Al Jazeera recently dubbed 2023 as “the year of the layoffs,” and it certainly didn’t start on a bright note as Salesforce (NYSE:CRM) axed 10% of its global staff. Such a move from a staunch advocate of stakeholder capitalism speaks volumes about the labor market’s unpredictability.
It’s possible that the surge in U.S. job creation in 2022 – adding approximately 4.5 million jobs, the second-highest in 40 years – was a catalyst for firms like Salesforce to tighten their belts and trim operating expenses.
Subsequently, in mid-February 2024, Nike (NYSE:NKE) joined the layoff bandwagon by shedding 1,700 jobs, representing 2% of its workforce. Citing plans to optimize growth opportunities, the sportswear giant reflected the prevailing trend of downsizing to rectify earlier excessive hiring.
With this impending era of layoffs, the question arises – who will be the next to scale down their employee base? The prospect of job cuts may spell good news for stock prices while potentially signaling tough times ahead for workers.
Fidelity National Information Services (FIS)
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Fidelity National Information Services (NYSE:FIS) has not been a rewarding bet for investors over the past five years, with its shares plummeting by 40% during this period, while the S&P 500 surged by 79%. Specializing in fintech services aimed at enhancing banking operations’ efficiency, FIS announced the completion of a sale, divesting a 55% stake in Worldpay, its payment processing unit, for over $12 billion in net cash on Feb. 1.
Despite this strategic move, the sale fetched Worldpay an enterprise value of $18.5 billion, less than half of the $43 billion FIS paid for it in 2019. While this divestiture streamlines FIS’s focus, the financial hit endured by long-term investors since 2019 is undeniably substantial.
To alleviate its financial position, FIS intends to utilize the proceeds for debt repayment and a $3 billion stock buyback in 2024. In Q3 2023, excluding its discontinued Worldpay operations, its adjusted earnings totaled $560 million, a 9% drop from the prior year, generated from $2.49 billion in revenue.
With a debt burden of $12.74 billion as of Sept. 30, 2023, amounting to around 30% of its market capitalization, FIS is undoubtedly striving to fortify its balance sheet. Moreover, for the first nine months of 2023, the company saw a 4% reduction in its selling, general, and administrative (SG&A) costs for continuing operations, amounting to $1.56 billion, potentially surpassing $2 billion for the entire year.
Considering its prior cost-savings initiatives, including a 2% reduction in its workforce – totaling 2,600 employees – in 2023, and its expenditure of $4.1 billion on SG&A costs in 2022, FIS appears to be steadfastly committed to optimizing its operating margin, potentially hinting at more job cuts in the offing.
Moderna (MRNA)
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Moderna (NASDAQ:MRNA) is currently navigating its transition from a Covid influencer to a conventional pharmaceutical entity. This shift predicates a reduction in its workforce, posing the looming question of the extent of this downsizing.
The company’s projection for 2024 revenue stands at $4 billion, trailing the analyst estimate by a whopping $2 billion and plummeting nearly 80% from the impressive $19.3 billion it amassed in 2022. In 2022, Moderna’s SG&A expenses totaled $1.13 billion, doubling from the previous year.
Although the company has succeeded in trimming its operational costs, the anticipated meager $4 billion revenue for 2024 indicates that cash hemorrhage would be inevitable. CEO Stéphane Bancel disclosed in a November interview that the company avoided internal workforce reductions by terminating ongoing contract manufacturing agreements, incurring a hefty $500 million expense.
While Moderna currently boasts over $7.5 billion in cash and short-term investments, this financial cushion may diminish rapidly if it continues to bleed $2 billion each quarter. As such, the company might be strategically biding its time until the first half of 2024 to assess its financial standing before contemplating workforce streamlining.
Mohawk Industries (MHK)
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