Microsoft will lay off employees
The tech giant has announced that it plans to cut thousands of jobs as part of its latest headcount reductions. A number of companies have now started to take similar steps and this may be mainly due to fears of the coming recession, when everyone is trying to optimise their costs and maintain positive financial results. How does this reflect on the stock and investor reactions?
Staff reductions will be more pronounced
Microsoft is reportedly planning to lay off up to 5% of its workforce, which amounts to roughly 11,000 workers in offices around the world. Compared to last year's headcount reductions, which affected less than 1% of the software giant's workforce, this approach is much more drastic. The company is likely worried that during 2023 and 2024, a long-term decline in demand will come and profits will fall rapidly.
Share value
The technology sector has experienced an overall decline over the past year, and Microsoft stock specifically has fallen 23% over the past year and is currently trading at around $240 per share.* The giant Microsoft could reduce its workforce by as much as a third over time. Expectations are currently rather negative, and Microsoft is expected to post its slowest revenue growth since fiscal 2017, at just 2%, in the second fiscal quarter, when it reports its results on January 24.
Microsoft Corporation's stock performance over the past 5 years. (Source: Investing)
Layoffs admitted by other companies
Major tech firms have also stepped up to the controversial layoffs. We're talking about giants like Meta or Amazon, for example. In addition to cutting staff in the technology sector, some companies such as Microsoft and Meta are also closing down their US offices. Everything indicates that companies are facing more difficulties, and the slowdown in the growth of the technology sector is deepening. The popularity of buying shares from this sector in particular has thus begun to shift to other areas. Even in 2023, there is no sign that the situation will improve, so you need to think carefully about your investment decisions.
Lucia Žárska, Analyst of ProfitLevel
* Past performance is no guarantee of future results.
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