Since the Federal Reserve started raising interest rates and slowing the economy last year, tech companies and their investors have been on a wild rollercoaster ride. But this month, some big local players have started to demonstrate that they can thrive even in a slower-growth economy.
The key takeaway in first-quarter earnings reports over the past week has been companies including DraftKings, Wayfair, HubSpot, and Toast showing that they have a path to increasing profitability, in part thanks to cost-cutting and layoffs.
Wayfair has been struggling to work off excess hiring and spending from the height of the pandemic, when online furniture sales boomed. In two rounds of layoffs since last summer, the company has cut more than 2,600 workers.
In the first quarter, revenue was still declining — falling 7 percent to $2.8 billion — but the company cut its net loss per share much more. Wayfair’s adjusted net loss per share of $1.13 was down 42 percent from a year ago and 58 cents better than analysts expected. The improvements reflected annual labor cost savings of $750 million plus other efficiency gains, such as using better packaging to cut the rate of damaged-product returns by 15 percent since last summer.
The company is now on track in the second quarter to be cash-flow positive excluding costs such as stock-based compensation, interest, taxes, depreciation and amortization, chief executive and cofounder Niraj Shah told analysts. “We’ve always known and now we are clearly demonstrating that the Wayfair model is inherently profitable,” Shah said.
Wayfair’s stock has jumped 17 percent since the May 4 earnings report.
At HubSpot, profitability also improved more quickly than sales. Revenue increased 27 percent to $502 million, while adjusted earnings per share more than doubled to $1.20.
Chief executive Yamini Rangan also impressed analysts, noting customers have rapidly started using the company’s new AI features based on ChatGPT. “We are in the early stages of a transformative shift,” she said.
HubSpot’s software and data “represent the ingredients which will define the winners from generative AI’s impacts,” analyst Mark Murphy at J.P. Morgan wrote in a report on the earnings. The company is “a quickly emerging leader in operationalizing the technology,” he wrote.
HubSpot’s stock has gained 7 percent since the May 3 report.
Online betting giant DraftKings reported strong first-quarter revenue, growing 84 percent to $770 million, while its adjusted loss per share of 51 cents was 31 percent less than a year earlier. “What we’re doing is working,” chief executive Jason Robins told analysts.
DraftKings’ stock is up 14 percent since the May 4 report.
And on Tuesday afternoon, Toast reported its revenue increased 53 percent to $819 million. At the same time, the company’s loss from operations shrank to $92 million from $101 million a year earlier. Toast’s shares gained 5 percent in after-hours trading.
A few other tech companies offered less of the results investors wanted. Tripadvisor’s stock has dropped 7 percent since its May 3 report that showed higher costs for acquiring some customers. Definitive Healthcare and Cerence also disappointed on the bottom line, and their stocks have dropped 2 percent and 13 percent, respectively, since their first-quarter reports.