Jaw-dropping layoff announcements from giant tech names Amazon (AMZN) and Salesforce (CRM) to kick off 2023 may not make their battered stocks great buys just yet.
"I think we go through this round of quarterly earnings reports and hopefully companies guide very ugly because it's in their benefit to do so for next year," veteran tech watcher Paul Meeks explained on Yahoo Finance Live (video above). "So they announce their blood-letting, whether it being operational costs including trimming more heads, and then we get to a situation where it can't get any lower for revenue and EPS estimates on the Street."
And while Meeks noted that the layoffs "are unfortunate for those employees but good for investors," he said that there still needs be several converging factors to make tech stocks attractive after a brutal 2022 headlined by double-digit percentage losses for the likes of Apple and others.
"Also, we need to get some clarity from the Federal Reserve on when their last rate hike is going to be," the portfolio manager added. "I actually think it's going to be in the May timeframe. And if we see inflation under control, the last of the Fed rate hikes, the nastiest of all possible recessions reflected in tech company forecasts, I will feel pretty good [about buying the stocks]."
At the moment, big-cap tech companies are executing on the first aspect to Meeks' investment thesis, the one most within their control, which is cost slashing to bolster sagging profits.
Salesforce said Wednesday morning it would cut 10% of its workforce — which would comprise roughly 7,000 employees — and execute select real estate exits and office space reductions. The company declined to comment to Yahoo Finance on what real estate it would be exiting or offices it would be reducing.
The company estimates it will incur $1.4 billion to $2.1 billion in charges related to the actions.
"I’ve been thinking a lot about how we came to this moment," Salesforce co-founder and CEO Marc Benioff said in a letter to employees. "As our revenue accelerated through the pandemic, we hired too many people leading into this economic downturn we’re now facing, and I take responsibility for that."
Investors embraced the money-saving news — shares finished the session up 3.5%.
Amazon joined Salesforce on Wednesday night in revealing 18,000 job cuts, mostly in corporate functions. An Amazon spokesperson didn't return Yahoo Finance's request for comment on the amount of charges the company would incur as a result of the maneuvers.
"Amazon has weathered uncertain and difficult economies in the past, and we will continue to do so," Amazon CEO Andy Jassy wrote in a letter to employees. "These changes will help us pursue our long-term opportunities with a stronger cost structure; however, I’m also optimistic that we’ll be inventive, resourceful, and scrappy in this time when we’re not hiring expansively and eliminating some roles. Companies that last a long time go through different phases. They’re not in heavy people expansion mode every year."
In a similar vein to Salesforce, Amazon shares popped in premarket trading on Thursday as traders positioned for potential better profits later this year.
Others in tech have also found that come-to-Jesus moment on costs in recent months as investors press for better margins with sales growth cooling and stock prices languishing.
Snap (SNAP) canned 20% of its workforce in August, and Robinhood (HOOD) cut ties with 23% of its employee base the same month. In November, Meta said it would cut 11,000 workers after another soft quarter. Twitter CEO Elon Musk moved swiftly to cut 3,700 Twitter employees in November upon the closure of his deal for the social media platform.
Meeks estimates the tech industry cut an estimated 300,000 jobs in 2022 alone. Furthermore, Meeks thinks the likes of Amazon, Salesforce and others aren't done yet on cost-cutting to appease Wall Street.
"I think we will see more layoffs," Meeks said, adding that "these companies have probably gotten fat over the years, so I expect continued trimming."
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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