Tech’s longtime highfliers are growing up by getting smaller

Visitors are seen taking pictures in front of the Meta sign at the company’s headquarters in Menlo Park, California on December 29, 2022. Technology giants Meta and Amazon experienced a surge in their stock prices following their fourth-quarter earnings reports. While both companies exceeded revenue expectations, the real story for investors is their ability to achieve more with less, a very appealing equation for shareholders. There is also a growing recognition that investors highly value cash. In the past, the tech industry preferred to reinvest surplus cash into growth, hiring more employees and exploring new ventures. However, after a year of significant layoffs and capital preservation, Meta recently announced its first-ever quarterly dividend of 50 cents per share, along with a $50 billion stock repurchase plan. Analyst Daniel Flax from Neuberger Berman commented that the key to these companies’ success lies in their ability to reinvent themselves. They continue to invest for the future and play offense while also managing expenses in a challenging environment. Amazon, although less aggressive in distributing cash to shareholders, has also been discussing the topic. The company initiated a $10 billion buyback program in 2022 but has not made any further announcements. During the recent earnings call, Morgan Stanley analyst Brian Nowak inquired about plans for additional capital returns. Amazon’s finance chief, Brian Olsavsky, responded by expressing his excitement about the question, as no one had asked him that in three years. While Amazon does not have any announcements at the moment, Olsavsky mentioned that capital structure policies are debated and discussed annually or more frequently. He added that the company aims to continue building liquidity and is pleased with the improved liquidity at the end of 2023. The largest internet companies in the world are now in a new era, transitioning from a period of rapid growth to a more mature stage. They are still seeking top technical talent, particularly in areas like artificial intelligence, but the rate of headcount growth is slowing down. For example, Meta CEO Mark Zuckerberg stated that when it comes to AI, they are playing to win and will continue investing aggressively in this area. However, he also mentioned that new hiring will be relatively minimal compared to historical levels, as he wants to keep things lean. Similarly, Amazon aims to maintain or reduce headcount in most teams to drive efficiencies in the size of their business. This trend of downsizing is evident throughout Silicon Valley, with January witnessing the highest number of tech job cuts since March. Despite the downsizing, the tech industry is currently experiencing significant growth, with Meta, Alphabet, and Microsoft reaching or nearing record stock levels. However, this raises questions about where these companies can find substantial growth in the future. Apart from Nvidia, which had a remarkable year due to the high demand for its AI chips, none of the other mega-cap tech companies have been growing at their historical averages. Meta’s better-than-expected 25% growth in the fourth quarter can be misleading, as it was influenced by a slower digital advertising market and Apple’s iOS update that affected ad targeting. Analysts predict that Meta’s growth will slow down to the low teens by the end of this year, and growth estimates for Amazon and Alphabet are even lower. This suggests that calls for capital allocation measures will likely increase. Technology analyst Ben Barringer remarked that Meta’s decision to pay a dividend symbolizes the company’s maturity and shows that Mark Zuckerberg wants to involve shareholders in the company’s journey.



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