nearly 8% to $7.96 billion, less than the $8.2 billion expected by analysts.
Faced with slowing Google sales, Pichai said, the company is making various efforts to rein in spending. These include improving the financial performance of its phones and other devices, trying to make its cloud division profitable, and bolstering YouTube’s business.
“I see this as an important step in reorganizing the company’s cost base in a sustainable way,” Mr. Pichai said.
At Amazon, Mr. Jassy has pushed to cut costs over the past year. The company drew up plans to lay off 18,000 employees and technicians, it added fees for grocery deliveries that were previously free, and it scaled back the rapid expansion of its warehouses that left it with too much storage space. .
Yet Amazon barely managed to turn a profit, with a net profit of $278 million in the December quarter, as sales rose 9% from a year earlier to $149.2 billion. of dollars.
During the conference call with analysts, Mr. Jassy said he had focused his efforts on reducing the costs associated with the fulfillment and delivery of packages. The company has significantly expanded its warehouses and staffing during the pandemic to meet demand. Even after nearly a year of slow expansion, he said, “there’s still a lot to optimize and make more efficient.”
Apple lost about $7 billion in iPhone sales when its biggest iPhone factory in China was shut down due to a COVID-19 outbreak. The company made up for those losses with strong sales of iPads, which rose 30%, and services such as Apple Music subscriptions.
Mr Cook said macroeconomic factors, including inflation and the war in Ukraine, had contributed to the company’s difficulties. Faced with these challenges, the company said it is limiting its expenses, which will help improve its profit margins.
“We do a lot of work around cost,” said Luca Maestri, Apple’s chief financial officer. “It is paying off. »
The original version of this article first appeared in the New York Times.