More Layoffs, Acquisitions, and SpaceX Becomes AI Company

**Travis Hoium** (0:02)
Is there a new problem with the layoffs in tech? Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium, joined today by Lou Wyman and Emily Flippen.
And we are going to get to the hot topic of the day. That's the SpaceX IPO and the acquisition of Cursor that was officially announced this week. But Emily, I wanted to start with some of the layoff news around the market, around technology companies. We had Rivian announce some layoffs this week. We had Robinhood announce layoffs. And the other big thing is Meta's layoffs, which was, I think, 8,000 people over the past couple of weeks, kind of a rolling layoff that they've had, seems to be hitting their culture. Now, we're investors. And so we're looking at this from an investment standpoint. Typically, layoffs have kind of been cheered over the past few years because it's cost-cutting, companies are going to be more profitable. But it seems like, especially at a company like Meta, we're starting to see the downside that, hey, if that comes at the cost of your culture and people actually wanting to work for you long term, maybe this isn't the right strategy. So how in the world should we think about some of these layoffs as they're announced?

**Emily Flippen** (1:10)
Well, I'm just feeling shocked that Meta is still claiming to have a culture after all of these years with the number of directions that Zuckerberg has taken that company. I'm shocked that anybody at the company still feels like there's a cohesive culture. So I understand the complaints there. But there's no doubt that layoffs, of course, reduce morale across the board. Nobody likes to see their friends, their coworkers lead the company. Nobody likes to feel like their own livelihood is threatened. But what I think is really interesting about this dynamic is that, to your point, this is really only a recent development, the idea of layoffs being cheered. I mean, prior to like 2022, the market really didn't like layoffs. I mean, it usually meant a slower economy, less people employed. But after this pandemic, the narrative has really shifted. I think the narrative has become layoffs, a DUSAF-like lower inflation, which of course everybody is concerned about. They also boost earnings even temporarily for a company.
That's all coming after what many perceive to be over hiring that took place during and post-pandemic throughout 2020 to 2021
There's actually been some research about this that I think is really interesting and reactions do of course, and should, I mean, significantly change from company to company.
But on average, layoff announcements do tend to be followed by poor stock returns for the companies that announce layoffs. And I think that, yes, culture has a part to do with that, Travis, but it might be interestingly enough just that layoffs actually really produce less cost savings than a lot of people assume. So you have the moment of being like, oh, maybe we're going to see a bump in EPS next quarter, but then it's followed by months and years of bad feelings and earnings.

**Travis Hoium** (2:42)
It's like synergies when you make an acquisition.

**Emily Flippen** (2:44)
Exactly.

**Travis Hoium** (2:44)
Lou, it does seem like one of these things that's really new is, hey, we're announcing layoffs, but we're doing it from a position of strength, and that's supposed to be the buzzword. That was what Robinhood said this week. Hey, we don't really want to do this, but we have a great business, a great balance sheet, lots of profits, and we want to make sure that, I don't know, we're getting ahead of what could be coming down the pipeline. It seems like an odd position.

**Lou Whiteman** (3:10)
It is.
I'm going to state the obvious here, but I think it needs to be stated because of some of what the companies say. Layoffs happen for a reason, and that reason normally isn't good. It's sometimes an external reason, sometimes internal. Like you can make the case that right now it's happening because AI gives them cover, maybe, so it might not be a warning sign. But there are very few CEOs out there who are going to just do layoffs for fun. If you were cutting people, it's probably because you see something. As Emily said, the reaction, the positive reaction is relatively new and it's far from universal. Just this week, we've had companies doing layoffs where some it was cheered and some it wasn't. It's not a universal thing.
Here's the thing, though, at the end of the day, the market is always forward-looking. Layoffs, I take as a sign that things aren't going as well in this moment as they could be. But since I'm trying to invest in the future, the question is, does this position the company for success in the future? Rivian is one we talked about earlier in the week. Rivian, things are not going well today. They are doing layoffs because they need to save cash. But if they work, it could make them a better investment. So it's very nuanced. I mean, we never invest on, or we hardly ever invest on just the conditions today.