Like many top technology companies, Block (NYSE:SQ) is in efficiency mode right now. Most recently, the company announced that it will begin reducing its headcount by around 1,000 employees — or as much as 10% — over the year in a bid to return to profitability. Notably, SQ stock has continued to trade lower in today’s session, down by more than 1% this afternoon.
CEO Jack Dorsey hasn’t been shy about outlining the issues plaguing Block. Aggressive hiring during the pandemic led to an influx of talent to the company, which bolstered its previous growth rate. However, Dorsey previously noted that the company’s employee growth has “far outpaced the growth of our business and revenue,” signaling that cuts would be coming in 2024.
With Block now confirming that the layoffs are beginning, it’s clear that management is intent on following through on its word. Let’s dive into what this announcement means for investors and why SQ stock is down today.
Why Is SQ Stock Down on News of Layoffs?
Investors may notice that there has been a wide range of market reactions to different layoff announcements. For large-cap tech companies, the reaction is usually positive. That’s because reducing the headcount in areas that may be considered outside of the scope of a company’s core cash-producing business can boost profitability in the near term.
Today’s decline in SQ stock appears to be tied to a rather vicious selloff among many tech stocks, with the Nasdaq down 0.8% at the time of this writing. Block isn’t big enough to significantly impact this move, so it’s clear that some broad-based selling is at least partially responsible for this market response.
Over time, headcount reductions like this one may prove positive for investors. However, there will likely be an impact to Block’s top-line growth numbers. Accordingly, perhaps some pushback from growth investors is at play today, given this strategy of intense bottom-line focus over long-term growth.
When it comes to the Block layoffs, I think this move should be reviewed over time. These headcount reductions are expected to take place gradually over the course of 2024 and I anticipate that Block will be thoughtful about how and where it cuts. That said, today’s reaction seems reasonable and SQ stock will remain one to watch in the coming weeks and months.
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.
