Four reasons for mass job cuts in industry

              The wave of tech layoffs at Bay Area companies in the past month has affected more than 24,000 workers globally, levels not seen since the early part 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 technology sector faces challenges that are also being felt by other industries, but the industry’s trajectory during the pandemic has made it particularly vulnerable to downsizing. Here are the main reasons for the contraction of the technology sector:

Over-staffing during the pandemic

Some of the biggest layoffs have come at companies that have grown at unprecedented rates over the past three years. They are now declining as business declines.

Meta, Facebook’s parent company, nearly doubled its staff to 87,000 workers as customers remained glued to their screens and many in-person experiences were put on hold during the pandemic. It has now laid off 11,000 workers in the first mass layoffs in the company’s history and its stock is down nearly 75% in the past year.

Amazon’s growth has been even greater, doubling in size from nearly 800,000 full- and part-time workers at the end of 2019 to 1.6 million at the end of 2021 — many of them working in warehouses. The Seattle tech giant is now laying off about 10,000 company employees after operating income in the fourth quarter fell $2.4 billion from a year earlier.

In the wake of Elon Musk’s mass layoffs on Twitter earlier this month, former CEO Jack Dorsey apologized for the company’s growth too quickly. “I take responsibility for why everyone is in this situation: I grew the size of the company too quickly. I apologize for that,” Dorsey
Posted on Twitter.

High interest rates and high inflation

Multiple rounds of interest rate increases by the Federal Reserve are a major shock to venture capital funding, which is the lifeblood of tech startups. Venture capital firms are typically less attractive to outside investors as interest rates rise, as investment advisory firm Callan recently noted.

Venture capital firms are also less keen to support unprofitable startups, which must continue to seek new equity and debt financing to fuel their growth.

These circumstances led Stripe, the second largest private startup in the United States by value, to lay off 14% of its workers or more than 1,000 employees. “We’re facing stubborn inflation, energy shocks, higher interest rates, reduced investment budgets and little startup funding,” Stripe CEO Patrick Collison wrote in a note to employees. “Today, that means building differently for smaller times… We need to reduce our costs.”

Drop ad spend

Ads are what make most Google, YouTube, Meta Facebook and Instagram search services free to use. The continued decline in spending is an ominous sign for the industry. In October, US ad spending fell 3.2% from a year earlier, the fifth straight month of decline, according to MediaPost tracker.

This was the main reason Alphabet, Google’s parent company, reported that net income fell to $13.9 billion in the third quarter from $18.9 billion a year earlier. The company did not announce layoffs, but it froze most hiring operations and the information said that 10,000 workers could be classified as “low performers” and fired from the company.

“One of the first things companies do in the face of this uncertainty is they eliminate their ad budgets,” Roku CEO Anthony Wood said on an earnings call this month. The VCR maker said it was laying off 200 workers soon after.

Encryption crash

The massive crash of cryptocurrency exchange FTX, once worth $32 billion, was the biggest tech crash in years. It’s unclear how many FTX employees will be affected, but other startups in the sector have also been downsized.

Crypto.com, namesake of the Los Angeles Lakers arena, has cut hundreds of jobs this year, and the former San Francisco-based Coinbase cut 18% of staff in June and is said to have laid off another 60 workers this month.

“A recession could lead to another crypto winter, and it could last for a long time. Over the past crypto winters, trading revenue (our biggest source of income) has fallen dramatically,” CEO Brian Armstrong said in June.
Roland Lee is a writer for the San Francisco Chronicle. Email: roland.li@sfchronicle.com Twitter: @rolandlisf

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