Layoffs are, without a doubt, no fun. Massive rounds of layoffs in companies create significant stress and anxiety, and can be expensive to implement with severance costs and payouts that accompany such moves. However, layoffs can be positive in the long run as they help companies become leaner, more nimble, and adjust to the economic realities of the day. Many companies across corporate America ended 2023 and began 2024 by announcing big headcount reductions. Most of these companies found the layoffs were necessary due to overstaffing during the pandemic. Emerging from the Covid-19 crisis, they found themselves with too many employees on their payrolls. As inflation and the interest rates used to tame it have risen, companies have felt the need to optimize their workforces and ensure they are positioned for the coming year. Here is the 2024 refresh: three stocks with new potential after layoffs news.
Amazon (AMZN)
E-commerce giant Amazon (NASDAQ:AMZN) announced at the start of January that it was cutting hundreds of entertainment jobs at its film and television studios, as well as its videogame-streaming platform. Notably, Twitch, the video game platform owned by Amazon, announced a cut of just over 500 jobs. In an email to staff, Amazon added that: “We will be eliminating several hundred roles across the Prime Video and Amazon MGM Studios organization.”
The round of layoffs announced at the start of this year come after Amazon cut 27,000 jobs in 2023 as it moved to get costs under control following the Covid-19 pandemic. The new round of cuts also comes as Amazon modifies its Prime streaming service, raising prices and adding advertisements to the platform. Weeks after announcing the new round of job cuts, Amazon achieved its best quarterly financial results in more than two years. As of now, AMZN stock is up nearly 20%, bringing its 12-month gain to 88%.
Spotify (SPOT)
In December, right before Christmas, music streaming service Spotify (NYSE:SPOT) shocked markets by announcing a massive layoff encompassing 17% of its global workforce. The Swedish-based company said it is reducing workforce to decrease costs and adjust to slowing subscriber growth. In an email to staff, CEO Daniel Ek said that Spotify was taking “substantial action to right size our costs,” adding that the company took on too many employees in recent years.
The headcount reduction worked out to roughly 1,500 jobs. The layoffs come after Spotify reported a $70.7 million profit in the third quarter of last year, which was due almost entirely to lower spending. Spotify also raised prices for its monthly subscriptions and has expanded into podcasts and audio books. The company previously cut 8% of its workforce earlier in 2023. While no doubt difficult, the job cuts enabled Spotify to issue strong forward guidance in February. SPOT stock is up 40% so far in 2024.
Nike (NKE)
Last but not least, we have Nike (NYSE:NKE). In mid-February, the sneaker and athletic wear giant announced plans to cut 2% of its global workforce, more than 1,600 jobs, to lower expenses amid what it referred to as weak demand. Last December, Nike announced a $2 billion cost savings plan over the next three years as it reported disappointing earnings. The cost cuts call for reducing management positions and about $450 million in employee severance costs.
The cost cuts and headcount reduction come after Nike warned that retailers are lowering their orders for its sneakers and athletic apparel through wholesale channels, and that it continues to be impacted by an economic slowdown in China, its second largest market worldwide. Nike has also lost ground to upstart brands such as Deckers Outdoor (NYSE:DECK) Hoka running shoes. Nike had 83,700 employees globally last summer. NKE stock is down 16% over the last 12 months, including a 4% decline this year.
On the date of publication, Joel Baglole held a long position in DECK. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
