Cash-rich companies haven’t been immune to the market downturn

Alphabet (NASDAQ:GOOG) has plans to become 20% more productive — which could include budget cuts and layoffs.

Employees wanted answers — asking why they’re “nickel-and-diming employees” when “Google has record profits and huge cash reserves.”

It’s not a bad question. In the last 12 months, Alphabet generated $65B in free cash flow and ended the recent quarter with ~$120B in cash.

So why are they doing it? Two reasons:

1/ They expect business conditions to worsen. The ad market is going through a challenging period, with marketers cutting budgets on all fronts. With all that cash, they could certainly pay for some office perks without breaking the bank, right? This brings us to the next point…

2/ To satisfy investors. Earnings per share (EPS) is one of the most widely followed metrics. Investors don’t like it when EPS misses forecasts — and they certainly don’t like it when it goes down. How can they maintain the EPS if sales drop? By cutting costs.

Everyone is worried about a recession

Nobody knows how bad it’ll be and how long it’ll last, and everyone has been trying to find ways to cut costs in recent months:

• Microsoft asked employees to cut back on budgets, and Meta is cutting costs by at least 10%.
• Amazon slowed down hiring. The recent quarterly earnings report said it had 100,000 fewer employees than the previous.

The eight cash-rich companies in the above chart are down an average of 30% this year. The worst: $META (-60%). The best: $JNJ (-4%).

Per Jason Zweig of WSJ, investors sold off some of their best-performing stocks — which led to a “wave of selling” in quality stocks. He thinks:

• We’re near a point where we can “get quality in quantity.”
• “That point is finally getting closer, but we’re not there yet.”