One of the more speculative tech stocks that hasn’t participated in this year’s impressive rally is Phunware (NASDAQ:PHUN). Shares of PHUN stock have more than halved this year, as investors focus on profitable tech and consolidate their holdings. Today’s news of Phunware layoffs — which will mean approximately one-third of the company’s workforce being eliminated — has resulted in continued downward pressure for shares. At the time of this writing, PHUN stock is down by around 0.5%.
Phunware noted that this move will likely save the company $5 million annually in cost savings. Accordingly, as the software company eagerly pushes for profitability, one might be surprised at the directional move following this announcement. Indeed, many similar announcements from other tech companies have been met with excitement.
That said, it’s clear that investors in Phunware are growing increasingly concerned about the company’s ability to grow its way out of its loss-producing hole. Lower headcount means lower expenses but also diminishes the company’s outlook for revenue growth over time. Thus, the extent to which this move improves or negatively impacts shareholder value remains to be seen.
Let’s dive into what investors may want to make of today’s news.
PHUN Stock Sinks on News of Phunware Layoffs
Phunware’s market capitalization has shrunk to around $40 million today following the layoff announcement. Accordingly, while $5 million a year may be material for the small-cap tech company, the amount isn’t quite big enough to apparently move the needle for investors. Clearly, they want to see a more promising trajectory toward cash flow growth over time.
Phunware’s core business, which involves enterprise cloud services for key clientele, should be booming right now. We’re in the age of artificial intelligence (AI) after all — cloud adoption and data usage continue to skyrocket each and every year.
That said, the company’s move to downsize its workforce appears to be related to targeting only “its most promising revenue generating opportunities.” This implies that Phunware may have been chasing too many verticals, or focusing too intently on segments producing heavy losses.
On its face, today’s job cuts seem to make sense and investors should likely cheer the news. However, it’s still unclear the degree to which these layoffs will pay off in terms of a pathway to profitability in the near or medium term. Right now, Phunware looks like a longer-term speculative play for investors bullish on cloud enterprise solutions. Given the competitive landscape and current macro environment, today’s layoffs appears to be doing little to shift sentiment around PHUN stock.
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On the date of publication, Chris MacDonald did not hold (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.
