Four reasons why so many tech companies are making mass layoffs

0

The wave of tech layoffs at Bay Area-based companies over the past month has affected more than 24,000 workers worldwide, levels of downsizing not seen since the start of the pandemic. The once-booming job market has cooled and there are fewer opportunities as companies like Meta, Twitter and Oracle seek to cut costs.

The tech sector faces challenges that are also felt by other industries, but the industry’s trajectory during the pandemic has made it particularly vulnerable to downsizing. Here are the main reasons why the technology sector has contracted:

Overhiring during the pandemic

Some of the biggest rounds of layoffs have come at companies that have grown at an unprecedented rate over the past three years. They are now downsizing as business has dropped.

Facebook parent company Meta nearly doubled its workforce to 87,000 workers as customers remained glued to their screens and many in-person experiences were put on hold during the pandemic. It is currently cutting 11,000 workers in the first mass layoff in company history and its stock has fallen nearly 75% in the past year.

Amazon’s growth has been even greater, as it doubled in size from nearly 800,000 full-time and part-time workers at the end of 2019 to 1.6 million at the end of 2021, many of whom work in warehouses. The Seattle-based tech giant is currently laying off about 10,000 corporate employees after operating profit fell $2.4 billion in the latest quarter from a year earlier.

Following Elon Musk’s massive Twitter layoffs earlier this month, ex-CEO Jack Dorsey has apologized for growing the company too quickly. “I’m responsible for why everyone is in this situation: I grew the company too quickly. I apologize for that,” Dorsey
posted on Twitter.

Rising interest rates and high inflation

The Federal Reserve’s multiple rounds of interest rate hikes are a major shock to venture capital funding, the lifeblood of tech startups. Venture capital firms are generally less attractive to outside investors as interest rates rise, as investment advisory firm Callan recently noted.

Venture capitalists are also less eager to support unprofitable startups, which must continue to seek new equity and debt funding to fuel their growth.

These conditions led Stripe, the second most valuable private US start-up, to lay off 14% of its employees, or more than 1,000 employees. “We face stubborn inflation, energy shocks, higher interest rates, shrinking capital budgets and weaker start-up funding,” Stripe CEO Patrick Collison wrote. in a note to employees. “Today, that means building differently for lean times…we need to cut costs.”

Lower ad spend

Ads are what make most of Google’s Search and YouTube, and Meta’s Facebook and Instagram, free to use. A continued decline in spending bodes ill for the industry. In October, advertising spending in the United States fell 3.2% from a year earlier, the fifth consecutive month of decline, according to a MediaPost tracker.

This is one of the main reasons why Alphabet, Google’s parent company, reported that net profit fell to $13.9 billion in the third quarter from $18.9 billion a year earlier. The company did not announce any layoffs, but it froze most hiring and Information reported that 10,000 workers could be branded “underperforming” and kicked out of the company.

“One of the first things companies do in the face of such uncertainty is cancel their advertising budgets,” Roku CEO Anthony Wood said in an earnings call this month. The video device maker said it was laying off 200 workers soon after.

Encryption crash

The massive collapse of cryptocurrency exchange FTX, which was once valued at $32 billion, was the biggest tech meltdown in years. It’s unclear how many FTX employees will be affected, but other startups in the industry have also downsized.

Crypto.com, the namesake of the Los Angeles Lakers arena, cut hundreds of jobs this year, and formerly San Francisco-based Coinbase cut 18% of its staff in June and reportedly laid off another 60 workers this month.

“A recession could lead to another crypto winter and could last for an extended period. Over the past few crypto winters, trading revenue (our primary source of income) has declined significantly,” CEO Brian Armstrong said in June.

Roland Li is a writer for the San Francisco Chronicle. Email: [email protected] Twitter: @rolandlisf

Share.

Comments are closed.