🤖 Twitter's riff proves big tech is overstaffed - lean-opex reset ahead

“But triage does not work in a bull market. You don't get rewarded for triage in a bull market.”

“And it just gets back to this culture of flattening the organization, speeding up the organization.”

“And let's just say we can all agree out of all the companies, right? There's only one contender to Zuck getting fit, right? Getting that company fit, getting himself fit is Elon. 75, 80% of the people gone in product velocity is on fire at Twitter.”

“My base thesis right now is that the job freezes, the hiring freezes at all these companies is indefinite.”

“And, you know, after seeing what Elon did at Twitter, where he reduced the staff by 80%, I'm like, I realize there's no good excuse anymore for not giving yourself the maximum chance of survival.”

“This is the truth here, I think, that representatives have. 30% more efficiency means Google, Facebook and many other companies, finance, education. They do not add staff every year. They just get 30% more efficient every year.”

“They've got a large cushion in terms of their ability to continue generating earnings because of all the bloat that actually gives them like a margin of error where they can just keep cutting to prop up earnings.”

“People are just saying, you know what? We're going to cut our way to and do stock buybacks. And that's another way of financial engineering to route around the Fed, right?”

“Like it doesn't take a CEO change for a board of directors to have the emotional wherewithal to authorize a 15 or 20% reduction in force for a company that is so profitable, that clearly is not yet humming on all cylinders.”

“in contrast to Metta being up 11, 12 percent after hours with their cost cutting model and demonstrating that they're going to start pulling cash out of this business.”

“And it's probably, you know, sort of 50 percent headcount reduction. That's probably the the bound in which things break.”

“And the thing that I took away from it was just how much agency, you know, CEOs have that they're not using.”

“And I think it's a really important change because I think it breathes new productivity into all these businesses.”

“And so, Facebook now, you can credibly see a path where Facebook could chunk out hundreds of billions of dollars of total shareholder value returned over the next four or five years. And so, for value investors, it's somewhat of a kind of a no-brainer. I mean, nothing's a no-brainer, but really, really attractive value fundamentals right now.”

“And they're up to, I actually bought it based, the day they had the layoffs, I put in a buy order and it was closed at $94 and now it's at 193”

“And they basically started doing some rifts and basically just getting much more efficient in what they're doing and specifically taking out layers and layers of middle management. I mean, that was really the big thing. So they kind of took a page out of Elon's book in terms of what Elon had done at Twitter.”

“I bought it at 94, it's at 117, it's one of my best J-Trades.”

“I think that every CEO who responded to the regime change by cutting costs, getting leaner, extending runway, I think deserves to be on this list.”

“And two, all these rifts basically show what the efficient frontier is for the number of employees you need to run a company. And if you can cut 50% of the headcount, private equity folks will do that.”

“I had said that there could probably be a significant headcount reduction of like 75% at Google, and the business could keep operating.”

“I think Friedberg's right that these companies could operate a lot more efficiently.”

“And if they did just that, if they added that one disciplinary capability, then I think this, as you said, the market cap would go up by $600 billion.”

“I mean, if you sensitized it to what you said, David, if it was just 75 or a half that number, then the stock goes up 35% overnight, and if it goes up to the full number, the stock goes up 65% overnight.”

“When you're throwing off almost a billion dollars in free cash flow, people are going to perceive that business maybe as of this cohort, the flight to safety, right?”

“Meaning, if Google did it, I think that people really trust Sundar and Ruth, and I think the stock would go bonkers. They would probably move very quickly into the echelon of Apple, and Apple is sort of a first among equals.”

“The point Friedberg makes is so correct, which is, if you're doing a RIF, obviously there's a reason why, but I think we're seeing too many RIFs where the details of the RIF and the magnitude of the RIF don't match up with what the objective of the RIF is.”

“And so, you know, the 10, 13 percent cuts don't really pass muster. As a public market investor kind of looks at the management across these different companies to turn a profit, they're going to say the folks that are making the deepest cuts the fastest are the ones that are going to get valued.”

“You've doubled the number of people working in the business over the last few years, right? There's nothing magical about 10%. The real question is, what is the optimal number of employees to produce the best outcome for our customers and our advertisers?”

“And so Google is slowly inching towards that plan. Microsoft is in that plan. And so the only big four horsemen that hasn't really gotten the script yet is Metta, but they will. It's just we're just debating when.”

“From a financial perspective, there is $10 a share in OpEx cuts that he should make right away just so that he is economically break even and he looks like every other M&A transaction.”

“At the very least, it'll be an interesting thought experiment for spectators, because if he does go in and actually does significantly reduce OpEx and headcount and the company does turn profitable and he can grow it, well, it'll really, by the way, it'll really be a beacon for the financial big companies.”