In the biggest week of the holiday season, Big Tech’s results will take the spotlight amid thousands of layoffs that could be just the beginning.
After tech stocks were decimated in 2022, investors will be watching for signs of a turnaround in the holiday reports and potential forecasts for the coming year from three of the top five market value losers of 2022: Amazon.com Inc. AMZN, +3.04% , Apple Inc. AAPL, +1.37% and Meta Platforms Inc. META, +3.01%. The other two stocks on this list — Microsoft Corp. MSFT, +0.06% and Tesla Inc. TSLA, +11.00% – were reported last week and Microsoft’s results after announcing mass layoffs did not bode well for big tech brothers.
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These companies — along with Google parent Alphabet Inc. GOOGL, +1.90% GOOG, +1.56% — will deliver results after finding themselves in uncharted territory: a backdrop of layoffs amid slowing demand for core products like digital ads, electronics and e-commerce, after a two-year pandemic surge and more than two decades of honeymooning with investors. Some analysts say the bottom is not yet in, either for their finances or for their workforces.
The only big tech that hasn’t taken a hit on its payroll is Apple, which has also increased its workforce the least in the group during the COVID-19 pandemic. Apple lost $846 billion of its market cap last year and is now reporting after its core product was part of the smartphone industry’s worst year since 2013 and the worst holiday season drop on record. The iPhone maker could also face questions about changing its product sourcing from Wall Street, which has relied heavily on China, a nation whose COVID-19 restrictions have curtailed production of some phones.
While layoffs in the tech industry have yet to hit Apple, some analysts say the company likely won’t be spared, despite Chief Executive Tim Cook requesting and receiving a healthy cut in his pay.
“Similar to other large technology companies, we expect Apple to adjust its headcount to reflect an increasingly challenging global macroeconomic environment,” DA Davidson analyst Tom Forte said in a research note on Tuesday.
Competitors that have already made cuts could expect even more if profit continues to fall along with revenue growth. Alphabet, for example, is shedding 12,000 employees, but one activist investor has already said that’s not enough given how much the company has grown during the pandemic and the difficulties it’s now facing in the online advertising sector.
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Analysts have said Meta’s “darkest days” are yet to come as it goes through a round of more than 11,000 layoffs, competition from TikTok, and its early stumbles in the Metaverse. During the cut, Chief Executive Mark Zuckerberg has vowed to continue investing in Metaverse development, even as the effort takes a toll on Facebook’s parent company’s previously healthy bottom line.
“In 2023, we expect meta to continue to engage in tough battles in the Octagon,” Monness Crespi Hardt analyst Brian White said in a research note on Thursday. “Longer term, we believe Meta will capitalize on the secular digital advertising trend and innovate in the Metaverse; However, regulatory scrutiny continues, internal headwinds remain and we believe the darkest days of this downturn are ahead.”
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Online retailer Amazon AMZN, +3.04%, became the first big tech to publicly state cost-cutting was okay a year ago and still coughs up a market value of $834 billion in 2022. He launched 2023 with plans to lay off more than 18,000 workers while fighting raged throughout last year as inflation drained more consumer cash for essentials.
Amazon’s own AWS cloud infrastructure unit has helped boost revenue over the past few years as companies built out their technical infrastructures. But the comments and outlook from Microsoft executives — the third-biggest market cap loser of 2022 and a great barometer of overall tech spending — weren’t exactly encouraging for cloud growth: Executives there last week warned of “moderate consumption growth” for a proprietary cloud -Business.
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“Sentiment on AWS was already bearish as investors eyed declining earnings over the next three quarters, which was largely confirmed following Microsoft earnings and discussions with industry checks,” Oppenheimer analyst Jason Helfstein said in a note on Wednesday. “On the positive side, we believe e-commerce revenue has stabilized and margins should improve on organic scale and announced headcount reductions.”
Layoffs are also beginning to spread beyond big tech companies, which have grown rapidly during the pandemic in response to massive spikes in demand. International Business Machines Corp. IBM, -0.04%, confirmed plans for 3,900 layoffs as it reported profit figures despite has already reduced its workforce by at least 20% during the pandemic.
