Do layoffs affect stock prices?
Last year in 2023, more than 191,000 workers at U.S.-based tech companies were laid off in mass job and the cuts have continued into 2024. According to Crunchbase News tally, at least 52,985 workers at U.S.-based tech companies have lost their jobs so far this year in 2024.
Tech companies are not the only ones facing layoffs; United Parcel Service Inc. (UPS) announced 12,000 layoffs, while Microsoft Corp. (MSFT) cut 1,900 jobs post-merger. Google's parent company, Alphabet Inc. (GOOG, GOOGL), laid off over a thousand workers, hinting at more cuts to come. Salesforce Inc. (CRM) slashed 700 jobs. Other sectors, like fintech and gaming, saw similar trends, with Mainvest and Cue Health closing operations and Arkane Studios and Singularity 6 reporting layoffs.
Companies often implement layoffs for various reasons, including cost reduction during financial strains or economic downturns, where cutting labour costs enhances financial performance and profitability. Layoffs also form part of broader restructuring efforts aimed at realigning resources, removing redundant positions, or streamlining operations to adapt to evolving market conditions or strategic priorities. Additionally, in mergers, acquisitions, or corporate reorganizations, layoffs may occur as part of workforce integration to eliminate duplicate roles and achieve synergies and cost savings. External factors such as shifts in consumer demand, technological advancements, regulatory changes, or industry disruptions may also prompt layoffs to align with changing market dynamics.
Given that employees constitute a significant portion of operational expenses (about 65%-70%), companies often prioritize layoffs over cuts in other investments like Sales tools, Digital Marketing, Manufacturing, and R&D.
Companies with the biggest layoffs in 2023:
Amazon [16,080 roles]
Alphabet [12,000 roles]
Microsoft [11,158 roles]
Meta [10,000 roles]
Company stock values after layoffs:
Amazon was up 8%
Alphabet was up 15%
Microsoft was up 6%
Meta was up 50%
What do investors think about them?
As many high-profile companies have made some significant job cuts, many investors are worried about what it means for their stock investments.
On the one hand, the idea is that reducing headcount increases operating profit, free cash flow, and, ultimately, stock price because investors believe the company's value increases with greater profitability. Despite ongoing economic, interest rate, and inflation concerns, the stock market had a strong year in 2023, rising approximately 24%. However, recent news of significant tech layoffs is casting doubt on this narrative.
Although layoffs have been shown to increase profitability and potentially raise a company's stock price, investors should consider the context and timing of the layoffs, as recent cuts may not be immediately reflected in financial reports.
To summarise, don’t just assume a stock is going to go up just because it cut people. The recommended approach is to do thorough research and monitor long-term trends to properly assess the impact of layoffs on stock prices. This includes looking at the company's financial health, strategic goals, and market trends.
Have you observed changes in stock prices following layoffs? What do you think about relationship between layoffs and stock performance? Join the conversation and share your thoughts.
Tech companies are not the only ones facing layoffs; United Parcel Service Inc. (UPS) announced 12,000 layoffs, while Microsoft Corp. (MSFT) cut 1,900 jobs post-merger. Google's parent company, Alphabet Inc. (GOOG, GOOGL), laid off over a thousand workers, hinting at more cuts to come. Salesforce Inc. (CRM) slashed 700 jobs. Other sectors, like fintech and gaming, saw similar trends, with Mainvest and Cue Health closing operations and Arkane Studios and Singularity 6 reporting layoffs.
Companies often implement layoffs for various reasons, including cost reduction during financial strains or economic downturns, where cutting labour costs enhances financial performance and profitability. Layoffs also form part of broader restructuring efforts aimed at realigning resources, removing redundant positions, or streamlining operations to adapt to evolving market conditions or strategic priorities. Additionally, in mergers, acquisitions, or corporate reorganizations, layoffs may occur as part of workforce integration to eliminate duplicate roles and achieve synergies and cost savings. External factors such as shifts in consumer demand, technological advancements, regulatory changes, or industry disruptions may also prompt layoffs to align with changing market dynamics.
Given that employees constitute a significant portion of operational expenses (about 65%-70%), companies often prioritize layoffs over cuts in other investments like Sales tools, Digital Marketing, Manufacturing, and R&D.
Companies with the biggest layoffs in 2023:
Amazon [16,080 roles]
Alphabet [12,000 roles]
Microsoft [11,158 roles]
Meta [10,000 roles]
Company stock values after layoffs:
Amazon was up 8%
Alphabet was up 15%
Microsoft was up 6%
Meta was up 50%
What do investors think about them?
As many high-profile companies have made some significant job cuts, many investors are worried about what it means for their stock investments.
On the one hand, the idea is that reducing headcount increases operating profit, free cash flow, and, ultimately, stock price because investors believe the company's value increases with greater profitability. Despite ongoing economic, interest rate, and inflation concerns, the stock market had a strong year in 2023, rising approximately 24%. However, recent news of significant tech layoffs is casting doubt on this narrative.
Although layoffs have been shown to increase profitability and potentially raise a company's stock price, investors should consider the context and timing of the layoffs, as recent cuts may not be immediately reflected in financial reports.
To summarise, don’t just assume a stock is going to go up just because it cut people. The recommended approach is to do thorough research and monitor long-term trends to properly assess the impact of layoffs on stock prices. This includes looking at the company's financial health, strategic goals, and market trends.
Have you observed changes in stock prices following layoffs? What do you think about relationship between layoffs and stock performance? Join the conversation and share your thoughts.
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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