Layoffs are still a good thing in corporate America
4h ago · By Chris MacDonald, InvestorPlace Contributor
- Shares of Lyft (LYFT) stock are up 1% in today’s session.
- This move follows news of significant layoffs among the company’s corporate employees.
- Drivers won’t be affected, but 26% of all back-office workers will be packing up.
Companies are now being rewarded for cutting back on costs and improving efficiency. Unfortunately, for many workers, that means layoffs. And Lyft (NASDAQ:LYFT) has been on our radar in the past few days as a company poised to cut jobs. Today, those Lyft layoffs materialized, with the ride-hailing company announcing that 1,072 employees would be laid off. This accounts for roughly 26% of Lyft’s corporate workers.
That’s better than the 1,200 workers initially expected to be impacted by these Lyft layoffs. However, it’s still a considerable cut and suggests that Lyft is among the companies that ramped up hiring way too fast in the wake of a growth-driven hiring spree.
These cuts will focus only on back-office jobs, with the independent contractors hired as drivers likely to remain on the books. Thus, from an operational perspective, there’s likely to be little impact on users.
With that said, let’s dive into what to make of this news today.
Lyft Layoffs Lift LYFT Stock
With companies increasingly focusing on profitability over growth, we’re likely to see more job cuts on the horizon from Lyft’s peers. These rather widespread cuts on the company’s more expensive workers should bleed through to better numbers in the coming quarters, with the stock rising more than 1% on the news.
Now, Lyft may take a near-term hit due to these moves in its next earnings report. Layoffs aren’t cheap, and there will undoubtedly be a charge associated with this move that the company will have to take in its upcoming earnings report. However, investors appear to be okay with the tradeoff today.
We’ll have to see how these job cuts affect Lyft’s front-end services, if at all. If the company can run leaner and meaner, this could mean a faster path to profitability. However, if these cuts stunt growth, we could see shares continue downward as investors look to competitor Uber (NYSE:UBER) for growth in this duopoly of a market.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.