The MANATee Monitor - News, tips, & advice for employees of the new FAANGs: Microsoft, Meta, Apple, Nvidia, Alphabet, Amazon & Tesla

Layoff Lookout

Practical & Tactical: Weatherproofing Your Finances for a Layoff Storm

MANATee Performance vs. the S&P 500

Money Matters: Is there a way to reduce taxes on RSUs?

Quote Quiz - Who said it?

3 Top News Stories for Each MANATee

LAYOFF LOOKOUT

The Nasdaq fell 33% in 2022, and in its wake some 130,000 have been lost across the technology sector. At the moment we're enjoying a tech rally, but don't think we're out of the woods just yet. The banking sector is still sputtering and there's still a lot of chatter from economists about a full blown recession in the second half of 2023.

Let’s look take a look at layoffs in the 7 largest publicly traded companies, not FANG anymore, but what I like to call the “MANATee”.

M Microsoft, Meta

A Apple

N Nvidia

A Alphabet, Amazon

T Tesla

e

MANATee, a 7-letter acronym for 7 companies (ok, I cheated a little with "ee").

Four of the seven companies have begun layoffs. As a percentage of total employees, the cutbacks have been especially severe at Meta, amounting to some 24% of employee headcount.

Should we expect more layoffs on the horizon? Here are 3 indicators we can use to make predictions about each company:

declining revenue per employee
falling revenues after a sustained period of headcount growth in excess of revenue growth
a negligible amount of layoffs as a % of total employees (while the first two indicators are trending negative)

Layoffs, What Layoffs?

First, the good news. Apple, Nvidia and Tesla look like they should be able to avoid major layoffs this year. Apple resisted the urge to go on a hiring splurge during the pandemic, even while its revenue per employee grew 27%. True, revenue growth at Apple has moderated over the last 12 months. Nonetheless, the company's conservative hiring policies place it in a strong position.

Meanwhile, Nvidia and Tesla have been growing revenue much faster than their employee headcount over the last two years. Consequently I would be surprised to see any sizable layoffs from these three companies in 2023.

Not Out of the Woods Yet

Alphabet and Microsoft have announced substantial layoffs over the last 6 months, reducing their headcount by 6% and 5%, respectively. Revenue per employee has been relatively stable for both companies. However, Alphabet looks a bit more vulnerable than Microsoft, given it's less diversified revenue stream and the disruption that Microsoft's investments in AI are bringing to bear on Google search.

By the way, has anyone else switched to the Edge browser with Chat GPT? Feel free to answer in the comments section.

Off the Chopping Block?

Among our seven MANATee companies, Meta has suffered the largest fall in revenue per employee. Over 2019-2022 this indicator fell a whopping 14% at Meta. In response, Zuck has tried to stem the bleeding by slashing employee headcount some 24% over a matter of months. If revenue stabilizes in 2023, perhaps remaining META employees can avoid another round of bloodletting. But who knows what 2023 might bring, or as Zuck calls it, the "Year of Efficiency".

It's Time to Worry

Meanwhile, Amazon has laid off barely 2% of its employees. Contrast this with the massive growth in its headcount. The number of its employees more than doubled during the pandemic from 2020 to 2021! To make matters worse, revenue per employee has fallen from pre-pandemic levels. For these reasons, Amazon is our top candidate for more layoffs.

PRACTICAL & TACTICAL: WEATHERPROOFING FOR A LAYOFF STORM

Do you think you may be laid off? Here are 5 things you can do to put your financial house in order in anticipation of losing your job.

Lower concentration risk - You're already taking on al lot of exposure to your company as an employee. There are plenty of other good companies to invest in, so give some thought to restricting the holdings in your company's stock to not more than 15% of your equities portfolio.
Build an Emergency Fund - Build up a cash balance to cover 3 to 6 months of living expenses.
Automate your RSU policy - Think it over, set it, and then forget it.
Make Roth contributions - In times of need, you can withdraw Roth contributions without penalties or taxes. This covers Roth contributions across the whole spectrum of Roth vehicles (401(k)s, Backdoor Roths, Mega Backdoor Roths, etc.).
Use your health benefits now - Think about using your health benefits while you still have a generous employment healthcare package.

MANATEE RETURNS VS. THE S&P 500

There's no ETF for the 7 largest tech companies by market cap, what I call the "MANATees", but this is what the return would have looked like over the last 5 years had you invested equal amounts in each stock.

That steep decline in 2022 was a 58% drawdown from peak to trough. A volatile ride, indeed, but an impressive return compared to the S&P 500. If you work for one of these companies and have a sensitive stomach, you may want to consider reducing your concentration risk through some thoughtful diversification.

MONEY MATTERS - CAN I AVOID TAXATION ON RSUs?

A lot of technology professionals ask themselves the question: "Is there a way to reduce taxes on RSUs?"

My answer is “well, not really, but I have something nearly as good." That's because you can use RSUs to seriously reduce your tax burden. It's a little indirect, not obvious, and requires a little preparation.

Let's start with the status quo. Most tech professionals live off their salary and let their company's stock pile up as their RSUs vest.

But what if we were to reverse this? What if instead you were to get into the habit of selling your company shares when RSUs vest and live off that cash flow? This would free up your salary to be used for funding investments, such as contributions to a Mega Backdoor Roth in your 401k.

Using Google's 401(k) as an example, an employee could have total annual 401(k) contributions in 2023 of $66,000 broken down as follows:

Employee deductible contributions $22,500

Company contributions $11,250

Employee contributions converted to Roth $32,250

Total $66,000

This tax strategy combines an RSU selling policy with a Mega Backdoor Roth (MBR) to shield your money from taxes. It could easily save well over $1 million by retirement. Here are some modest assumptions to back up that statement:

Average annual return: 7%

Employment at Google: 10 years

Employee MBR contributions over 10 years: $322,500

Age: 30

Retirement age: 70

Total value of MBR at retirement: $3.4 million

Tax rate: 33%

Tax savings on investment earnings: > $1.0 million

Like I said, indirect and not obvious. And what's more, lucrative!

If you'd like assistance setting up a Mega Backdoor Roth, set up a free consultation here.

QUOTE QUIZ - WHO SAID IT?

Match each quote below with one of the following tech leaders. Scroll to the very bottom for the answers:

Mark Zuckerberg, Meta

Elon Musk, Tesla

Jensen Huang, Nvidia

Satya Nadella, Microsoft

Sundar Pichai, Alphabet (Google)

Jeff Bezos, Amazon

Tim Cook, Apple

“Software is ultimately the biggest deflationary force.
"The office is not optional."
“I learned that focus is key. Not just in your running a company, but in your personal life as well.”
“If I'm about to forget my kid's birthday, I want the phone to scream at me until I do something about it.”
“My goal was never to make [our company] cool. I am not a cool person.”
“Focus on problems that cannot be solved today at all.”
I don't know about you, but most of my exchanges with cashiers are not that meaningful.