The latest company to surge after announcing job cuts is Zoom (NASDAQ:ZM). Shares of ZM stock are up roughly 7% today after the company announced layoffs. About 1,300 employees are expected to be let go, or around 15% of Zoom’s workforce. That will lead to marked reductions in costs for Zoom moving forward.
Like other competitors who have announced significant layoffs in recent months, the rationale for these job cuts are roughly the same. Essentially, Zoom scaled up too quickly following the pandemic. This led to a cost-heavy business model that has weighed on its financials. Thus, seeing other peers trim headcounts while maintaining profitability has given companies like Zoom the ability to become more productive with existing resources. Or, so the belief goes right now.
Notably, Zoom’s founder and CEO Eric Yuan is also taking the company’s previous over-hiring mistakes seriously. He has cut his pay by 98% and eliminated his bonus for the year, clearly empathizing with the employees he was forced to lay off.
Let’s dive more into what investors may want to make of this news today.
Zoom Layoffs Result in Surging Stock Price
Personally, I think it’s important to touch on the fact that Zoom’s CEO and founder is taking full responsibility for cutting jobs. Instead of putting the salary savings in his own pocket, he’s signaling to existing employees that it truly was a painful decision. Indeed, this sort of action isn’t common in corporate America, although it should be.
The CEO’s pay cut aside, this significant layoff should considerably improve Zoom’s financial position. The video conferencing company is profitable, but investors will likely want to see sustainable earnings growth over time. By ensuring its productivity metrics are in order, Zoom appears to be setting up for a prolonged period of profitable growth. That’s something long-term value investors are going to like.
We’re no longer talking about the pandemic. Any sort of tailwinds provided by the pandemic are now gone. Thus, Zoom is making it clear that looking forward to the future is the only way to go. This strategy to makes sense, particularly when the company’s CEO is taking the medicine as much as his employees.
On the date of publication, Chris MacDonald did not hold (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.