Lackluster Earnings Reports Show Big Tech’s Golden Age is Fading

The logos of Amazon, Apple, Facebook and Google in a combination photo/File Photo

SAN FRANCISCO – In Silicon Valley, it felt like the boom times would never end.

The Big Tech companies that won dominance of the internet brought in billions of dollars a year, spending it on eye-popping salaries, gleaming offices and constant acquisition of smaller companies.

But the past year of rising interest rates and falling stock prices has shaken the industry, along with the San Francisco Bay region it dominates. Now, tens of thousands of layoffs from Google, Microsoft, Amazon, Facebook and dozens of other companies have made it clear: The golden age is over. Speeches about austerity have replaced the free-flowing stock grants and free sushi lunches.

Apple, Amazon and Google parent Alphabet – among the biggest drivers of the West Coast economy – all announced their year-end earnings on Thursday. The reports were widely anticipated by Wall Street analysts and investors, who have been pushing the companies to cut costs.

Alphabet and Amazon are both still growing, but at much slower rates than they have in the past. Apple’s revenue was 5 percent lower than the same time last year. In conference calls and comments posted online, Amazon and Alphabet’s chief executives both stressed that their companies are still working to cut costs.

“We’re on an important journey to re-engineer our cost structure in a durable way and to build financially sustainable, vibrant, growing businesses across Alphabet,” Google CEO Sundar Pichai said.

On Wednesday, Facebook parent company Meta called 2023 the “year of efficiency” and said it would remove layers of middle management in an effort to make decisions faster and become more productive, causing the stock to jump more than 23 percent Thursday.

“We closed last year with some difficult layoffs and restructuring some teams. And when we did this, I said clearly that this was the beginning of our focus on efficiency and not the end,” Meta CEO Mark Zuckerberg said. His comments came as the company posted its third straight quarterly revenue decline.

Meta’s cost-cutting message drove optimism across the market, sending the Nasdaq to its best close since August. But the tech industry’s hesitant outlook for this year comes amid broad uncertainty about whether the U.S. economy will be able to absorb the Federal Reserve’s interest rate hikes in a way that avoids a recession. There are numerous signs that inflation is easing and the labor market – outside of the tech sector – appears to be resilient.

But many executives across a range of industries have expressed little confidence they know what the next few months have in store. Shares of Alphabet, Amazon and Apple fell more than 3 percent in after-hours trading.

San Francisco’s downtown has slowly come out of its pandemic hibernation, as tourists return to the city and some workers go back to their offices. But during lunchtime on a recent weekday, the entrance to Twitter’s headquarters, just off bustling Market Street, was quiet, despite new owner Elon Musk’s command that workers return to in-office work. Since taking over the company at the end of October, he’s fired more than two-thirds of its employees.

At the end of 2022, nearly 30 percent of San Francisco’s commercial office space was empty, compared with just 3 percent at the end of 2019, according to CBRE, the global real estate services company. Tech companies have cut almost 80,000 employees in the San Francisco Bay Area since the beginning of 2022, according to layoff tracking website

After a decade of largesse, the biggest tech companies are casting off their reputations as places that offer lifetime employment with free food and high salaries as they embrace the reality that they’re calculating corporations focused on one thing over everything else: making money. During the boom years, tech companies could spend however they wanted, charming Wall Street with consistent growth and spinning tales of how multibillion-dollar investments in cloud services and artificial intelligence would create massive new revenue streams. Now, investors are pushing company managers to get back to basics. To Wall Street, investments in delivery drones and internet-broadcasting balloons look less like innovation and more like expensive distractions.

At the same time, the companies have seized the explosion of interest in artificial intelligence technology as an opportunity to tout their tech prowess. Microsoft recently struck a major deal with OpenAI, a smaller tech company that has released chatbots that have captured regular people’s wonder and attention in ways AI leaders like Google haven’t yet been able to.

The big companies are all pushing AI to the front of their marketing and are trying to launch products faster. Zuckerberg said he’s planning to deploy new artificial intelligence tools to help engineers become more productive and cut projects that aren’t performing or are no longer crucial to the company’s priorities. Facebook is still investing huge sums in building out products for the metaverse – a loosely defined term for a set of digital worlds that the company hopes will be the next major platform for work, recreation and commerce. It even rebranded itself as Meta in 2021.

It’s a sharp shift from previous years, when the companies positioned themselves as engines of innovation and change, despite the bulk of their money coming from traditional revenue streams such as e-commerce, digital advertising, and hardware and software sales. Google’s founders restructured the company in 2015 as Alphabet, saying the change would allow its core business to run separately from new ventures like self-driving cars and a research lab that studied how to prolong life. But eight years later, the company still gets almost all its money from ads and has shut down many of its “moonshot” side projects.

