Tech’s longtime highfliers are growing up by getting smaller
Visitors take photos in front of the Meta sign at its headquarters in Menlo Park, California, December 29, 2022.
Tayfun Coskun | Anadolu Agency | Getty Images
Technology companies are learning an old lesson from Wall Street: maturing means shrinking.
Meta and Amazon saw their shares spike on Friday following their fourth-quarter earnings reports. While revenue for both topped estimates, the story for investors is that they’re showing their ability to do more with less, an alluring equation for shareholders.
There’s also a recognition that investors value cash, in many cases, above all else. The tech industry has long preferred to reinvest excess cash back into growth, ramping up hiring and experimenting with the next big thing. But following a year of hefty layoffs and capital preservation, Meta on Thursday announced that, for the first time, it will pay a quarterly dividend of 50 cents per share, while also authorizing an additional $50 billion stock repurchase plan.
“The key with these companies is really that they’re able to reinvent themselves,” said Daniel Flax, an analyst at Neuberger Berman, in an interview with CNBC’s “Squawk Box” on Friday. They “continue to invest for the future and play offense while at the same time manage expenses in this tough environment,” he said.
Amazon is less aggressively moving to send cash to shareholders, but the topic is certainly being discussed. The company instituted a $10 billion buyback program in 2022 and hasn’t announced anything since. On Thursday’s earnings call, Morgan Stanley analyst Brian Nowak asked about plans for additional capital returns.
“Just really excited to actually have that question,” finance chief Brian Olsavsky said in response. “No one has asked me that in three years.”
Olsavsky added that “we do debate and discuss capital structure policies annually or more often,” but said the company doesn’t have anything to announce. “We’re glad to have the better liquidity at the end of 2023 and we’re going to try to continue to build that,” he said.
After years of seemingly unfettered growth, the biggest internet companies in the world are firmly into a new era. They’re still out hunting for the best technical talent, particularly in areas like artificial intelligence, but headcount growth is measured. Staffing up in certain parts of the business likely means scaling back elsewhere.
‘Playing to win’
For example, Meta CEO Mark Zuckerberg told investors that when it comes to AI, “We’re playing to win here and I expect us to continue investing aggressively in this area in order to build the most advanced clusters.”
Later on the call, when asked about expanding headcount, Zuckerberg said new hiring will be “relatively minimal compared to what we would have done historically,” adding that, “I kind of want to keep things lean.”
Olsavsky said most teams at Amazon are “looking to hold the line on headcount, perhaps go down as we can drive efficiencies in the size of our business.”
The story is playing out across Silicon Valley. January was the busiest month for tech job cuts since March, according to the website Layoffs.fyi, with almost 31,000 layoffs at 118 companies. Amazon and Alphabet added to their 2023 job cuts with more layoffs last month, as did Microsoft, which eliminated 1,900 roles in its gaming unit shortly after closing the acquisition of Activision Blizzard.
SAN FRANCISCO, CALIFORNIA – JUNE 23: XBOX CEO Phil Spencer arrives at federal court on June 23, 2023 in San Francisco, California. Top executives from Microsoft and Activision/Blizzard will be testifying during a five day hearing against the FTC to determine the fate of a $68.7B merger of the two companies. (Photo by Justin Sullivan/Getty Images)
Justin Sullivan | Getty Images News | Getty Images
Downsizing this week hit the cloud software market, where Okta announced it was cutting about 400 jobs, or 7% of its staff, and Zoom confirmed it was eliminating less than 2% of its workforce, amounting to close to 150 positions. Zuora announced a plan to cut 8% of jobs, or almost 125 positions based on the most recent headcount figures.
Evan Sohn, chairman of Recruiter.com, called it a “very confusing job market.” Last year, tech companies were responding to dramatically changing market conditions — soaring inflation, rising interest rates, rotation out of risk — after an extended bull market. Meta slashed over 20,000 jobs in 2023, Amazon laid off more than 27,000 people, And Alphabet cut over 12,000 positions.
The economy is in a very different place today. Growth is back at a healthy clip, inflation appears under control and the Federal Reserve is indicating rate cuts are on the horizon this year. Unemployment held at 3.7% in January, down from 6.4% three years earlier, when the economy was just opening up from pandemic lockdowns. And nonfarm payrolls expanded by 353,000 last month, the Labor Department’s Bureau of Labor Statistics reported Friday.
Tech stocks are booming, with Meta, Alphabet and Microsoft all at or near record levels.
But the downsizing in the industry continues.
“Companies are still in the cleanup from ’23,” Sohn told CNBC’s “Worldwide Exchange” this week. “There could be a flipping of skills, different skills necessary to really handle the new world of 2024.”
Wall Street is rewarding tech companies for improved discipline and cash distribution, but it raises the question about where they can turn for significant growth. Other than Nvidia, which had a banner 2023 due to soaring demand for its AI chips, none of the other mega-cap tech companies have been growing at their historic averages.
Even Meta’s better-than-expected 25% growth for the fourth quarter is a bit misleading, because the comparable number a year ago was depressed due to a slowing digital advertising market and Apple’s iOS update, which made it harder to target ads. Finance chief Susan Li reminded analysts on Thursday that as 2024 progresses, the company will be “lapping periods of increasingly strong demand.”
