Tech giants Meta Platforms Inc. and Amazon.com Inc. have seen a surge in their stock prices, with a combined increase of $270 billion in after-hours trading. This comes as both companies reported better-than-expected earnings, signaling the success of their cost-cutting strategies.
In 2023, Meta reduced its headcount by 22% and announced plans for a $50 billion stock buyback. Additionally, the company revealed its first-ever quarterly dividend, indicating its strong financial position. On the other hand, Amazon remained noncommittal about returning capital to shareholders and continued its corporate job cuts. Despite these changes, investors are pleased to see both companies focusing on profitable business lines and demonstrating increased revenue growth.
According to Gil Luria, a managing director at D.A. Davidson & Co., the newfound cost discipline of these tech companies is paying off for investors. By pruning less productive businesses, both Meta and Amazon have been able to invest in faster-growing parts of their businesses while accelerating revenue growth and significantly increasing margins.
The holiday quarter revenue growth for Meta’s digital advertising and Amazon’s e-commerce sales exceeded estimates, leading to a 15% increase in Meta’s shares and a more than 7% rise in Amazon’s stock.
Meta’s CEO, Mark Zuckerberg, acknowledges the strong business results and raises the question of whether the company should start investing heavily again. However, he believes that operating as a leaner company has benefits and expresses appreciation for the impact of small additions to the workforce.
During the Covid-19 pandemic, both Meta and Amazon aggressively reinvested profits into their companies. Meta increased its headcount by 30% in 2020 and 23% in 2021, focusing on augmented and virtual reality technology. Amazon doubled the size of its logistics network and expanded its workforce by almost 30% in 2022 before adopting a more cautious approach to hiring and building new facilities.
Looking ahead, the challenge for both Meta and Amazon is to balance their leaner and more focused versions with their ambitious tech advancements. Meta plans to invest in artificial intelligence advancements, generative AI, social media products, and virtual reality devices. Amazon aims to reduce costs further while continuously searching for efficiencies and maximizing output.
In conclusion, the cost-cutting and refocusing strategies of Meta and Amazon have paid off for investors, leading to a significant surge in their stock prices. Both companies have shown strong financial results and are concentrating on profitable business lines, driving revenue growth while increasing margins. The question now is whether they can maintain their leaner approach while pursuing ambitious tech advancements.