One sector to watch is semiconductors, where a chip shortage has turned into a glut: Chip equipment maker Lam Research Corp. LRCX, -2.99%, announced layoffs last week, while semiconductor giant Intel Corp. INTC from Silicon Valley, -6.41% showed “amazingly bad” results in laying off workers. If Intel competitor Advanced Micro Devices Inc. AMD reports +0.32% this week, it could determine if there’s a silver lining in the semiconductor storm.
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Wedbush analyst Daniel Ives said in a Sunday note that a common theme of this week’s big tech earnings will be that “tech layoffs will be accelerated, with more pain to contain costs,” although he added that ” Apple is likely to cut some costs on the fringes, but we don’t expect any mass layoffs from Cupertino this week.”
Big Tech’s earnings have been a salve for other troubles in the market over the past decade, but with layoffs already afoot and doubts about the way forward, don’t expect any rescue from their results this week.
This week in the result
For the coming week, 107 S&P 500 SPX, +0.25% companies, including six members of the Dow Jones Industrial Average DJIA, +0.08%, will report results according to FactSet. While more Dow components were reported last week, this will be the busiest week for the S&P 500’s holiday gains of the season, FactSet Senior Earnings Analyst John Butters confirmed to MarketWatch.
Appliance manufacturer Whirlpool Corp. WHR, +2.69%, reported Monday after forecasting lower-than-expected fourth-quarter sales following a so-called “one-off supply chain disruption” and the pandemic home renovation boom.
On Tuesday, package delivery company United Parcel Service Inc. UPS reported +1.33% amid questions about demand over the holiday season. Ditto for streaming service Spotify Technology, SPOT, +0.93% after own layoffs and suggestions for possible price hikes, and McDonald’s Corp. MCD, -0.82%, on fears rising prices discourage people from eating out. Exxon Mobil Corp. XOM, -1.83%, Caterpillar Inc. CAT, +0.92%, Snap Inc. SNAP, +7.07% and Pfizer Inc. PFE, -1.04% also report on Tuesday.
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On Wednesday, T-Mobile US Inc. TMUS reported -1.32% on the back of a data breach and faltering handset demand. The coffee chain Starbucks Corp. SBUX, +0.24%, reported Thursday, with analysts likely to focus on U.S. demand and China’s reopening after executives said they were confident higher prices along with enthusiasm for younger customers and for customizable drinks will do so could help them navigate potholes in the economy.
Thursday is also the big day for Big Tech companies: Apple, Amazon and Alphabet will report in the afternoon after Meta reported the previous day.
The calls that you can enter in your calendar
WWE Upheaval: World Wrestling Entertainment Inc. WWE, -1.35% is reporting gains on Thursday as Vince McMahon – who returned to the professional wrestling organization this month following allegations of sexual misconduct – is looking for a buyer or other so-called “strategic alternative” for the company .
Analysts have speculated how the company’s wrestling events and backlog of media content could be repurposed, with some considering the possibility of interest from Amazon or Netflix Inc. NFLX, -1.12%. But WWE has struggled to develop storylines that stick with viewers and has thinned its ranks of wrestlers.
The Wall Street Journal reported this month that McMahon would pay a multimillion-dollar settlement to a former referee who accused him of raping her. Changes since McMahon’s return included the departure of his daughter, who had been promoted to co-CEO after he stepped down from that position last year.
It’s not very clear if Vince McMahon will be present at Thursday’s earnings call, which has been moved from morning to afternoon due to a scheduling conflict. But it should offer drama no matter who participates.
The numbers to watch
GM and Ford car sales: Automakers General Motors Co. GM, +4.03%, and Ford Motor Co. F, +2.71% are set to release results on Tuesday and Thursday, respectively, amid signs of slowing demand and rising interest rates that have made auto loans more expensive. Despite falling new-vehicle sales in the third quarter, GM managed to keep its own sales higher, the AP noted.
GM CEO Mary Barry emphasized the popularity of vehicles like the Escalade, Chevrolet Bolt EV and some pickups and SUVs during the automaker’s third-quarter earnings call in October. During the quarter, GM said it completed and delivered nearly 75% of the work-in-progress vehicles in its inventory in June. She said supply chains were reopening but added that “short-term disruptions will continue to occur”.
Automakers report how they are trying to move past a chip shortage and other production limitations. However, some forecasts call for auto sales, or sales volumes, to be the weakest in about a decade in 2022. EV maker Tesla’s recent price cuts could also hurt GM’s and Ford’s own EV sales.