For years, Wall Street groused about Silicon Valley’s refusal to pay dividends and buy back stock as tech companies grew into cash-generating machines.
That is no longer a problem, even though those tech companies are generating fewer profits than they were in previous years. In fact, some tech companies are basically paying off Wall Street even as they cut the workers that made them multibillion-dollar tech giants in the first place.
Meta Platforms Inc.
was the latest to promise that payroll cuts will flow back to investors, announcing a fresh $40 billion stock-repurchase authorization despite having more than $10 billion remaining in its buyback coffers. The news overshadowed an earnings miss and Meta’s third consecutive quarter of declining sales and profit, and the effects were hard to miss —- shares spiked nearly 20% in after-hours trading, a move that would add roughly $80 billion back to the market capitalization of Facebook’s parent company.
Meta’s massive stock-buying guarantee adds to Intel Corp.
executives’ decision to maintain a dividend that paid out $6 billion to investors last year, despite the chip maker’s free cash flow falling to negative in 2022 and expectations that it will be in the red again for the first quarter. While laying off workers, cutting pay and shelving some plans to grow its fabrication business in order to remove $3 billion in costs, Intel is expected to pay roughly $1.5 billion in dividends in the first quarter.
The disconnect between the money spent to assuage Wall Street and the money saved by slashing payroll is even more disparate for Facebook. The company said its restructuring efforts cost $4.2 billion in the fourth quarter, including real estate consolidation, severance and writing down of data center assets — barely 10% of the fresh stock-repurchase authorization.
Meta still expects an additional $1 billion in restructuring costs in 2023, after laying off more than 11,000 employees, or about 13% of its global workforce. Chief Executive Mark Zuckerberg took the blame for the cuts when they were announced, as a macroeconomic downturn accelerated and made Meta’s massive growth look like profligate spending.
Zuckerberg on Wednesday sounded like he was actually happy about the cuts, though. He said that while the layoffs were difficult, he found that Meta was operating better already and the company will be more focused on profitability, and the company cannot “treat everything like it’s hyper-growth.”
“For the first 18 years, I think we grew it 20%, 30% compound or a lot more every year, right?” Zuckerberg told analysts on the company’s call. “And then obviously that changed very dramatically in 2022 where our revenue was negative for the growth for the first time in the company’s history.”
But he said that as Meta started doing the work of cost-cutting, he admitted “I actually think it makes us better.”
Meta thus is an example of the good and bad influence of Wall Street on a company. Clearly, some tech giants became too bloated in size during the COVID-19 pandemic to continue to operate at the same profit levels in an economic downturn. The company actually listened to investors who advocated for some costs to be cut, even if that hasn’t dampened Zuckerberg’s vision for the metaverse yet.
Those cuts should be felt by all involved, though, not just employees. When a company is shrinking — Intel’s earnings declined by more than 60% last year, while Meta’s fell by more than 40% — all involved should feel the pain, instead of pushing that pain on workers while rewarding investors. Yet King Zuckerberg now will see the value of his special founder shares spike, while the workers he laid off scramble for a new job so they can pay their mortgage.