With layoffs and buyouts, Big Tech bows to Wall Street’s ways

Silicon Valley once viewed tactics like layoffs and stock buybacks as a shameful form of “short-termism” that kills innovation. Today, not so much.

The big picture: Big tech companies have laid off tens of thousands of workers in recent months to boost profitability, some at the same time planning billions in stock buybacks — two textbook moves typically aimed at pleasing Wall Street.

• And instead of talking about future world-changing technologies that have been useless for years, their executives are suddenly fixated on productivity, cost control, and profitability.

On the subjectShares of Salesforce rose nearly 12 percent on Thursday — its biggest daily gain in more than two years — after it delivered better-than-expected results and said it would increase its share buyback plan to $20 billion. (In January, he announced a major strike, cutting 10% or 8,000 jobs.)

• “You all know we haven’t had an efficiency focus in the company before because we’ve had 24 incredible years of just growing, growing, growing,” CEO Marc Benioff told analysts on a call Wednesday.

Minimize: Benioff is not alone.

Why is it important? The sudden turn toward Wall Street orthodoxy marks a shift in corporate America’s power balance over the past decade.

Flash In the years since the financial crisis, Silicon Valley has emerged as an economic and financial balance for Wall Street, which has humbled itself by avoiding the financial crisis and the global recession.

• A slow recovery followed, during which the success of Apple, Google, Amazon and Facebook sparked a wave of technological triumphs.
• Then came the hordes of startup “unicorns,” fed by a flood of venture capital seeking to get the next big thing off the ground.
• The seemingly endless supply of dollars has allowed many firms to delay their public offerings for years and has given them leverage over the Wall Street machine that is desperate to go public. They struck deals that were incredibly favorable to themselves – giving founders super-powered voting shares and stock offerings with limited shareholder voting rights.
• The message was clear: the old rules of Wall Street didn’t apply.

What changed: The era of easy money is over, as the Fed begins to hike interest rates in response to runaway inflation.

• That has overwhelmed tech stocks more than most, and has shown that at least some of the tech sector’s success is the result of a decade-plus of interest rate policies, rather than the business acumen of tech founders and executives.
• Last year, the tech-heavy Nasdaq composite fell more than 33%. (Meta is down 64 percent, Tesla is down 65 percent, Salesforce is down 48 percent)
• Investors and Wall Street analysts felt empowered to start questioning certain technology “long-term” capital-consuming bets that seemed unlikely to pay off.
• And activist investors, smelling blood, are buying up shares of tech giants that shouldn’t be dealt with in order to drive up stock prices.

The main point is: On conference calls with Wall Street analysts, many Silicon Valley executives are now surprisingly trying to stay on the streets, just like any other corporate leader.

• “We’ve kind of entered a phase shift … we’ve been growing very fast for the first 18 years,” Meta’s Mark Zuckerberg said last month. “When you’re growing so fast, it’s hard to be efficient… We’re in a different environment now.”