Big Tech Stops Doing Stupid Stuff

The era of moonshots is (mostly) over. This year tech companies are taking a more earthly approach.

Stock charts both explain the change in boardroom sentiment and tell the story following an epic Covid-fuelled rise and fall. The tech-heavy Nasdaq fell 33% last year—its worst performance since 2008. Big tech, which spent the past several years spending on big dreams, is starting to think smaller. Last year more than 1,000 tech companies laid off employees, resulting in over 150,000 lost jobs, a tally by layoffs.fyi shows. It is an eye- popping number that could actually get worse: More than 23,000 tech workers have already been let go this year as of Jan. 13, the same tracker shows.

Many of these workers were newly hired under the mistaken assumption that booming pandemic demand would become the new normal. But a good percentage were legacy employees working on projects that, given today’s market environment, range from fiscally irresponsible to projects that fall well outside their parent company’s wheelhouse.

Meta Platforms and Amazon.com are the most high-profile examples, having cut a combined 29,000 workers so far. Meta is still reeling from an online advertising slump and the many billions of dollars that Chief Executive Officer Mark Zuckerberg is throwing at a new virtual world dubbed the metaverse. Amazon is coping with a retail slowdown in part by scaling back spending in unprofitable business areas such as its Alexa-controlled electronics products.

Meta Chief Technology Officer Andrew Bosworth said in an internal memo late last year that his company had “solved too many problems by adding headcount,” according to a recent newsletter published by the Verge. He reportedly added that headcount comes with overhead, which “makes everything slower.”

Despite its much-touted virtual ambitions, Meta said in a blog post last month that it is still devoting 80% of its total investment dollars to improving its own legacy business. In the Verge’s recent interview, Mr. Bosworth acknowledged that Meta is “changing our investment strategy” to the extent that some projects have to demonstrate value sooner to justify their high burn.

The ax also seems to be falling at the original moonshot factory: The Wall Street Journal reported that Google-parent Alphabet is laying off more than 200 employees at its Verily Life Sciences unit, plus another 40 at its robotics software company, Intrinsic. Both are part of Alphabet’s Other Bets segment, which racked up $5.9 billion in operating losses over the past four quarters while generating barely $1 billion in revenue.

Those cuts are unlikely to be the last at the Google parent, which added more than 30,000 new employees in the first nine months of 2022, even as its own advertising business started slowing.

Smaller tech companies are feeling the burn too. Redfin CEO Glenn Kelman told the Journal recently that if he could jump back in time 18 months, he would advise companies looking for profits to just “stop doing stupid stuff.”

He speaks from experience: The real-estate brokerage laid off 13% of its staff and shut down its automated home-flipping business late last year after deeming the operation too risky and expensive to continue. That followed a second quarter in which its so-called iBuying business had swelled to account for over 40% of its overall revenue. Channeling an old playbook for the new year, Mr. Kelman said in his company’s third-quarter report that Redfin “will have more cash and sell more properties” by focusing on its online audience and on better brokerage services.

Competitor Zillow gave up on its own iBuying business a year earlier than Redfin for similar reasons. It has since refocused on finding better ways to help its customers buy and sell other people’s homes. It is now using artificial intelligence to do such things as helping apartment hunters view available listings on New York City buildings they pass by and helping sellers generate floor plans for online listings based on photos. Zillow is also bundling its technology into an updated product to bolster traditional agents’ businesses.

A sector that has long worked to disrupt is now focusing on enhancing what already exists. In ride-share, Uber Technologies has now added taxi bookings to its platform in many cities, essentially feeding business to a competitor (but not without taking a small cut, of course). In Britain, Uber users can also book trains, buses and rental cars through its app. With Uber Explore, users across several cities can even book restaurant reservations and experiences.

Reinventing the wheel is so last year. The best tech investments of 2023 might be companies content to spend their coin greasing it.

Elon Musk’s SpaceX is set to make its stock-market debut Friday in the largest IPO ever—and perhaps the most closely watched. The company sold an outsized portion of the offering to individuals. Its performance on Friday will be a crucial gauge of investor appetite for mega-offerings from OpenAI and Anthropic expected later this year.

