-+undefined NaN%
-+undefined NaN%
-+undefined NaN%

Tech Workers Are Driving Higher Sales. And the Layoffs Keep Coming. -- Barrons.com

Barron's · 01/06/2023 02:00
By Teresa Rivas

Big tech companies took a stock market beating in 2022, and many reduced head counts as they scrambled to lower costs. Several more rounds of cuts made headlines this week.

The result is that revenue per employee keeps climbing for many tech companies -- an upbeat development -- even as investors remain dubious about the industry.

Barron's looked at 11 big tech companies: Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOGL), Nvidia (NVDA), Telsa (TSLA), Meta Platforms (META), Broadcom (AVGO), Cisco Systems (CSCO), Salesforce (CRM), and Netflix (NFLX). All but three -- Amazon, Cisco, and Salesforce -- are projected to have 2023 revenue per employee eclipse 2019 levels. All 11 are on track to see revenue per employee climb year over year in 2023.

That includes a 124% increase in sales per employee at Telsa, when comparing 2019 to 2023 estimated top-line results, and a nearly 47% increase at Nvidia. Salesforce was the only company that's expected to notch a decline of more than 1%, at 3.8%.

Since each worker on average will likely deliver more sales for a company in 2023 than they did in 2022, the figures might make some question the decision to let so many employees go so early in the cost-cutting process.

On the other hand, if employees keep getting more efficient, tech companies may feel like they don't need as many to keep sales growing, particularly if the rate of that growth slows from recent years' blistering pace.

We used calendar years to smooth out differences between fiscal years for 2019 revenue and estimated 2022 and 2023 revenue. It's still not a perfect apples-to-apples comparison however, as the most recent publicly available head counts vary by date. They don't necessarily reflect the most recent rounds of downsizing.

Yet if anything ongoing layoffs announced after the latest official head count that shrink a company's overall worker pool would increase potential revenue per employee, as we used current consensus top-line estimates as of Thursday. These figures already reflect the big cuts that analysts have made to their expectations in recent months.

In fact, analysts estimate that all 11 companies will see sales increase from 2022 levels this year. It goes without saying that consensus Wall Street estimates place 2023 sales for all 11 companies well above what they recorded in 2019.

Of course there are a few important caveats to keep in mind. Revenue doesn't always translate into profit, a fact that's often evident in the tech sector. Moreover analyst estimates are subject to change and could fall further, changing the revenue to employee ratio. Nor would many investors would use revenue per employee as their first metric of choice when deciding between stocks.

Nonetheless it is telling that for all the doom and gloom surrounding the tech sector, business is still humming. Employees at big firms -- including many of those pushing to be able to work remotely or balking at 80-hour workweeks -- are generating higher sales for their companies, and overall sales aren't expected to shrink.

Cynics would argue that it's easier for executives at the top with the biggest salaries to make cuts elsewhere, although it is worth noting that the market rout did lead to some high-profile exits in tech.

Still, further slashing the rank and file may not necessarily be the best way for the sector to find its way out of the woods.

Write to Teresa Rivas at teresa.rivas@barrons.com

(END) Dow Jones Newswires

January 06, 2023 02:00 ET (07:00 GMT)

Copyright (c) 2023 Dow Jones & Company, Inc.