Thursday, August 24, 2023

T-Mobile Is Laying Off Thousands of Employees -- Here's What Investors Should Know 

T-Mobile US (NASDAQ: TMUS) calls itself the "Un-carrier." The tagline underscores the company's attempt at differentiation in the intensely competitive wireless industry. But T-Mobile has a lot in common with fellow telecom giants AT&T (NYSE: T) , which laid off 9,400 employees in 2022, and Verizon Communications (NYSE: VZ) , which cut 10,400 workers last year and has made further workforce reductions in 2023.

On Thursday, T-Mobile announced plans to lay off thousands of employees. Here's what investors should know.

Key details of the layoffs

T-Mobile revealed in a regulatory filing to the Securities and Exchange Commission that it intends to reduce its workforce by nearly 7%. In an email to employees, CEO Mike Sievert said that around 5,000 positions will be impacted over the next five weeks.

Sievert explained in his email that most of the layoffs will be in corporate and back-office positions with some technology jobs also affected. He noted that no customer-facing positions will be eliminated. The jobs being cut generally fell into three categories, according to Sievert:

  • Positions that are largely duplicative to other roles
  • Positions that could be "aligned to systems or processes that are changing"
  • Positions that might not align with T-Mobile's current priorities

T-Mobile isn't just laying off employees. Sievert said the company also plans to reduce its use of external workers such as contractors and freelancers.

Why such big workforce reductions and why now? Sievert pointed to the rising costs to attract new customers and hold on to existing ones. He said that T-Mobile needed to make the cuts so that it could remain ahead of and differentiated from its competitors while keeping shareholders happy.

Potential impact on T-Mobile

Shares of T-Mobile were down close to 2% in early trading on Thursday. While the major market indexes were also in negative territory, the stocks of T-Mobile's top telecom rivals AT&T and Verizon rose slightly. This seems to indicate that investors were at least a little concerned by the company's layoffs.

However, T-Mobile continues to outperform AT&T and Verizon overall this year. It delivered industry-leading growth in customers, revenue , and profits in the second quarter of 2023. T-Mobile stock, although down year to date, is still in much better shape than the stocks of AT&T or Verizon.

TMUS data by YCharts

The round of layoffs will come at a cost. T-Mobile expects to record a pre-tax charge of around $450 million in the third quarter as a result of the workforce reduction. However, the company reiterated its full-year guidance announced on July 27.

Sievert maintained in his email to employees that making necessary changes while the company is successful is the best way to sustain its success. He wrote that the workforce reductions weren't intended to pile higher workloads on fewer employees. Instead, he argued that the company's focus was on "optimizing every dollar, so it can be used to deliver a better network, a better value, and a better experience for our customers."

Is the stock a buy?

Despite T-Mobile's falling stock price, Wall Street is largely bullish about T-Mobile. Of the 30 analysts surveyed by Refinitiv in August, 23 rate the stock as either a buy or a strong buy. I agree with this general consensus.

T-Mobile certainly competes in a cutthroat market. However, the company has demonstrated that it can beat the competition on multiple fronts.

It's possible that T-Mobile's layoffs could help the company achieve all of the goals that Sievert laid out. If so, the reductions will help make the telecom giant even more competitive in the future.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy 

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