Last June, I wrote about how The Great Resignation could become The Great Retrenchment. Since then, unfortunately, more companies have been retrenching workers and this has continued in 2023.
The biggest difference between the retrenchment exercises in 2022 and the retrenchment exercises we are seeing in 2023 is that some of the biggest and most profitable companies in the world are now also retrenching people.
In the past, retrenchments tend to only apply to companies that are experiencing difficult times and at risk of failing. These days, however, even highly profitable companies are using retrenchment as a cost-cutting exercise to hopefully improve their financial performance.
In this week’s edition of 4 Stocks This Week, we look at a few companies that have undergone retrenchment exercises in 2023, and how their share prices have performed.
Alphabet (NASDAQ: GOOGL)
Now known as Alphabet (NASDAQ: GOOGL) after a renaming exercise in 2015, Google has a market capitalisation of about US$1.36 trillion. This makes it the third largest company in the U.S. behind only Apple and Microsoft.
Google announced in January that it was cutting about 12,000 jobs or about 6% of its workforce. About 190 workers in Singapore were also affected as part of this job cut.
In its FY2022 result announced on 2 February 2023, Google saw a decline of about 21% in its net income for 2022 as compared to 2021. However, net income, at US$59.9 billion still offers diluted earnings per share (EPS) of $4.56.
Perhaps, what is telling and may be the reason for retrenchment, is that Google has added about 21% more workers in 2022 (190,234) as compared to 2021 (156,500) though its revenue has increased by only about 9.7% for the year. A concern would also be the fact that its 4Q2022 revenue (US$76 billion) remains flat compared to 4Q2021 (US$75 billion), despite the larger workforce it has.
Even after retrenching 12,000 workers, Google would still have more workers in 2023 as compared to its headcount in 2021. So this means performance has to, and may even be expected, improve in 2023.
After CEO Sundar Pichai layoff announcement, Google’s share price actually went up about 6% to USD98.02 on 20 January 2023. With share prices at $105.44, this puts its profit-to-earnings (PE) ratio at about 23.1. For the year, its share price is up 18%.
Meta Platform (NASDAQ: META)
Facebook, now known as Meta, announced on 14 March that it will cut 10,000 jobs in 2023. This is on top of the 11,000 layoffs that it has made in 2022. In total, about 21,000 jobs would be made redundant. Based on a headcount of about 86,482 according to its financial statement, this means about 24% of its employees would be let go. According to the company, its headcount in 2022 increased by 20% as compared to the year before.
For FY2022, revenue for Meta was down 1% to US$116 billion. Net income was down 41% from US$39.3 billion (2021) to US$23.2 billion (2022). 4Q2022 net income was down 55% to US$4.65 billion, as compared to the same period in 2021 (US$10.2 billion).
Perhaps, one telling statistic is its operating margin. Meta has gone from an operating margin of 40% in 2021 to 25% in 2022. For 4Q2022, the operating margin was at 20%.
While the recent Meta layoff was announced officially on 14 March, we observed that share prices went up from $180.90 on 13 March to $204.93 by 16 March, or about 13% in three trading days.
With share prices currently at $105.44, its profit-to-earnings (PE) ratio is at about 23.1. Meta’s share price is up 65% in 2023 thus far and its market capitalisation is currently US$534 billion.
Accenture (NYSE: ACN)
It isn’t just big tech firms that are laying off workers. IT consulting firm Accenture (NYSE: ACN) announced on 23 March that it plans to cut 19,000 jobs or about 2.5% of its workforce.
According to its latest results announcement for 2Q2023 (also on 23 March), revenue for the quarter was US$15.8 billion, an increase of 5% (in US dollars) over the same period last year. Operating income was down 5% to US$1.94 billion, compared to the same period last year. The operating margin was 12.3%, compared to 13.7% for the same period last year.
On 23 March, Accenture’s share price went up about 6.8% to $271.01. Since both its results and retrenchment plans were announced on the same day, it’s difficult to say if the spike in share price was due to the positive investor sentiments for its results announcement, or its retrenchment plan.
Based on its current share price of $272, it’s currently trading at a PE ratio of about 25.
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