SAN FRANCISCO — For much of last year, tech companies stumbled. Digital ad sales plunged. E-commerce sputtered. IPhone production stalled. And investors lost faith.
It was the worst year that the tech industry had experienced on Wall Street since the financial crisis of 2008. Apple, Amazon, Alphabet, Microsoft and Meta lost a combined $3.9 trillion in market value.
Now chastened, many tech companies have begun the year by championing a new and unfamiliar business strategy: austerity.
In recent months, several companies have said they are looking for ways to cut costs and eliminate futuristic projects that have become money pits. Amazon, Alphabet, Microsoft and Meta have each announced plans to lay off more than 10,000 workers.
It is an abrupt turn for an industry that became famous for its big salaries, extravagant offices and lavish perks, from free shuttle buses to free laundry services for employees. But as a boom that lasted 15 years comes to an end, shrinking profits are making tech executives rethink what they believed were important tools in an industrywide competition to hoard tech talent.
On Thursday, Sundar Pichai, CEO of Alphabet, Google’s parent company, said it was “committed to investing responsibly, with great discipline.” Tim Cook, Apple’s CEO, assured investors that the company would be “thoughtful and deliberate.” And Andy Jassy, Amazon’s CEO, made his first appearance on a call with analysts since taking over from Jeff Bezos about 18 months ago and underscored how hard the company had worked to corral what looked like runaway costs.
Their message built on the tone that Meta CEO Mark Zuckerberg set for the industry Wednesday when he called 2023 “the year of efficiency.” During a call with analysts, in which “efficiency” was said more than 30 times, Zuckerberg talked about spending less on infrastructure, removing layers of management and killing dead-end projects.
Investors are cheering tech’s new faith in financial discipline. Shares of Meta, the owner of Facebook, Instagram and WhatsApp, jumped more than 23% Thursday, its biggest daily gain in nearly a decade. Amazon, Alphabet, Microsoft and Apple all rallied, and the tech-heavy Nasdaq rose 3%.
“People wanted to get back in, and they wanted to figure out when the water is safe to wade into,” said Mark Mahaney, an analyst at Evercore ISI, an investment firm. He added that the Federal Reserve’s decision Wednesday to increase interest rates by a modest quarter-point helped tech companies as well, because it suggested that the central bank was getting inflation under control.
“You don’t need much good news for the stocks to outperform,” Mahaney said.
But shares of several of those companies dropped in after-hours trading Thursday evening after they reported disappointing results for the most recent quarter, making it clear that tech’s business challenges remain.
On Thursday, Google reported its second decline in advertising, ever. Amazon said that its lucrative cloud computing business had slowed and that sales in its core e-commerce business had declined. And Apple posted its biggest decline in Christmas-season iPhone sales since 2018.
Earlier in the day, Meta reported that its sales in the final three months of last year had fallen 4%. Last week, Microsoft said spending on cloud computing was weakening.
The market’s reaction to lackluster tech earnings could be an indication of what is to come for the broader economy. Economists are trying to assess whether the economy can avoid a deep recession and achieve what some are calling a soft landing. If tech, as the most prominent industry to weaken last year, finds a bottom and begins to rebound, it would be an illustration of the relative strength of the broader economy, said Jason Furman, a Harvard economist.
“Six months ago, the economy was contracting and interest rates were rising, and there was a rebalance away from the pandemic,” Furman said. “That perfect storm,” he added, “isn’t true any more.”
Alphabet, Amazon and Apple all reported quarterly results Thursday that largely fell short of Wall Street expectations.
Alphabet posted its fourth consecutive decline in profit as it grappled with a slowdown in digital advertising. Advertising sales at YouTube, Google’s video platform, dipped nearly 8% to $7.96 billion, below the $8.2 billion expected by analysts.
As Google’s sales slow, Pichai said, the company is making various efforts to tame expenses. They include improving the financial performance of its phones and other gadgets, trying to make its cloud division profitable and strengthening YouTube’s business.
“I see this as an important journey to re-engineer the company’s cost base in a durable way,” Pichai said.
At Amazon, Jassy has been pushing to trim costs for the past year. The company has been working through plans to lay off 18,000 corporate and tech workers, it added fees for grocery deliveries that had once been free, and it cut back from a breakneck warehouse expansion that left it with too much space.
Still, Amazon barely eked out a profit, producing just $278 million in net income during the December quarter, as sales rose 9% from a year earlier to $149.2 billion.
During the call with analysts, Jassy said he had been focused on reducing the costs associated with fulfilling and delivering packages. The company vastly expanded its warehouses and hiring during the pandemic to keep pace with demand. Even after almost a year of pulling back expansion, he said, “there is a lot to figure out how to optimize and how to make more efficient.”
Apple lost an estimated $7 billion in iPhone sales during the December quarter when its largest iPhone factory in China was locked down because of a COVID-19 outbreak. The company offset those losses with strong sales of iPads, which increased 30%, and services such as subscriptions to Apple Music.
Cook said macroeconomic factors, including inflation and the war in Ukraine, had contributed to the company’s struggles. In the face of those challenges, the company said, it is reining in spending, which will help improve its profit margins.
“We’re doing a lot of work around costs,” said Luca Maestri, Apple’s chief financial officer. “That is paying off.”
There are still regulatory efforts to curb the industry’s power, including a lawsuit that the Department of Justice brought last month against Google, claiming it has abused its position as an advertising technology monopoly. But the impacts of those actions are far in the future.
The tech industry has been relatively effective at holding regulators at bay. On Wednesday, a federal judge rejected the Federal Trade Commission’s request to stop Meta from buying a virtual reality startup. Last year, Washington lobbyists effectively stymied bills in Congress that aimed to open up competition on app stores and prevent tech companies from giving their own products preference on their platforms.
“Some of the pressure has come off because these guys have been hit so hard and had to lay off so many people,” said Bob O’Donnell, president of Technalysis Research, a firm specializing in tech research. “There’s a realization that they’re not omnipotent after all.”
This article originally appeared in The New York Times.
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