The news out of Facebook-parent Meta Platforms on Wednesday was great for the stock and terrible for a lot of employees. CEO Mark Zuckerberg told the latter that the company would lay off 13% of the staff, or more than 11,000. The point: Meta has spent a lot of money, even by Silicon Valley standards, and now it’s time to get leaner. Shares went up more than 5% over the previous day’s close.
The pandemic fooled Zuckerberg, who, as MarketWatch reported, said that the surge of growth didn’t keep going the way he expected. “Not only has online commerce returned to prior trends, but the macroeconomic downturn, increased competition, and ads signal loss have caused our revenue to be much lower than I’d expected,” he reportedly said. “I got this wrong, and I take responsibility for that.”
Tell that to the landlords. At the end of 2021, the company had “owned and leased approximately 10 million square feet of office and building space for our corporate headquarters and in the surrounding areas, and approximately 69 acres of land to be developed to accommodate anticipated future growth,” as its 10-K for 2021 noted.
But now, Meta plans to reduce office space, use desk-sharing for some workers (presumably those who can work at home), and institute a hiring freeze through at least the first quarter of 2023, as the Wall Street Journal reported.
The company isn’t alone. Salesforce laid off “fewer than 1,000 employees Monday,” according to a CNBC report. Apple has cut budgets and instituted a hiring freeze, as 9To5Mac said. The New York Times mentioned multiple tech companies, including Lyft, Stripe, and Twitter, collecting laying off thousands.
It might seem that each is preparing itself for a potential recession, only there have been many poor earnings announcements. Bad times aren’t ahead, but rather here. And even though a number of these companies have a lot of money and concentrated control—Facebook was structured to give Zuckerberg final say on anything—executives are scared of what Wall Street could do. Not kick them out of power but send share prices tumbling. That would be a significant loss of personal wealth to employees and top brass and prove problematic in other ways. Often financing these companies take on comes with covenants about share prices so the loan to corporate value ratio doesn’t fall too much.
Brad Tisdahl, CEO of CRE consulting firm Tenant Risk Assessment, last month told GlobeSt.com that tech companies have seen “a pretty significant change” in business and finances in the last six or seven months. “These lofty projections a lot of companies were making, they’re having to reassess the growth presumptions they have. They’ve gone into cost containment and savings mode.”
And that means a sector long prized by landlords may prove less admirable going forward.
Source: “Are Tech Companies Still Good Tenants?“