The long list of Big Tech companies laying people off surely says something about the current state of the economy, but it might tell us more about the sector’s prospects: Investors probably need to look elsewhere for growth.
In its first broad reductions in the company’s 18-year history, Facebook parent Meta Platforms on Wednesday said it would cut more than 11,000 workers, or 13% of its staff. Business software company Salesforce also started dismissing some employees this week. Marking one of his first moves since taking the company over, Elon Muskaxed about half of Twitter’s workforce last week, while ride-hailing company Lyft, payments company Stripe and iBuyer Opendoor Technologies also just announced major reductions. Those followed a dizzying list of earlier announcements from Netflix, Shopify, Tesla, Snap, Compass, Peloton, Twilio and more. Meanwhile, Amazon.com has said it would freeze corporate hiring for months, and Alphabet’s Google has asked some employees to apply for new jobs to remain at the company.
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What is striking about these moves in aggregate is that, even though the overall pace of hiring is less torrid than earlier this year, the US labor market remains in very good shape. The economy added 261,000 jobs last month, the number of people filing for new unemployment claims each week is low and job openings remain high. Although tech layoffs grab headlines, they are little more than a rounding error in the context of the 153-million-strong US job market.
Yet they affect what were, until recently, the world’s most valuable companies. The boom in online business sparked by the Covid crisis led many of them to extrapolate strong growth trajectories, staffing up accordingly. Their bosses seemed to embrace the bright future they sold to investors. Meta Chief Executive Mark Zuckerberg, in a message to employees Wednesday, confessed that he was among those who believed there “would be a permanent acceleration that would continue even after the pandemic ended.”
Apple’s requirement that users opt in to the tracking of their devices has hurt online platforms’ ability to sell targeted ads, with the social-media sector hit especially hard. And of course the economy is slowing drastically, so one could argue that tech layoffs are just the canary—or whatever Twitter’s bird is supposed to be—in the economic coal mine.
But part of what made fast-growing tech companies appealing to investors was their ability to defy economic cycles. When the US lost 8.6 million jobs over the course of 2008 and 2009, Google and Amazon kept adding workers. When companies begin to succumb to economic cycles instead, they start to look more like the legacy businesses they were supposed to disrupt.
Tech’s latest roster of superstars isn’t blind to this dreaded metamorphosis. Meta has been so desperate to rebrand itself in investors’ eyes that it changed its name from Facebook to reflect its “metaverse” product before it even existed.
But the urgency now is to slash costs and bring in revenue. “Chief Twit” Mr. Musk is now looking at ways to bolster his newest business through subscriptions, video and paywalls. He isn’t alone: Zillow quit algorithmic home-flipping to once again focus on its tried-and-true business of helping agents and, 15 years into the business of replacing cable television, streamer Netflix is capitulating to growth pressure, adding commercials. Live sports might soon follow.
Tech champions have on occasion been able to reinvent themselves: Once-hot Apple traded like a has-been by 2000, but the advent of the iPod in 2001, and then the iPhone in 2007, transformed it into the world’s most valuable company. Microsoft’s cloud and gaming investments restored its greatness, too. But history is filled with counterexamples such as RCA, Xerox, Polaroid, Palm, Yahoo, Nokia and BlackBerry. Even prosperous but humdrum Ford was cutting-edge a century ago.
If past is prologue, the fast-growing, gravity-defying tech companies for which investors will go wild next probably aren’t today’s household names. More likely they are getting dreamed up in dorm rooms, or hackerspaces, or at a table some freshly laid off Meta employees are sitting around, and one of them says, “You know what would be really cool?”
(This story has been published from a wire agency feed without modifications to the text.)
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