Mark Zuckerberg dubbed 2023 the “Year of Efficiency”. The founder and CEO of Meta is not alone. This week’s earnings presentations and conference calls with analysts from the Big Five of US technology companies featured austerity measures and cost-cutting. These are not companies that are doing badly. Apple, Microsoft, Alphabet (Google), Meta (Facebook) and Amazon earned a total of 243,000 million dollars (around 224,000 million euros) in 2022. However, that figure is 24% down on 2021. From one year to the next, $77,000 million in profits have gone up in smoke.
Massive staff cuts was the measure that everyone except Apple implemented. The other four companies have announced 51,000 layoffs after a hiring frenzy in previous years. In addition, companies are holding back on investments, rationalizing office space, canceling unprofitable projects and taking other measures.
The round of results presentation left a trail of bad news. Meta experienced its first annual sales decline in its history in 2022. Amazon, which hadn’t posted a loss since 2014, has slipped back into the red after years of unstoppable earnings growth. Alphabet has seen ad revenue fall for the second time in its history (first in the lockdown quarter). Apple has faced supply issues due to Chinese factory shutdowns and has ended its run of record profits. Microsoft trimmed profits after growing at the slowest pace since 2016 in the latter part of 2022.
All of them have also suffered a major setback due to the strength of the dollar. They are global companies that operate around the world and derive a large portion of their revenue and profits overseas. As the US currency appreciates, bills and receipts in other currencies are translated into fewer dollars, the currency in which they formulate their accounts.
In all cases, the growth rate of costs was higher than that of sales. Uncertainty about the global economy (which is expected to grow at a slower rate in 2023) and the risk of a recession in the United States due to US Federal Reserve rate hikes threaten further revenue declines. So it’s time to tighten your belt.
Meta completes the largest downsizing
Meta Platforms was the first of the five companies to announce massive layoffs and the company to initiate a proportionately larger workforce reduction (11,000 employees, 13% of the total). It’s also the one that has most won over investors with its austerity message. On Thursday, it soared 23% in the stock market after announcing a share buyback plan and cutting its estimate of expenses for this year by 5,000 million and investments by another 4,000.
The company ended 2022 after two years of record profits with sales down 1% and profit up 41% to $23,200 million. The company has been hurt by the deteriorating digital advertising market, stricter privacy rules from Apple and competition from TikTok. Add to that his unsuccessful engagement with the Metaverse, which has resulted in millions of dollars in losses and provisions for restructuring costs.
Alphabet, the owner of Google, posted record profits for four straight years, reaching $76,033 million in 2021. In 2022, it earned 21% less even as it grew its revenue nearly 10% to a new high of $282,000 million. Alphabet suffered from the decline in advertising and a sharp slowdown in growth in the latter part of the year, in addition to currency effects.
CEO, Sundar Pichai, and CFO, Ruth Porat, referred to the “cost structure” review when presenting the results. Alphabet has announced 12,000 layoffs this year, equivalent to 6% of its workforce of 190,000, but after adding 33,734 jobs in 2022 and 71,000 over the past three years.
What has most impacted Amazon’s return to losses is the plunge in the valuation of Rivian, the electric-car maker, in which it owns 17%. It recorded a loss of $12.7 billion compared to the revaluation of $11.8 billion in 2021, which allowed it to post record profits for the fourth straight year. But that’s not the e-commerce giant’s only problem. The operating result fell due to the losses in the international business and the lower profitability in the USA. Additionally, Amazon Web Services, its profitable cloud computing division, has started to slow down. The company has significantly reduced its workforce over the past year, beyond the announced 18,000 layoffs.
Simultaneous decline in profits
Microsoft and Apple are the ones who have best defended their income statements, although they have not weathered the sector’s woes unscathed. Microsoft is regaining its position as the second-largest company in the United States through benefits Alphabet took from it the previous year. Revenue for the four quarters of 2022 was $67,449 million, down 5% from the previous 12 months. The decline is mainly due to the strength of the dollar and compensation for the downsizing, which means the layoff of about 10,000 employees, about 5% of the workforce. However, the decline in earnings has accelerated in the second half of calendar 2022 (first half of fiscal 2023) on the back of slowing revenue growth.
Apple remains the undisputed earnings leader, but it went from more to less over the year, suffering its first revenue decline in three-and-a-half years in the final quarter of 2022 (the first quarter of its new fiscal year). Apple has seen its sales weighed down by the tough restrictions in China to prevent a new outbreak of the coronavirus epidemic. This impacted sales of its flagship product, the iPhone, in the middle of the Christmas season. As a result, receipts fell by 5% to 117,154 million and benefits by 13.4% to 29,998 million. Following that key quarter slump, sales rose just 2.4% for the full 12 months of 2022 and earnings fell 5%.
With that, the five big US tech companies have simultaneously deteriorated their earnings in 2022, which is unprecedented at least in the last decade. Each of the companies had a weaker year, but due to their own adjustments or problems. This time, it’s the entire industry saying goodbye to a golden age of revenue and profit growth.
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