For the past decade, Big Tech firms grew to gargantuan sizes, riding the waves of historically low interest rates and the massive changes wrought by the internet to cement their place among the most profitable and powerful corporate entities in history. At the end of 2021, the peak of the bull market in tech stocks, the combined market value of Google, Facebook, Amazon, Apple and Microsoft was nearly $10 trillion – twice the gross domestic product of Japan. Google alone brings in around $750 million every single day.

Those massive rivers of money allowed the companies to spend big. Competition for tech workers led to a years-long arms race, in which companies offered such perks as free laundry, food and massages, and bigger and bigger salaries. Software engineers fresh out of college could expect to make $180,000 a year in pay and stock grants if they won a coveted Big Tech job. The companies bought their way into new industries, increasing their power.

Google in particular had a reputation around Silicon Valley as being a place where workers could spend their entire careers, moving between projects and steadily progressing up the pay levels while collecting valuable stock options.

Google had never done major layoffs. Even after competitors like Microsoft and Amazon announced huge cuts, Google workers said they expected the company to instead fire low performers in a piecemeal way rather than conduct mass firings.

But the layoffs came, showing up as emails in people’s inboxes in the early morning of Jan. 20. Some workers found out they’d been cut when they tried to log into their work accounts and got error messages. The cuts hit across the company, but Google’s internal incubator, Area 120, a home for employee side projects, was almost completely gutted, according to a person familiar with the matter who spoke on the condition of anonymity to discuss internal conversations. Mandatory filings Google made with the state of California show signs that one of the company’s famous benefits might be ending: The layoffs included two dozen massage therapists.

The tech industry is far from crashing like it did when the 2000 dot-com bubble popped. After that crash, tech companies were viewed as somewhat fiscally irresponsible, and the market treated them with wariness, said Tom Essaye, president of Sevens Report Research. They don’t want to fall into that pattern again, so they’re cutting proactively, largely to appease shareholders, he said.

Amazon has scaled back massively on its plans to expand into brick-and-mortar retail stores, with CEO Andy Jassy singling out the division in his memo announcing the company’s 18,000 layoffs. For years, the e-commerce giant had invested in physical stores, even buying the Whole Foods grocery chain for $13.7 billion in 2017.

Amazon founder Jeff Bezos owns The Washington Post.

Amazon reported its sales grew more than 9 percent to nearly $514 billion in 2022 – representing a slowdown from its 22 percent growth in 2021. Company chief financial officer Brian Olsavsky said the company expected “some slower growth rates for the next few quarters” in the company’s cloud business, a key area watched by investors.

“In a nutshell, the current problem for Amazon is that it spent most of the pandemic driving with its foot to the floor to keep up with demand, but as demand dropped back it did not apply the brakes fast enough,” Neil Saunders, a retail analyst and the managing director of the analytics company GlobalData said in a statement Thursday.

Facebook has scaled back on data-center construction, something that had pushed up its costs over the past several years. At the same time, it expanded its stock buyback program, a gift to investors who saw the company’s shares fall heavily last year. Shares jumped nearly 20 percent after it announced its earnings results Wednesday.

Apple is the one Big Tech company that hasn’t announced major layoffs. The iPhone maker didn’t hire as rapidly as other companies did during the pandemic, and its revenue comes largely from hardware sales and subscriptions, as opposed to e-commerce and digital advertising. The company’s earnings give insight on how consumers around the world are spending, said Dan Ives, an analyst with Wedbush Securities. “Apple will likely cut some costs around the edges, but we do not expect mass layoffs,” he said.

Tim Cook, the company’s chief executive, told investors on a call Thursday that the company’s revenue declines were partly due to interruptions in the supply chain for the newest iPhone models. Cook added that iPhone sales were down 8 percent year over year. Apple said it expects a near-term improvement for its revenue overall, and iPhone sales in particular, but the company did not offer a specific forecast.

California labor laws require companies to give employees two months of warning before laying them off, meaning most people who lost their jobs are technically still employed, even though they’ve been locked out of their offices and equipment. One employee who lost his job after more than a decade at Google said the company truly felt like it wasn’t a regular corporation, but a place where the ultimate goal was to bring big world-changing projects to fruition.

But the layoffs have definitively curtailed that spirit, he said. The laid-off worker recently spoke to a colleague who is still employed but has lost much of his faith in the company. “He said, ‘the magic of Google died for me, and I don’t know how to stay motivated.'”