Wednesday's Headlines: Microsoft to Lay-Off Hundreds of Workers

Wednesday's Headlines: Microsoft to Lay-Off Hundreds of Workers

Here were the biggest movers in the MyWallSt shortlist yesterday:

Moving Up ⬆️

StoneCo (STNE) 8.1%

Chegg (CHGG) 4.6%

Twitter (TWTR) 4.3%

The Trade Desk (TTD) 3.8%

Peloton Interactive (PTON) 3.7%

Moving Down ⬇️

ServiceNow (NOW) -12.7%

Atlassian (TEAM) -8.7%

Paycom (PAYC) -7.2%

Evolent Health (EVH) -6.9%

Cloudflare (NET) -6.6%

 

Here are the stories that you need to know ahead of market-open today, Wednesday, the 13th of July.

 

Microsoft to Lay-Off Hundreds of Workers ✂️

Another week, another mass tech lay-off — this time, its Microsoft (MSFT) in the hot-seat.

Yesterday, Bloomberg reported that the tech giant was planning to lay off just under 1% of its 180,000 global workforce, which means that as many as 1,800 employees could be affected. Microsoft later confirmed that it was “realigning business groups and roles”, with a wide spread of teams and geographies affected. Microsoft stock fell some 5% on the news.

In an emailed statement, the company said: “Today we had a small number of role eliminations. Like all companies, we evaluate our business priorities on a regular basis, and make structural adjustments accordingly. We will continue to invest in our business and grow headcount overall in the year ahead.”

This news comes less than two months after the company announced that it would be slowing down hiring amidst wider economic and global uncertainty. Despite reporting strong earnings for its last quarter, Microsoft was forced to revise its revenue and earnings expectations for the current quarter last month.

More broadly, Microsoft has become just the latest company in the tech sector to lay-off staff as economic conditions become more uncertain, with the likes of Twitter, Tesla, and Coinbase all laying off significant numbers of staff in recent times.

Microsoft will report its fourth-quarter and full-year earnings for fiscal 2023 later this month, so we’ll be keeping an eye on this for further details.

 

Peloton Outsources Its Manufacturing 🚴‍♂️

Embattled exercise equipment maker Peloton (PTON) has announced plans to outsource all of its in-house manufacturing to Taiwanese company Rexon Industrial.

Peloton already had a relationship with Rexon for the past number of years and it will now become the company’s primary manufacturer. This means that Peloton is also set to close its own Taiwanese facility — Tonic Fitness Technology — which it purchased just under three years ago for close to $45 million.

According to CEO Barry McCarthy, “we believe that this along with other initiatives will enable us to continue reducing the cash burden on the business and increase our flexibility.” McCarthy, a former Spotify and Netflix executive, was brought into the company in February to oversee a radical shift in Peloton’s strategy following a dire couple of quarters post-pandemic.

Changes to the company’s supply chain and cost structure have been high on his agenda, with McCarthy viewing Peloton as more of a subscription business than a manufacturing company. While this move certainly appears to be a step in the right direction, it’s likely to be a difficult one that could come with a significant cost.

Peloton has so far not released any information on how this will affect the company financially, nor has it outlined how this affects its purchase of U.S. equipment manufacturer Precor for $420 million in late 2020.

With Peloton down 73% this year and over 94% from all-time highs witnessed during the pandemic, perhaps drastic measures such as this are exactly what the company needs to reverse its fortunes.

 

ServiceNow Sounds the Alarm 🔔

Software giant ServiceNow (NOW) fell 13% on Tuesday after an appearance by CEO Bill McDermott on CNBC’s Mad Money with Jim Cramer. During the interview, McDermott highlighted the upcoming challenges for businesses and shifting macroeconomic conditions. His views were anything but picturesque.

McDermott listed 41-year high inflation, the strength of the dollar, rising interest rates, and the war in Europe as drivers of poor sentiment among management teams and consumers. According to the CEO: “You’re going to see the headwind of the dollar right now against well-known technology brands. No one’s going to outrun the currency right now.”

McDermott also stated that these conditions will drive an elongation of sales cycles in Europe, which is sure to disappoint any investor seeking quick revenue.

Analysts at the investment bank Stifel updated their comments on ServiceNow in light of McDermott’s views, believing the company is likely to lower its full-year guidance in its upcoming quarterly call.

However, it's worth mentioning that McDermott intended the comments as a reflection of the entire industry, not just ServiceNow, which has been quietly chugging along the last few quarters without any negative company-specific news.

ServiceNow is a cloud-based solution for IT service management. It helps large corporations oversee and automate workflows for tech-related incidents that disrupt operations. Simply put, ServiceNow ensures that when things go wrong, the correct technician responds quickly. While it may appear dull, the company is very good at what it does.

ServiceNow can count 80% of Fortune 500 businesses as customers and commands a 99% retention rate. So, while current macroeconomic conditions may take a bite, ServiceNow is mission critical for many businesses.

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