Big Tech companies have laid off 20,000 workers in the last week, accelerating the job cuts and hiring freezes that have been sweeping Silicon Valley for months.
Twitter, Meta (Facebook parent) , Stripe, Salesforce, Lyft, and a growing list of smaller companies have all laid off significant numbers of employees.
Thousands of computer engineers, salespeople, and support staff are out of work in one of the country’s highest-paying industries.
Meanwhile, other companies, such as Google and Amazon, have recently implemented hiring freezes and slowdowns.
The departures are solidifying a sense in Silicon Valley that the previous decade’s bull market is officially over. Creating an image of what the rest of the US economy might face if a predicted recession occurs.
Executives at the Big Tech companies making the cuts attributed the layoffs to several interconnected factors. They include overzealous hiring, an e-commerce slowdown, and people spending less time online.
For months, tech CEOs have warned about a looming recession, warning their employees to expect tougher working conditions and a significant slowing of the rapid growth they had preached for years.
Low-interest rates over the last decade have made it easy for venture capitalists to find money to pour it into new start-ups — even if the startups didn’t have solid plans to make money.
Inflation hitting Big Tech
That dynamic accelerated during the pandemic. At the same time, larger technology companies expanded quickly to capitalize on people spending more time online. Tech stock prices have risen, boosting confidence and stock-based compensation for employees.
However, as the Fed aggressively raises interest rates to combat Biden inflation, venture capitalists are becoming more selective in their investments, forcing companies to prioritize profitability over growth.
Big Tech titans are doing the same, as higher prices reduce revenue and force them to make cuts.
The mass layoffs come just a year after Silicon Valley peaked, with company valuations in the trillions. Big tech salaries were at all-time highs, and cryptocurrency was pouring new wealth into investors’ and workers’ pockets.
Now Tens of thousands of former Big Tech workers are currently looking for work.
Lyft, Twitter, Facebook, Amazon, and Google did not respond to the Washington Post’s requests for comment. Stripe’s spokesperson referred to a blog post written by the company’s CEO about the layoffs.
“We are confronted with persistent inflation, energy shocks, higher interest rates, reduced investment budgets, and scarcer start-up funding,” CEO Patrick Collison wrote in the Washington Post. Salesforce spokeswoman Annie Vincent stated that the company is assisting those laid off.
Big Tech firms have dominated the US economy for the past decade. Apple, Amazon, Google, and Microsoft surpassed the trillion-dollar valuation mark, making them the most valuable companies in modern history.
They competed for tech and business talent with venture-funded start-ups such as Uber, WeWork, Airbnb, and Stripe, driving up salaries and living costs in the Bay Area and other tech hubs such as Seattle.
Amazon and Google Struggling
However, cracks have begun to appear in that dominance over the last year. Big Tech CEOs began warning of layoffs, and companies like Google, Microsoft, and Facebook quietly reduced hiring. As economic sentiment fluctuated between positive and negative over the summer, companies sent mixed signals.
The past few weeks have heightened concerns, as a slew of earnings reports revealed that even the most stalwart companies, such as Amazon and Google, are struggling to maintain the revenue growth they have demonstrated in recent years.
When Facebook and Amazon reported their quarterly earnings in the final week of October, their stock prices fell by more than 20%.
Amazon’s forecast for the crucial holiday season fell short of analysts’ expectations, and Facebook investors began fleeing in droves after CEO Mark Zuckerberg stated that the company would continue to lose money as it shifted its focus to building a new “metaverse” virtual world.
Microsoft and Google, the world’s third and fourth most valuable companies after Apple and Saudi Aramco reported revenue growth slowdowns, indicating that demand for digital ads and cloud software is declining.
Twitter’s Mass Layoffs
Twitter’s new owner, Elon Musk, laid off roughly half of the company’s 7,500 employees last week. Musk stated Thursday that the company would need new revenue streams to “survive the upcoming economic downturn.”
His remarks came a day after Zuckerberg stated that the “macroeconomic downturn” was one of the reasons he needed to fire 11,000 employees, or 13 percent of Meta’s workforce, in the company’s 18-year history.
