For years, Wall Street has complained about Silicon Valley’s refusal to pay dividends and buy back shares as tech companies become cash-generating machines.
That’s no longer a problem, even though these tech companies are generating less profit than they did in previous years. In fact, some tech companies are essentially paying off Wall Street even as they laid off the workers who made them multi-billion dollar tech giants.
Meta Platforms Inc. META,
was the latest to promise the pay cuts will come back to investors, announcing a new $40 billion share buyback authorization when it had more than $10 billion left in its buyout coffers. The news eclipsed a shortfall and Meta’s third consecutive quarter of declining sales and earnings, and the effects were hard to miss — shares soared nearly 20% in after-hours trading, a move that would add around $80 billion to the market capitalization. of Facebook’s parent company.
Meta’s Huge Stock Guarantee Adds to Intel Corp. INTC,
executives’ decision to maintain a dividend that paid out $6 billion to investors last year, despite the chipmaker’s free cash flow falling to negative in 2022 and expectations that it will be in the red again for the first trimester. While laying off workers, cutting wages and suspending some plans to grow its manufacturing business to cut $3 billion in costs, Intel is expected to pay about $1.5 billion in dividends in the first quarter.
Read more: Intel stock dividend stands out among chipmakers
The disconnect between money spent to appease Wall Street and money saved by cutting payrolls is even more disparate for Facebook. The company said its restructuring efforts cost $4.2 billion in the fourth quarter, including real estate consolidation, separation and impairment of data center assets – just 10% of the new buyout authority. actions.
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 bloated spending.
More From Therese: Intel Just Had Its Worst Year Since The Dot-Com Collapse, And It Won’t Get Better Anytime Soon
On Wednesday, Zuckerberg looked happy with the cuts, however. He said that while the layoffs were tough, he found that Meta was already performing better and the company will focus more on profitability, and that the company can’t “treat everything as if it’s hyper- growth”.
“For the first 18 years, I think we increased it by 20%, 30% compound or a lot more every year, right?” Zuckerberg told analysts on the company call. “And then obviously that changed very dramatically in 2022, where our revenue was negative for growth for the first time in company history.”
But he said when Meta started doing the cost-cutting work, he admitted “I actually think it makes us better.”
Meta is therefore an example of the good and bad influence of Wall Street on a company. Clearly, some tech giants have become too bloated during the COVID-19 pandemic to continue operating at the same profit levels during an economic downturn. The company actually listened to investors who advocated cutting some costs, though that hasn’t yet dampened Zuckerberg’s vision for the metaverse.
Read also: Facebook and Google have become titans by ignoring Wall Street
These reductions, however, should be felt by all parties involved, not just employees. When a company shrinks – Intel’s profits fell more than 60% last year, while Meta’s fell more than 40% – everyone involved should feel the pain, not the inflicting on workers while rewarding investors. Yet King Zuckerberg will now see the value of his special founder shares skyrocket, as workers he laid off scramble for new jobs so they can pay their mortgages.