The cuts in Meta Platforms Inc. and Amazon.com Inc. paid off in a big way, with both companies reporting better-than-expected earnings that sent stock prices soared by a combined US$279 billion in pre-market operations.
Profits received a boost thanks to tens of thousands of job cuts starting in 2022 and strong sales that beat analyst estimates during the holiday season. Meta, which reduced its workforce by 22% in 2023, revealed plans for a US$50 billion share buyback and announced its first quarterly dividend on Thursday, a sign to investors that it has money to spare and a reason for them to stick around.
Amazon posted its best online sales growth since the start of the pandemic, helped by faster shipping times. The company, which began its largest round of corporate job cuts starting in 2022 and which affected about 35,000 people last year, it has said more positions will be cut across its Prime Video, studios and Twitch live streaming businesses.
“This new found cost discipline is paying off for investors as these companies were able to prune less productive businesses and at the same time were able to invest some of those savings in the fastest growing parts of their businesses,” said Gil Luria, director General DA Davidson. & Co. “At the same time, these companies have been able to accelerate revenue growth, thereby significantly increasing margins.”
The results caused Meta shares to rise up to 17% in pre-market trading in New York. Amazon shares rose up to 7%. Meta CEO Mark Zuckerberg acknowledged that the strong trading results raise questions about whether Meta should start investing heavily again.
“The biggest thing stopping me from doing that is that right now I feel like I’ve really come to think that we operate better as a more efficient company,” he said Thursday. “There’s always these questions about adding a few people here or there to do something, and I guess I’m more appreciative of how that all adds up.”
Zuckerberg will receive about $700 million a year from the company’s first dividend, according to data compiled by Bloomberg. For years, Meta and Amazon reinvested their profits into the companies, driving hiring and expanding into new technologies and lines of business. The strategy was increasingly evident in the wake of the Covid-19 pandemic, when both companies spent aggressively.
Meta’s workforce increased 30% in 2020 and 23% in 2021, while driving the entire company towards a massive investment in virtual and augmented reality technology called metaverse. Amazon, for its part, doubled the size of its logistics network to meet pandemic demand and increased its workforce nearly 30% in 2022 before slowing down in hiring and building new facilities.
The question now is whether more agile and focused versions of Meta and Amazon can continue to strive for achieve the bold and ambitious technological advances that have made them household names.
In Meta’s case, that includes spending aggressively on artificial intelligence advancements, both generative AI and back-end technologies to help power its social media products and boost its advertising targeting. Zuckerberg also remains committed to virtual reality and augmented reality headsets, and the company’s Reality Labs division that builds these types of technologies still lost $16 billion in 2023.