Big tech layoffs and hiring freezes spark fears of recession

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Big Tech is preparing for an economic recession and an uncertain future. This, in turn, triggers more economic angst.

The biggest tech companies, most of which will report quarterly results next week, have recently hinted that they are cowering. News of layoffs and slowdowns in hiring has become commonplace in Silicon Valley. Startups say capital is drying up. Workers are warned that companies are changing.

Meanwhile, Twitter’s protracted bad romance with Elon Musk is tangled in court and the outcome is uncertain, a point the company made when reporting disappointing numbers on Friday. Amazon faces a growing labor movement, and Facebook faces a new advertising climate. Domestic and foreign regulators are threatening to crack down on the industry as a whole.

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Shares of social media company Snap fell nearly 40% on Friday, the day after it reported worse-than-expected revenue growth and declined to give a forecast for future earnings due to “uncertainties related to to the operating environment”. Netflix this week reiterated factors such as “slow economic growth” in losing subscribers.

And analysts predict next week’s numbers released by Amazon, Microsoft, Google, Facebook and Apple could be the starkest signal yet on how these companies approach the months ahead. Already this week, Bloomberg reported slowing hiring and spending at Apple — an indicator of how much consumers are willing to spend — news that helped drag major stock indexes lower.

“The market looks at that, and basically the logic is, ‘oh shit, if they’re doing that then what about those who aren’t as strong?’ “, said Tom Essaye, president of Sevens Report Research. “‘And what do they see coming that others don’t?’ ”

Meta spokeswoman Tracy Clayton said the company will continue to make changes to parts of its business due to the broader economic environment. Apple and Amazon did not respond to requests for comment. Google, Twitter and Snap declined to comment. Amazon founder Jeff Bezos owns The Washington Post.

The hiring freeze and gloomy tech outlook stand in stark contrast to companies’ traditionally rock-solid reputation for unchecked growth, raising concerns among some Wall Street economists and investors. Over the past decade, tech companies have boomed, hiring tens of thousands of workers and amassing huge reserves of cash from ever-increasing profits. Share prices of companies like Amazon, Microsoft, Apple and Google continued to soar, dominating stock exchanges and enriching many investors.

As some of the most valuable companies in the world, they also exert an outsized influence on perceptions of the economy, in part because of the nature of their business, which relies on consumer clicks and spending. Any drop in demand for toilet paper sold by Amazons, Teslas or iPhones, as well as fewer ads bought on Instagram or Google Search trying to sell new shoes or headphones, is sure to create nervousness in many people. other spheres.

Tech has been warning investors for months that the boom period is coming to an end – Amazon was one of the first tech giants to warn earlier this year that it had hired too many warehouse workers and had oversized anticipating higher customer demand which instead began to decline as coronavirus lockdowns were lifted and habits came out of pandemic modes.

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Tesla announced better-than-expected results on Wednesday, but even during that call, CEO Elon Musk and other executives were questioned by analysts on the subject of a potential economic slowdown. Musk said earlier this summer he had a “super bad feeling” about the economy and expected the automaker to cut payrolls by about 10%.

“We need to be more enterprising, work with greater urgency, sharper focus, and more hunger than we showed on sunnier days,” said Sundar Pichai, CEO of Google parent Alphabet, in a memo to employees last week. The company will reduce its frenetic pace of hiring and new hires will be concentrated in engineering and other technical roles, he said. “Making the company more efficient depends on all of us.”

Earlier this year, Facebook reported a drop in daily user numbers for the first time, which, combined with increased competition, lower revenue forecasts and advertising hurdles, sent its stock price plummeting. . Shares of the company are now down 50% for the year. And Facebook last week asked its tech managers to weed out underperforming employees in the face of a downturn. “If a direct report is coasting or performing poorly, we don’t need them; they’re letting this company down,” the company’s chief engineering officer wrote in a memo.

Microsoft recently removed open online job postings, Bloomberg reported.

It may become a self-fulfilling prophecy, market experts say, if other companies immediately respond to Big Tech’s downfall by tightening up their own businesses. But the moves aren’t cut and dry – many believe tech is bracing for an economic downturn, not freaking out over falling trade metrics.

“Some see it as a positive because companies are becoming more disciplined,” said Kristina Hooper, chief global market strategist at Invesco.

Mixed messages on the economy raise questions about recession risks

Big Tech has also had more success during the pandemic than many industries, giving them more breathing room.

“It hasn’t lost as much labor during the pandemic, so there haven’t been the same shortages,” said Harvard economics professor Jason Furman. “So in some ways it’s no surprise that as the economy seems to be heading for a tougher time, they need to recalibrate.”

And, despite the bad numbers widely expected next week, many companies have already lowered their expectations so much that earnings may not be as bad as expected, analysts said.

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Small tech companies have been sounding the alarm bells for months, with new venture capital investment slowing and many start-ups announcing layoffs in the spring and early summer.

Other economic indicators give a mixed picture of the exact direction of the economy. Americans are pessimistic about high prices, but they still spend their money. The pace of new hires is not as fast as it was a few months ago, but it is still far from running out of steam completely. Some economists and financial analysts are still predicting a recession later this year or in 2023, although that doesn’t mean it will be as painful as the one that followed the 2008 financial crisis.

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Some of the cuts in the tech industry have been slow to come, with new investment funds too freely available for so long that some companies have bloated themselves with resources they didn’t necessarily need, Doug Clinton said. managing partner of the technology investment company Loup Entreprises.

“When the world changes and capital gets tight, everyone looks at each other and says, ‘Maybe we don’t need as big of a staff as we thought,'” Clinton said. “We were kind of in the boom times, now we’re going down the roller coaster in the toughest times.”

Kelsea Cozad, a marketing employee in Columbus, Ohio, was laid off this month when health tech start-up Olive laid off hundreds of employees, after admitting that its “rapid growth and his lack of concentration” had put a strain on the company.

Cozad immediately looked for a new job and said she got a good response. “There are a lot of people swimming in the waters, looking to hire,” she added.

Across the economy, job vacancies are widely stable, according to data from Indeed, a job board website. But software development job openings are down more than 12% in the past four weeks alone, according to analysis by Indeed economist AnnElizabeth Konkel. The overall job market is strong, but demand for tech workers in particular is slowing slightly, she said.

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Overall hiring fell to its lowest rate since December 2021, LinkedIn economist Guy Berger wrote, “suggesting that tighter financial conditions and easing demand may finally hit the U.S. labor market.” Technology has been particularly hard hit, he noted.

Big Tech has “spent money like drunken sailors on hiring in recent years,” said Wedbush analyst Dan Ives. “I see it more as a correction, a tightening around the edges.”

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