The Tech Layoff Parade Begins and Fiscal Spending
Companies mentioned: Unity Software (U); Paylocity (PCTY); Google (GOOGL); Paycom Software (PAYC); CoStar Group (CSGP); Snowflake (SNOW)
Back in September we wrote that the next big round of Tech company layoffs would occur in January as earnings season approached. Unity Software (U) plans to reduce headcount by approximately 1,800 employees (25% RIF). Tech earnings kick off during the second half of this month and we expect companies to further reduce headcount given the combination of elevated interest rates and macro uncertainty.
Google (GOOGL) may execute a 30,000 employee RIF and will likely report earnings on February 1st or 2nd.
Headcount reductions will cut into revenues for payroll software providers / Human Capital Management companies whose commercial agreements / revenue models are in part leveraged to the number of customer employees. Paylocity (PCTY) is one such company. Paycom Software (PAYC) is another.
CoStar Group (CSGP) will reduce headcount as the company gives conservative 2024 Revenue guidance when it reports on February 20th. A weak CRE Office market is a story that will be covered by more media outlets as 2024 progresses.
As cloud growth continues to slow (as we said it would), expect cloud giants such as AWS to squeeze partner companies such as Snowflake (SNOW), which will force the latter to reduce headcount.
Regarding the recent fiscal spending $1.7 Trillion deal, that enormous amount of money (yet to be printed) will go to fund only a portion of the Federal Government. Fiscal spending is up 17% year-to-date. At that pace the U.S. may spend more than $7 trillion in fiscal 2024, which would result in a deficit between $2.5-3.0 Trillion (which means Treasury yields will have upward pressure in Q4). The Dollar’s purchasing power will continue to decline. Gold is a far better store of value than the U.S. Dollar.