The rocket maker, which derives most of its revenue from its satellite internet unit and has a nascent artificial-intelligence business, will trade under the ticker “SPCX.” It sold 555.6 million shares at $135 each, raising about $75 billion in a deal that valued the company at roughly $1.77 trillion.

When will shares open for trading?

SpaceX executives are set to ring the Nasdaq’s opening bell in New York, but shares in buzzy initial public offerings don’t tend to start trading until later in the day.

Bankers leading an IPO typically want to match buyers and sellers for about 10% of the shares sold before opening trading to lessen volatility. For SpaceX, that would be about 55 million shares, or roughly $7.5 billion worth.

Because pre-IPO investors are restricted from selling shares for a while, it can take time to find willing sellers among those who bought shares in a high-demand IPO.

Shares of Alibaba , the largest U.S. IPO until SpaceX, opened for trading a little before noon in its 2014 offering. Last year, one of the highest-profile offerings was that of software maker Figma , whose shares started trading just before 2 p.m.

It is possible that SpaceX’s bankers will decide to start trading without matching the typical portion of orders to ensure the shares have several hours of trading on their first day, people familiar with the matter say.

How volatile will the stock be?

Bankers and traders expect SpaceX’s share price could be volatile in initial trading, thanks in part to the large portion of its shares expected to be held by individual investors. Some who anticipate individuals will rush into the shares worry they could just as easily get spooked and rush out.

Any sharp movement in stock price could trigger so-called circuit breakers that could pause trading. For most newly listed companies, a 10% swing in either direction prompts a five-minute pause. Companies that had their shares halted include Figma and Cerebras Systems , the chip company whose shares soared in its May debut.

These forced timeouts applied to single stocks came after the so-called flash crash in 2010, when the Dow Jones Industrial Average fell 700 points in eight minutes before recouping much of the loss.

What is all the talk about the ‘green-shoe’ option?

If the stock starts trading erratically, bankers have a secret weapon to attempt to calm things down.

Underwriters typically sell more shares to investors than an IPO’s total offer size, colloquially called the green shoe. In SpaceX’s case, they sold about 15% more shares than the stated offering size.

Because this means they technically allocated more than the offering amount, the so-called stabilisation agent, in this case, Morgan Stanley , needs to buy back the excess number of shares to deliver them. If the stock starts to fall, the bank will buy the shares in the open market, which helps buoy the stock price. If the stock isn’t faltering, the stabilisation agent can buy the additional shares they need to deliver to investors directly from the company.

The term “green shoe” comes from the first company to employ a version of this method years ago, a shoemaker that was a predecessor to Stride Rite. When Meta Platforms , then known as Facebook, went public in 2012, its shares started dropping and its bankers stepped in to buy more shares.

How will Elon Musk’s take-it-or-leave-it pricing fare?

Like all things Musk, SpaceX’s IPO bucked the norms. Instead of approaching prospective investors with a possible price range for shares ahead of the IPO and incorporating their feedback, the company set an exact share price from the beginning: $135.

The idea was to limit drama for what is already the biggest IPO of all time. It did, however, remove what many see as an important step along the way: price discovery. The success of this approach will partly be judged by how SpaceX’s shares trade Friday. If the stock surges, critics will say SpaceX left money on the table by not pricing shares higher. If the stock falls or trades flat, there will likely be critiques that SpaceX and its advisers overestimated demand.

Will the machinery hold up—and what will be the wider market impact?

The sheer size of SpaceX’s IPO will test the trading infrastructure at Nasdaq and could have ripple effects in the broader market.

Nasdaq has practiced with mock openings to make sure its trading platform is prepared. When Facebook went public, some investors who tried to change or cancel orders ahead of trading didn’t get confirmations because of a technology malfunction. The confusion contributed to Facebook shares dropping on the first day of trading. They didn’t return back above their IPO price for more than a year.

Meanwhile, some market watchers expect added activity Friday in stocks that individual investors might sell to buy SpaceX shares, such as those of technology companies and Musk’s electric-car maker Tesla . Such sales already appeared to be under way earlier in the week, when individual investors dumped single-stock holdings on a net basis for two days in a row, according to Vanda Research. (To be sure, those sales came on days that were poor showings for tech stocks broadly.)

It will take several days for SpaceX shares to show up in any major index funds , so the offering’s wider impact on the market could play out over the next several weeks or longer.