Many tech companies that had expanded during the pandemic are now pulling back, laying off workers and withdrawing job offers as the US economy slows.
On Tuesday, cryptocurrency exchange CoinbaseIt rose 18%, or nearly 1,100, as CEO Brian Armstrong warned that “after a 10-year economic boom, we are entering a recession.” He added that the publicly traded company with a market cap of more than $13 billion is “growing very fast” as it grows to capitalize on the crypto craze in 2021.
The decline affects a wide range of companies. Coinbase’s cuts come a day after cryptocurrency company BlockFi, which grew nearly sixfold in 2021, announced it would lay off about 250 people. Privacy and marketing firm OneTrust laid off 950 employees last week, Stitch Fix laid off 330, and authentication firm ID.me laid off 130. Shipping company Bird dropped a similar number, while PolicyGenius gave the pink slips to 170. And that’s just weeks in the past two years.
“These companies are suffering right now,” said CBS News technology correspondent Dan Patterson. After recruiting staff during the pandemic, many tech players are consolidating as they think about the labor market, he said.
Tech companies worldwide have laid off a total of 35,000 workers so far this year, according to Layoffs.fyi, which tracks layoffs in the industry. Many more are abruptly reversing their hiring plans, especially formerly fast-growing cryptocurrency companies.
“Many of these companies have not only stopped hiring, but also canceled job offers,” Patterson said.
Before cutting staff, Coinbase pulled job offers from nearly 300 new hires earlier this month, according to Vice’s report, which announced that a now-unemployed tech worker lost a “life-changing” $300,000 job offer.
Startups in the risky cryptocurrency space are at the forefront of layoffs, as the value of bitcoin, ethereum and other popular currencies plummets. But the downturn in tech is wide—the Nasdaq composite index has lost 30 percent of its value since January, the biggest drop in the tech-heavy stock index since 2007, when it fell 48 percent.
This affects even established tech industry stalwarts. Netflix, Peloton and Robinhood laid off workers, while Meta and Twitter slowed or paused their hiring plans.
“Many tech startups that have seen tremendous growth in 2020, particularly in the real estate, finance and distribution sectors, are starting to see a slowdown in their users,” said Andrew Challenger, senior vice president of Gray & Christmas outplacement firm Challenger. Declaration. He said rising interest rates and concerns about inflation had prompted many to “cut costs and raise capital”.
Tech company layoffs “exploded” last month, according to Challenger. The company calculated that tech layoff announcements in May were 10 times the number in the first four months of the year.
Tech companies are often seen as a precursor to the broader economy. Because these startups can take a long time to turn a profit, tech investors need a relatively high risk tolerance. When the economy expands, these investors are often willing to sacrifice profitability for growth, but that account changes when borrowing becomes more expensive – for example, when interest rates rise – or when the economy looks less rosy.
The cutting-edge tech bust draws comparisons to the dot-com bubble of the late 1990s, when the Nasdaq lost two-thirds of its value between November 1999 and May 2002. The technology’s Index could drop as much as 75% in a few years, said Scott Miners, chief investment officer at Guggenheim Partners. Legendary value investor Jeremy Grantham says the broad S&P 500 index could drop 40%.
“Many companies will probably disappear,” Credit Suisse chairman Axel Lehmann said at a CNBC event last month.