Exodus – Why mass tech layoffs are back in fashion
Meta will become the latest tech firm to announce mass layoffs to its workforce this week, with plans to scale back thousands of employees. The latest plans from Meta follow recent announcements by other tech firms to freeze hiring or cut their workforce as the industry fights economic headwinds.
The Wall Street Journal reported that layoffs could impact “many thousands” of Meta employees and that an announcement was imminent. As of September 2022, Meta had around 87,000 employees worldwide across its different platforms, which include social media sites Facebook and Instagram, as well as messaging platform WhatsApp.
In his announcement of Meta’s disappointing third-quarter results, CEO Mark Zuckerberg said the firm’s staff would not increase by the end of 2023, and might decrease slightly. Payments firm Stripe and rideshare company Lyft were two other Silicon Valley giants to announce significant layoffs last week as the economy continues to darken for Big Tech.
The tough economic times are also hitting Amazon, which announced that it would freeze new corporate hires amid a highly uncertain economic environment.
The bloodletting came as the tech world observed major layoffs at Twitter, following the finally completed takeover by Elon Musk for US$44 billion. Media reports said that Musk was eliminating thousands of jobs to find ways to help pay for the massive buyout.
Stripe, based in San Francisco and Dublin, said it would slash 14% of its staff, telling employees it had “overhired for the world we’re in.” The company said this would return staff to the 7,000-strong workforce it had in February 2022.
“We are facing stubborn inflation, energy shocks, higher interest rates, reduced investment budgets and sparser startup funding,” Stripe CEO Patrick Collison wrote in a note to staff.
Ride-hailing app Lyft said it was letting go 13%, or 683, of its non-driver employees. It cited a likely US recession and the rise in insurance costs for drivers.
The wave of layoffs comes just after a downbeat earnings season for most tech giants, with Facebook owner Meta seeing its share price plummet by 73% this year to its lowest level since 2015.
Apple reported solid profits on rising revenues, but its iPhone sales missed estimates, while it saw slowing growth in services revenues.
“Amazon’s hiring freeze sends a clear and unfortunate signal that the mood music of the retail and consumer economy is shifting,” noted GlobalData managing director Neil Saunders. “The heady days of growth have now ended and have given way to an environment in which more caution is necessary to protect the bottom line.”
Tech layoffs follow downbeat earnings season
The mass rounds of layoffs come as future-focused US tech titans are seeing growth take a beating in the face of foreign competition and a tough economy in the present climate. Meta reported at the end of October that its profit more than halved to US$4.4 billion in the third quarter, from US$9.2 billion a year earlier – and said it plans “significant changes” to bolster efficiency in a tough economic environment.
Shares of Meta and Google-parent Alphabet tanked after disappointing financial results in Q3 2022. Apple and Amazon shares were casualties as well, and their respective quarterly earnings reports disappointed investors hoping for rays of sunshine on a dark economic landscape. Social networking bigwig Meta, which faces stagnating user numbers and cuts in advertising budgets, also said revenue slipped to US$27.7 billion from US$29 billion a year earlier.
Hence, the recently-ended quarter at the tail-end of October 2022 “will go down in the history books of earnings season as one of Big Tech’s worst, and ultimately could be a ‘fork in the road moment’ for the stalwarts looking ahead,” Wedbush analyst Dan Ives said in a note to investors. Management teams will need to “quickly adjust to a much different background” or risk losing their luster for investors who have bet on them for the past decade, the analyst advised.
Big Tech had been in a period of expansion, with hiring matching rising user numbers as digital services were heavily adopted during the stay-at-home months. The number of Facebook monthly active users was up a mere 2% to 2.96 billion at the end of September, Meta reported. At the same time, the number of employees at the tech titan reached 87,314 – a 28% increase from a year earlier, the Q3 earnings report stated.
“We are making significant changes across the board to operate more efficiently,” Meta said at the time, in a potential foreshadowing of what was to come with the broad layoffs. Back then, the Silicon Valley-based tech firm expected to hold headcount levels in check until at least 2023.
The profit-squeezing realities for Meta include being under pressure due to global economic conditions, competition including TikTok, and Apple letting iPhone users decide if their online activity can be tracked to target ads. The iPhone changes supposedly show the world’s most valuable company’s focus is on privacy, but critics note it does not prevent the company itself from tracking use behavior.
Meta expected that policy, which impacts the precision of the ads it sells and thus their price, to cost the social media giant US$10 billion in lost revenue this year.
Meanwhile in Europe, the 27-nation EU bloc is imposing landmark legislation aimed at reining in the power of US tech giants and forcing them to screen illegal or harmful online content more closely, factors that could have been affecting platform adoption numbers on the continent.
With reporting © Agence France-Presse
26 February 2024
22 February 2024