Big tech companies had big layoffs. Then they saw big profits

In the last year, tech giants made massive cuts to their workforce, which didn’t just please investors — they led to sky-high profits. Meta, for instance, saw its net income soar 201% in the last three months of 2023, from $4.65 billion to $14.02 billion.

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Big tech companies overhired because they can

Between 2020 and 2022, Meta hired the most out of its fellow peers. Software companies have a high level of profitability: in the industry, gross margins typically range from 70% to 80%, said Gil Luria, a senior software analyst at financial services firm DA Davidson.

Tech companies indulged a desire to hire plenty of people to drive new products — and when costs need to be taken out, they can cut staff without impacting their products at all, he added.

Following a drop in profits in 2022, Meta’s CEO Mark Zuckerberg declared 2023 the “year of efficiency” and delivered tens of thousands of workers the pink slip. “Because their product is so inherently profitable, they really don’t need a lot of people driving them,” said Luria. “And that’s what a lot of these companies are realizing now.”

Tech companies reinvest labor costs into AI efforts

Now the Metas and Microsofts of the world have taken money from laying off their workers to invest into AI initiatives — including buying up a lot of GPUs from Nvidia to build the infrastructure needed for generative AI products.

Some of the layoffs may also have to do with just how certain functions are no longer needed: for instance, language-learning software company Duolingo has slashed 10% of its contractor workforce in favor of generative AI to create more content.

But there’s a bright spot. On conference calls with analysts and investors, the tech giants also say they’re hiring to support AI priorities.

Mature, but growing fast

In the natural cycle of business, the bigger the company gets, the more growth slows down, and smaller companies emerge to replace them. But this time it’s different — the mature tech giants are some of the fastest-growing companies, Luria said. Microsoft, which was founded in 1975, not only briefly had the biggest market cap among public companies but also is leading the generative AI industry.

On a call with analysts and investors yesterday, Meta CEO Mark Zuckerberg said that being a leaner company — no more free laundry service perks for tech workers! — is helping Meta execute better and faster. Zuckerberg is betting that he can still operate ambitiously on the plans of generative AI and metaverse.

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