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Tech stocks: PayPal set to lay off 7% of employees, Snap braces ahead of Q4 earnings

Yahoo Finance reporters Allie Garfinkle and Allie Canal join the Live show to discuss the latest outlook for tech stocks amid earnings season, including how leaders in online advertising are repositioning themselves in the space ahead of 2023.

Video transcript

DAVE BRIGGS: Let's get you up to speed now on the tech industry. The wave of layoffs continuing. Yeah, McDonald's.

SEANA SMITH: I liked it. I like [INAUDIBLE].

DAVE BRIGGS: Yeah, digestion joke. All right, cheesy.

Continuing now with PayPal joining the list. The company announcing it's letting go of 7% of its employees. Here now with what we can expect we have the Allies, Allie Canal and Allie Garfinkle. I've been working on ideas, names. Like "Allie Oop" I think is where I settled.

ALEXANDRA CANAL: "Allie Squared." I like "Allie Oop," though.

DAVE BRIGGS: "Allie Squared."

SEANA SMITH: "Allie Oop" is a little-- it rolls off the tongue a little bit.

DAVE BRIGGS: "Allie Oop" I kind of like.

ALLIE GARFINKLE: There's a simple elegance to it.

DAVE BRIGGS: We can have a Twitter poll, and we'll decide. Nice to have you both here in studio. We'll start with this Allie on the PayPal layoffs continuing throughout the tech sector.

ALEXANDRA CANAL: Just another example of this trend that we continue to see. PayPal confirming that 7% reduction in staff, which translates to roughly 2,000 employees, and the cuts will take place over the coming weeks.

Now, shares of PayPal did touch session highs on the heels of this news, climbing as much as 3.5%. Shares are currently up about 2% at the moment.

But like I said, we've seen this story before, a surge in layoffs after a period of really high personnel spend, heavy investments during the pandemic. So that's trend number one surrounding this earnings season.

And then trend number two is that unfavorable macro environment-- a hawkish Fed, a pullback in spending, and probably most important heading into this week in particular, that advertising slowdown still very much in the background. We've heard from several companies that advertising is still an up-and-down story. Spotify saying this morning the ad market is still uncertain.

And coupled with that, Cowan actually published a survey earlier this month that showed online ad buyers expect their spending in 2023 to rise just 3.3%, which is the softest ad-growth outlook in five years.

So for companies like Snap, companies like Google, whose businesses really rely on advertising, that ain't good, and that's just a trend that's weighing on earnings, weighing on guidance moving forward in the tech industry.

SEANA SMITH: Yeah, it certainly has. And, Allie, I know you're digging into the Snap results, what we're expecting to see here in just under an hour from now. That ad spending is going to be front and center here because we know last quarter, it was pretty ugly when it came to Snap.

ALLIE GARFINKLE: Yeah, and front and center doesn't even actually begin to describe it. When I was looking at Snap's figures, something became really clear to me, and it's that Snap's revenue is ad revenue.

Here are some staggering numbers for you guys. In 2021, 2020, and 2019, advertising revenue accounted for between 99% and 98% of Snap's total revenue. So this time last year, Snap was describing its advertising business as seasonal and volatile.

So the stakes are high. They're uncertain. And in the company's last earnings call-- Snap is aware of this, right? In the company's last earning call, CEO Evan Spiegel talked about needing to diversify, needing to have other sources of revenue. However, we'll see if they can actually do that.

In that earnings call, what he talked about was efficiency, ROI. What he said, essentially, was "To achieve this, we're driving-- we're investing in driving scalable, lower-funnel performance for our advertising partners and making improvements to our ad platform." So in about an hour-- less now, we'll see if they've started to deliver on that.

Second thing to remember is TikTok. We've talked about on this show quite a bit. Analysts are really worried about the competition from TikTok, and I think I wouldn't count them out. Despite all the talk about bans, I wouldn't count them out by any means at all as a competitor to Snap because the reality is Gen Z is TikTok's demographic. Gen Z is Snap's demographic.

DAVE BRIGGS: No question. Here's where the "Allie Oop" comes in. She puts it up in the air. You slam dunk it--


DAVE BRIGGS: --and add to it.

ALEXANDRA CANAL: I want to pick up on something you said, which is the word efficiency. And this is going to be the million-dollar word on all of these earnings calls. On Spotify this morning, if I had a penny for every time CEO Daniel Ek said the word efficiency, I'd probably have about a quarter, but that's where all of these tech companies are going towards, right? This growth at all costs strategy, it doesn't fly anymore on Wall Street.

They had to spend a lot in order to keep up. They can't really do that anymore. They need to curb their expenses, and that's not just on the headcount front. I think they're looking at their products. They're looking at their brands. They're looking at everything within their companies to see where they could trim costs because that's what they need to do amid this unfavorable environment. So that's something to look out for, I think.

SEANA SMITH: And they certainly do need to cut costs. That's going to be in focus here with Snap. We know Snap was one of the early ones in terms of trimming their headcount so significantly. So I think analysts are asking whether or not more cuts are likely on the table and what exactly that will look like.

"Allie Oops," thanks so much. I like it.

DAVE BRIGGS: We can work on it.


ALLIE GARFINKLE: I like it. I like it. I like it. Let's do it.