What happened
Shares of Zoom Video Communications (ZM -0.14%) were trading calmly until about 12:20 p.m. ET when they suddenly soared. The company announced that it was laying off workers and Zoom stock was up about 10% within 30 minutes. As of 1:30 p.m. ET, it had come back down somewhat, only trading about 5% higher for the session.
So what
Zoom is following in the footsteps of many tech companies in recent months by laying off 15% of its workforce. In an official company blog post Tuesday, founder and CEO Eric Yuan said, "We need to take a hard -- yet important -- look inward to reset ourselves so we can weather the economic environment, deliver for our customers and achieve Zoom's long-term vision."
Yuan is cutting his pay and that of management. For his part, Yuan's pay is dropping 98% and he's forgoing his bonus for the year. Other executives will see their base salaries cut by 20% and will also forgo their bonuses.
Now what
Zoom is scheduled to report financial results for the fourth quarter of its fiscal 2023 on Feb. 27. When the company reported third-quarter results, it guided for a roughly 2.5% year-over-year increase for Q4 revenue. Moreover, Zoom is consistently profitable. Therefore, with modest forecast growth and ongoing profits, one wouldn't think Zoom needed layoffs of this magnitude.
For this reason, I don't share the market's optimism for Zoom on today's news. Yes, laying off employees and reducing salaries can boost profits. But the move seems to indicate that Q4 financial results will perhaps be below expectations, setting up a challenging year in fiscal 2024.
However, shareholders won't know for sure if this is the case until later this month.