By late this year, analysts are projecting growth at Meta will be back down to the low teens at best. Growth estimates for Amazon and Alphabet are even lower, a good indication that calls for capital allocation measures may only get louder.
Ben Barringer, technology analyst at Quilter Cheviot, told CNBC that Meta’s decision to pay a dividend was a “symbolic moment” in that regard.
“Mark Zuckerberg is showing that he wants to bring shareholders along with him and is highlighting that Meta is now a mature, grown-up business,” Barringer said.
— CNBC’s Annie Palmer contributed to this report
WATCH: Meta’s Q4 report suggests it’s putting Nvidia’s chips to great use
Technology
Cognition to buy AI startup Windsurf days after Google poached CEO in $2.4 billion licensing deal
In this photo illustration, a man seen holding a smartphone with the logo of US artificial intelligence company Cognition AI Inc. in front of website.
Timon Schneider | SOPA Images | Sipa USA | AP
Artificial intelligence startup Cognition announced it’s acquiring Windsurf, the AI coding company that lost its CEO and several other senior employees to Google just days earlier.
Cognition said on Monday that it will purchase Windsurf’s intellectual property, product, trademark, brand and talent, but didn’t disclose terms of the deal. It’s the latest development in an AI talent war, as companies like Meta, Google and OpenAI fiercely compete for top engineers and researchers.
OpenAI had been in talks to acquire Windsurf for about $3 billion in April, but the deal fell apart, and Google said on Friday that it hired Windsurf’s co-founder and CEO Varun Mohan. Google is paying $2.4 billion in licensing fees and for compensation, as CNBC previously reported.
“Every new employee of Cognition will be treated the same way as existing employees: with transparency, fairness, and deep respect for their abilities and value,” Cognition CEO Scott Wu wrote in a memo to employees on Monday. “After today, our efforts will be as a united and aligned team. There’s only one boat and we’re all in it together.”
Cognition didn’t immediately respond to CNBC’s request for comment. Windsurf directed CNBC to Cognition.
Cognition is best known for its AI coding agent named Devin, which is designed to help engineers build software faster. As of March, the startup had raised hundreds of millions of dollars at a valuation of close to $4 billion, according to a report from Bloomberg.
Both companies are backed by Peter Thiel’s Founders Fund. Other investors in Windsurf include Greenoaks, Kleiner Perkins and General Catalyst.
“I’m overwhelmed with excitement and optimism, but most of all, gratitude,” Jeff Wang, the interim CEO of Windsurf, wrote in a post on X on Monday. “Trying times reveal character, and I couldn’t be prouder of how every single person at Windsurf showed up these last three days for each other and for our users.”
Wu said that the acquisition ensures all Windsurf employees are “treated with respect and well taken care of in this transaction.” All employees will participate financially in the deal, have vesting cliffs waived for their work to date and receive fully accelerated vesting for their, according to the memo.
“There’s never been a more exciting time to build,” Wu wrote.
WATCH: Google snatches Windsurf CEO after OpenAI deal dissolves
Meta CEO Mark Zuckerberg looks on before the luncheon on the inauguration day of U.S. President Donald Trump’s second presidential term in Washington on Jan. 20, 2025.
Evelyn Hockstein | Reuters
Meta on Monday said it has removed about 10 million profiles for impersonating large content producers through the first half of 2025 as part of an effort by the company to combat “spammy content.”
The crackdown is part of Meta’s broader effort to make the Facebook feed more relevant and authentic by taking action against and removing accounts that engage in “spammy” behavior, such as content created using artificial intelligence tools.
As part of that initiative, Meta is also rolling out stricter measures to promote original posts from creators, the company said in a blog post.
Facebook also took action against approximately 500,000 accounts that it identified to be engaged in inauthentic behavior and spam. These actions included demoting comments and reducing distribution of content, which are intended to make it harder for these accounts to monetize their posts.
Meta said unoriginal content is when images or videos are reused without crediting the original creator. Meta said it now has technology that will detect duplicate videos and reduce the distribution of that content.
The action against spam and inauthentic content comes as Meta increases its investment in AI, with CEO Mark Zuckerberg on Monday announcing plans to spend “hundreds of billions of dollars” on AI compute infrastructure to bring the company’s first supercluster online next year.
This mandate comes at a time when AI is making it easier to mass-produce content across social media platforms. Other platforms are also taking action to combat the increase of spammy, low-quality content on social media, also known as “AI slop.”
Google’s YouTube announced a change in policy this month that prevents content that is mass-produced or repetitive from being eligible for being awarded revenue.
This announcement sparked confusion on social media, with many users believing this was a reversal on YouTube’s stance on AI content. However, YouTube clarified that the policy change is aimed at curbing unoriginal, spammy and repetitive videos.
“We welcome creators using AI tools to enhance their storytelling, and channels that use AI in their content remain eligible to monetize,” said a spokesperson for YouTube in a blog post to clarify the new policy.
YouTube’s new policy change will take effect on Tuesday.
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