Stripe is laying off 14% of its workforce, real estate marketplace Zillow 5%, and ride-hailing app Lyft 13%.
According to Layoffs, the week’s layoffs bring the total number of displaced tech employees in 2022 to just over 120,000.
FYI, a layoff tracker operated by tech entrepreneur Roger Lee says, tech workers could expect dozens of job offers for their skills. Now, they must compete for jobs with thousands of other people.
In October, inflation was lower than expected, raising hopes that the Fed’s interest rate hikes are working as intended and may not need to be increased further. In October, the economy added 261,000 jobs, and companies classified as computer systems design by the government added some jobs.
According to a Nov. 6 note to clients, Goldman Sachs economists expect US wages to continue rising in 2023, though home prices may fall. According to a Nov. 9 research note from Barclays, economists predict a “shallow recession” next year.
Ripple effect or an avalanche
Nonetheless, layoffs in Silicon Valley will have an increasing impact, according to Julia Pollak, chief economist at ZipRecruiter, a job search site. Other tech services, such as cloud computing or communications platforms, as well as digital advertising, cost a lot of money for tech companies.
“We could see either a ripple effect or an avalanche due to this.” “The question is how people react and perceive this,” she explained. The cuts are most likely still ongoing.
“We’re almost certainly going to see more,” Pollack predicted. “Tech firms will face increased pressure to reduce costs and become profitable sooner.”
According to the US Department of Commerce, the technology industry will account for approximately 10.2 percent of the US GDP by 2020. The seemingly limitless growth of companies like Amazon, Google, Microsoft, Facebook, Netflix, Tesla, and Salesforce, among others, has bolstered the retirement accounts of millions of Americans as tech firms have taken up an increasingly large share of the stock market.
In March, technology companies accounted for nearly 30% of the total value of the S&P 500.
During the pandemic, tech companies expanded faster as people spent more time online, purchased more computers and video game consoles, and shifted much of their shopping from brick-and-mortar stores to e-commerce.
Tech companies took advantage of the shift, investing billions of dollars in hiring new employees and building new data centres to capitalize on what was viewed as a once-in-a-lifetime opportunity.
However, as pandemic restrictions were lifted and most people returned to their pre-pandemic habits, the bet that that behaviour would be permanently altered fell through.
Shift in eCommerce buying
The CEOs of Facebook and Shopify, which provide online tools for merchants to sell, both blamed their layoffs on the overestimation of the e-commerce shift. “This did not play out the way that I expected or that any of us hoped,” Zuckerberg said during a conference call with employees on Wednesday, according to a recording obtained by The Washington Post.
This week’s layoffs have significantly reduced the headcount in Silicon Valley, but most large companies still have more employees than they did in 2019.
Big Tech Job Jumping
Still, Buyer, who was a tech analyst during the dot-com crash and more recently advised companies on structuring their initial public offerings, said that the rapid reversal of a trend that had led to so much hiring and investment is having a big emotional impact, as people compare reality with the inflated expectations they had built up.
“That’s why people are shocked and disappointed,” she explained.
For years, skilled tech workers hopped from company to company, using one job to get a higher salary at another. Big Tech firms routinely offered entry-level engineers $200,000 per year plus a signing bonus.
Big Tech firms provided benefits such as free catered meals, massages, dog walkers, and on-site laundry, as well as unlimited vacation days. With so many recently laid-off workers on the market, that will change now.
Rene Ronquillo, 37, worked his way up from a Lyft driver to a full-time position as a recruiter at the company. He anticipates that many workers will have to take pay cuts or work in roles below their experience level to find a new job in this environment.
“I can’t be too particular,” he explained.
Semil Shah, a general partner at venture capital firm Haystack, estimates that there could be 25,000 to 50,000 unemployed tech workers in the Bay Area in the coming months. Salaries will fall, and people will take jobs they would not have considered previously.
According to Shah, the current shock could be beneficial in the long run. For years, he said that start-ups have struggled to compete for engineers with larger tech companies, and the old-school ethos of working for a low start-up salary in the hope that the company will grow and provide a large payout has eroded.
“It appears to be a very nasty correction that, as painful as it is, most insiders believe is probably a good thing,” Shah said.
Source: The Washington Post