Tech staffing moves show who has room for productivity gains - Bernstein
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The most recent moves from big tech names to freeze hiring or cut back on employees spurred a dive from Bernstein analysts on what's happening with Internet-exposed headcount growth - and what exactly the big names are doing in terms of revenue per employee.
Industry layoffs made a big jump up in November, Nikhil Devnani and team point out: to 53,000, from 23,000 in October. Meta Platforms (NASDAQ:META) and Amazon.com (NASDAQ:AMZN) have already bitten the "bullet" to manage their expenses and shutter side projects with uncertain payoffs, while Alphabet (NASDAQ:GOOG) (GOOGL) is still "the last pillar to fall" in big tech, they noted.
"Mr. Market has made it clear that 'growth at all costs' will no longer cut it. And public companies stand to be structurally de-rated if they aren't able to showcase: (1) a path to sustained profitability and (free cash flow) generation; and (2) an underlying model that can grow at a healthy clip without being funded by zero interest rates," the analysts said of the new focus on profitability.
Some emerging-Internet companies are seeing their hand forced by the need to preserve cash, such as Wayfair (W), they noted. For others, like Amazon and Meta, it's about "improving capital stewardship and appeasing shareholders." Interestingly, it's private Twitter (TWTR) that may be the key case study on efficiency after it's slashed some two-thirds of its workforce: "Elon's Razor" will test how lean such businesses can run, Bernstein said.
Digging in, they note the mega-caps - Alphabet (GOOG) (GOOGL) and Meta - remain the most productive by far on the basis of revenue per employee, and Amazon's (AMZN) action suggests it may have also already turned a corner there.
"That said, Snap (NYSE:SNAP) and Pinterest (PINS) have seen the most improvement" on a comparison from 2019, and "META the most degradation as it's ramped hiring in non-revenue generating roles (e.g., content moderation and metaverse)."
Among Internet marketplace names, Uber (UBER) has seen the most improvement in productivity on a three-year basis, thanks to pandemic headcount cuts, "substantial" delivery growth and higher prices. DoorDash (DASH) and Etsy (ETSY) have seen the most headcount growth, offset by faster revenue growth as well - but those business still have some room to realize efficiency, Bernstein noted.