Less Workers More Problems

Well folks, we hope the weekend has treated you well as we deliver you our first ever long-term pick on a Sunday! Yes, that’s right, we will be adding another Coachman’s Report to your weekly info-diet by altering our Friday newsletter to our usual trade ideas + market commentary format and then circulating our weekly long-term pick or special report every Sunday!

“All money is a matter of belief”
–Adam Smith

Long Term Pick: Workday Inc ($WDAY-NASDAQ)
Workday is a US based software company that specializes in transforming the traditional HR experience. They offer solutions for recruiting, payroll, and a wide variety of other employee workplace needs. The company has been publicly traded since October 2012, and has a market cap of $42.66B. The company’s share price has experienced a tumultuous 12 months, reaching a high of $300 in mid November 2021, then tumbling down to lows of $136.59 in late June of this year. Like many other tech firms, the company has experienced a rally over the past two months, capped off with a 16% return in the past month returning the company to a price of $168. On an annualized basis the company hasn’t made money at any point throughout its history, posting annual losses of over $70M for the past 10 years, with losses exceeding $200M for each of the previous 7 years. These losses have led to the company’s accumulated deficit of $2.85B as of Q2 2022, which has increased $100M from Q1. It’s not to say that the company hasn’t experienced tremendous growth in revenues, as they’ve doubled their total revenue between 2018 and 2021. However, as we all saw with Netflix, the market will likely react in an extremely volatile manner if user growth slows, or stops entirely. With recent findings from executive surveys, and announcements from companies in a variety of sectors, this decline may be just around the corner. On Thursday, PWC released the findings from their polling of over 700 corporate executives within the United States. In this report it was revealed that half of the respondents have begun to, or are planning to reduce the size of their workforces. After a drop-off in share prices and profits, these layoffs have already begun to show themselves throughout the tech industry. Our first example of headcount reduction is Coinbase. After riding the crypto wave throughout the pandemic, the company’s quarterly income dropped to -$1.09B in Q2, this comes only 6 months after posting profits of over $855M. As a result the company laid off 18% of their entire workforce, representing 1100 employees, while also implementing a hiring freeze. Another example is the Canadian e-commerce giant Shopify. While it had seemed that the company was on a pathway to stable growth and sustained profitability, dismal financial results from the last three quarters have thrown that future into jeopardy, especially as the company has posted quarterly losses of over -$1B throughout 2022. These losses came with additional layoffs, as the company has announced that 10% of their workforce will be let go, while also instituting a hiring freeze. What’s more alarming is the fact that the companies mentioned above, alongside 4 in 10 respondents in the PWC survey, plan to, or already have begun rescinding job offers from previously accepted candidates. Adding an uncomfortable amount of urgency to their cost cutting efforts. Unfortunately, these layoffs aren’t contained within the tech sector. Last month, Ford announced that they would be laying off 8000 workers throughout the coming months in an attempt to regain profitability. While this may be a beneficial move for the company and its stockholders, it does not provide a great outlook for Workday’s growth prospects. Moreover, headcount reductions have reached some of the largest companies in the world, namely Apple and Walmart. Apple recently announced that they were cutting 100 contracted recruiters with reports of a widespread hiring slowdown throughout multiple departments in the company. Additionally, earlier this month Walmart announced that they were cutting 200 corporate workers from the company. While this is only a drop in the bucket for the largest employer in America, it’s indicative of further uncertainty creeping into all facets of the labour economy. With all of that being said, companies large and small have begun to slow recruitment, trim recruitment teams while also decreasing headcounts, as a result we expect Workday’s user growth to experience a sharp decline in the coming months. It should be noted that we would implement a stop loss at 15% on this idea, as the broader market is experiencing a period of heightened instability and uncertainty.
Chart of the Day – S&P Share Buybacks Increasing…