The once-booming tech industry is starting to cut jobs and costs. Is this a blip? Or a bubble finally bursting?
Layoffs, hiring freezes, and cost-cutting haven’t been significant parts of Silicon Valley’s vocabulary in recent years.
Those halcyon days look like they’re ending.
Several high-profile companies are tightening their belts as the global economy stumbles, investors seek shelter in safer equities, and venture capitalists grow weary of cash-burning startups, according to multiple media reports.
The list of suddenly frugal firms isn’t terribly long as of yet, and many sectors and companies continue to post record-breaking revenues. But some of the names pivoting toward austerity bear watching.
Meta is scaling back hiring targets and instituting an indefinite hiring freeze on many engineering positions, Insider first reported Wednesday. The Facebook and Instagram parent faces several revenue challenges in 2022, including a softening digital ad market and iPhone privacy changes that will cost Meta billions of dollars.
Another tech giant, Netflix, has pledged to “right-size budgets” after a stunning slowdown in net subscribers wiped out more than $50 billion in market cap last month. The reductions likely will impact Hollywood creatives and behind-the-scenes crews the most, though layoffs of about 25 employees in Netflix’s marketing department stoked fears of wider cuts.
Robinhood, the one-click investing platform, announced layoffs last week totaling 340 employees, or 9% of its workforce. CEO Vlad Tenev said the company needed to scale back after hiring too many people amid a pandemic-driven surge in activity on Robinhood.
Several other smaller outfits have started culling their workforces in recent weeks. Fast-delivery firm GoPuff laid off about 400 employees, or 3% of its staff earlier this spring, as it looked to restructure ahead of a possible IPO. Peloton announced it would lay off about 2,800 workers after a series of management mistakes. The embattled online mortgage company Better.com disclosed a third round of job cuts in April, bringing its layoff total to roughly 5,000 since late last year, according to Fast Company.
For now, the cost-cutting has been largely limited to companies with rather unique circumstances.
Meta is investing roughly $10 billion annually in developing virtual reality, augmented reality, and metaverse technology that remain years away from profitability—a luxury that’s hard for Wall Street to stomach. While Netflix struggles with questions about market saturation, several streaming competitors with lower monthly fees continue to add subscribers. GoPuff operates in a brutally competitive and deeply unprofitable new sector, while Robinhood, Peloton, and Better.com experienced huge crashes after going gangbusters in the throes of the pandemic.
Bear in mind, too, that the vast majority of tech companies continued to post revenue growth in 2022, albeit at slower rates than last year. Some tech sectors are weathering the tech selloff, too, including software, cybersecurity, and semiconductors.
At a minimum, though, parts of the industry are in line for a course correction after years of lavish venture capital investment and investor tolerance for cash-burning companies.
Fears of a bubble bursting are likely unfounded, just as they have been for the past decade (check out this fantastic New York Times graphic for evidence). But with interest rates still rising, a possible recession on the horizon, and the tech-heavy Nasdaq 100 already down 20% this year, the window is quickly closing on Silicon Valley’s heyday.
“An entire generation of entrepreneurs & tech investors built their entire perspectives on valuation during the second half of a 13-year amazing bull market run,” venture capitalist Bill Gurley, recently portrayed by the unfairly handsome Kyle Chandler in Super Pumped, tweeted last week. “The ‘unlearning’ process could be painful, surprising, & unsettling to many.”
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Help from my friends. Elon Musk disclosed Thursday that he has obtained $7.1 billion in new equity financing for his imminent $44 billion buyout of Twitter, investments that will help reduce his need for margin loans to make the acquisition, Bloomberg reported. New regulatory filings show several high-profile companies and investors making financial commitments, including Oracle co-founder Larry Ellison, cryptocurrency exchange Binance, and Saudi Prince al-Waleed bin Talal. CNBC also reported Thursday, citing sources familiar with the matter, that Musk plans to serve as temporary CEO of Twitter once the deal closes later this year.
Investors check out. Shopify shares sank 14% in mid-day trading Thursday after the e-commerce company fell well short of first-quarter earnings estimates and announced a $2.1 billion deal to buy delivery startup Deliverr, Bloomberg reported. Shopify posted adjusted earnings of 20 cents per share to open 2022, missing analyst projections of 64 cents per share by a wide margin. Investors also fretted about Shopify issuing an underwhelming growth forecast for the second quarter. The Deliverr deal will help Shopify build out its delivery and logistics network as it aims to compete with chief rival Amazon.
Playing nice on passwords. Tech giants Apple, Google, and Microsoft announced Thursday that they will jointly work on technologies enabling passwordless sign-in across all of their platforms, The Verge reported. The trio envisions a shift toward using personal smartphones as a method of unlocking access to apps, browsers, and websites on each company’s operating system. Company officials said the switch will help user privacy by reducing phishing and other password-based cyberattacks. The announcement came on World Password Day, which is inexplicably a thing.
Regulators of the world, join hands. Europe’s top antitrust watchdog called Thursday for a global approach to regulating large tech companies, arguing a standard set of rules would lead to stronger enforcement, Reuters reported. Margrethe Vestager, the European Commission’s leader on competition policy, told audience members at a German conference that she believes there is widespread political will for tighter regulation targeting powerful tech companies. The European Union reached an agreement on landmark tech regulations last month, while American policymakers are considering several bills that take aim at Apple, Google, Amazon, and their peers.
FOOD FOR THOUGHT
A strange survey. Netflix shrugged off the plight of password sharing until it could no longer afford the lost revenue. Might Disney follow suit? As Protocol noted Thursday, a conspicuous questionnaire sent to Disney+ subscribers in Spain shows that password sharing is on the minds of company executives. Disney+, HBO Max, and other streaming services haven’t worried at all about password sharing, choosing to focus instead on growing subscriber counts. But Netflix’s comments last month about a potential password crackdown, which followed years of indifference within its top brass, make any rumblings on the topic notable.
From the article:
A third of all streaming subscribers would be willing to pay a bit more in order to share their passwords with others, according to a recent Morning Consult survey.
Disney’s survey suggests that the company may be thinking along the same lines about the problem. If the motivation for sharing your streaming password is your desire to help out others, or even just to geek out with them about the same shows, then you may be willing to pay a couple more dollars a month to do so.
IN CASE YOU MISSED IT
Verizon considers raising prices on wireless plans to address inflation, by Scott Moritz, Todd Shields, and Bloomberg
California becomes first state to try to regulate cryptocurrency, by Don Thompson and The Associated Press
BEFORE YOU GO
Still twisting his arm. Is there a crazier story in tech right now than the fight between Arm China and Allen Wu? Two years ago, Arm China, a joint venture between the British semiconductor designer Arm and a Chinese private equity firm, fired Wu, the company’s CEO. Except Wu refused to leave and managed to retain control over the company via some crafty legal maneuvering. Reuters reports that Arm China regained control and fired Wu last week. Except Wu still refuses to relinquish power—and he’s got hundreds of loyal employees fighting for him. In response, Arm China said it will reconfigure its communication systems to ensure Wu and his supporters can’t access them. And here we thought the Elon Musk-Twitter story was nuts.
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