The hiring spree we saw many tech companies including DraftKings (NASDAQ:DKNG) undertake following the pandemic has sharply reversed. News of DraftKings layoffs today is the latest in a string of reorganizations across this sector. Interestingly, as with many other companies that have gone this route, DKNG stock has seen some notable appreciation following this move.
Shares of the online sports betting company surged 3.5% higher this afternoon, ahead of a key Federal Reserve interest rate decision meeting. Investors appear to like the company’s move to do targeted cuts, trimming its workforce by only 3.5%.
This announcement coincides with other similar moves made at FedEx (NYSE:FDX) and Rivian (NASDAQ:RIVN) today. Both companies are enacting relatively small cuts, in a bid to boost operational efficiencies.
Let’s dive into what investors may want to make of this news.
DraftKings Layoffs Lead to Stock Surge
Investors appear to be giving tech companies a green light to undertake layoffs. Indeed, the positive reaction many stocks have had to layoff announcements is interesting to assess. On the one hand, the cheering for layoffs by investors can certainly seem dystopian. One might think that a company acknowledging it can do more with less is an admission its business model needs work.
However, investors seem to be taking the view that over-hiring is a phenomenon that’s taken place in most corners of the market. For tech companies, perhaps this issue has been more prevalent. Thus, trimming costs and improving operational efficiencies is something that the market is cheering for right now.
The ultimate effect that a layoff of only 3.5% of DraftKings’ workforce will have remains to be seen. Indeed, this is among the smaller cuts seen in the tech sector thus far.
That said, investors appear to like the signal this move provides today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.