Many tech companies that grew during the pandemic are now retrenching, laying off workers and pulling job offers as the US economy slows.
Tuesday, the Coinbase cryptocurrency exchangeby 18%, or about 1,100 people, with CEO Brian Armstrong warning that “we appear to be entering a recession after an economic boom of more than 10 years”. He added that the publicly traded company, which has a market value of over $13 billion, “grew too quickly” in 2021 as it expanded to take advantage of the crypto craze.
The crisis is affecting a wide range of businesses. Coinbase’s cuts come a day after cryptocurrency firm BlockFi, which grew nearly sixfold in 2021, announced it was laying off about 250 people. Last week, privacy and marketing company OneTrust laid off 950 employees, Stitch Fix cut 330, and identity verification company ID.me laid off 130. Transportation company Bird cut a similar number, while PolicyGenius gave 170 pink slips. And that’s just in the last two weeks.
“These companies are hurting right now,” said CBS News technology reporter Dan Patterson. After hiring staff during the pandemic, many tech players are consolidating as they eye the job market, he said.
So far this year, tech companies around the world have laid off a total of 35,000 workers, according to Layoffs.fyi, which tracks job cuts in the industry. Many more are abruptly canceling their hiring plans, especially fast-growing cryptocurrency companies.
“A lot of these companies not only stopped hiring, they canceled job offers,” Patterson noted.
Before cutting staff, Coinbase earlier this month pulled job offers from about 300 incoming hires, according to a report from Vice, which described a now-unemployed tech worker losing a $300,000 job offer “that changes his life.”
With the steep decline in the value of bitcoin, ethereum and other popular currencies, startups in the risky cryptocurrency space are at the forefront of layoffs. But the tech downturn is wide-ranging – the Nasdaq Composite Index has lost 30% of its value since January, the biggest drop in the tech-heavy stock index since 2007, when it fell 48%.
It even affects established stalwarts of the tech industry. Meta and Twitter have slowed or suspended hiring plans, while Netflix, Peloton and Robinhood are laying off workers.
“Many tech startups that have seen phenomenal growth in 2020, particularly in the real estate, finance and delivery sectors, are starting to see a slowdown in user numbers,” said Andrew Challenger, vice president. -senior chairman of outplacement firm Challenger, Gray & Christmas, in a statement. statement. Concerns about rising interest rates and inflation are prompting many “to cut costs and shore up capital”, he said.
Layoffs at tech companies “exploded” last month, according to Challenger. In May, announcements of tech job cuts were 10 times higher than in the first four months of the year, the company calculated.
Tech companies are often seen as an indicator of the broader economy. Tech investors need a relatively high risk tolerance because these startups can take a long time to turn a profit. When the economy is expanding, these investors are often willing to trade profitability for growth, but this calculus changes when borrowing becomes more expensive – such as when interest rates rise – or when the economy seems less pink.
The latest tech rout draws comparisons to the dot. the technology index could fall by as much as 75% over several years. Legendary value investor Jeremy Grantham said the broad S&P 500 index could drop 40%.
“A lot of companies are probably going to disappear,” Credit Suisse Chairman Axel Lehmann said at a CNBC event last month.