Are we already in a recession?
One of the clearest indicators that a recession is knocking on the door began to flash red this week as several US technology companies announced mass layoffs or hiring freezes.
Amazon said it would no longer fill certain companies, while Apple said it would stop hiring in most departments. In doing so, they join other megacap tech companies, including Facebook parent Meta and Google parent Alphabet, which have frozen hiring in recent months.
At the same time, younger tech companies, including payments provider Stripe and ride-hailing company Lyft, have resorted to layoffs, both saying the sour economy is becoming increasingly unfavorable for tech. More tech layoffs could be coming soon, as Twitter’s new owner, Elon Musk, is expected to cut half of the social media giant’s 3,700-person workforce as early as Friday.
Over the past decade, tech companies have grown tremendously—aand spent a lot, too. But a global recession on the horizon could be much longer and harder than many expect, and Silicon Valley companies that announced major layoffs this week could pose a threat to the broader economy.
“The year 2022 marks the beginning of a different economic climate,” Stripe CEO Patrick Collison wrote in an email to employees announcing the 1,000 layoffs this week.
For technology companies, the new economic climate may mean slowing down the rapid growth and massive spending of recent years and cutting costs where possible. According to an October survey by KPMG,US CEOs — more than 90% — already believe a recession is coming, and more than half said they plan to make preemptive layoffs in the next six months.
Strong economic headwinds, poor results in the last quarter, and fears of a recession forced online shopping giant Amazon to make difficult personal choices.
Last week, Amazon published dismal third-quarter results that showed revenue growth of 15%, up from 37% a year ago, but well below analysts’ expectations. Its shares fell 20% overnight, and ultimately, the company’s market value fell below $1 trillion for the first time since 2020.
Amazon executives blamed weak consumer demand for the poor results and warned that the weakness will continue next year. A week before the earnings report, Amazon founder and former CEO Jeff Bezos advised people to “close the shutters” in anticipation of a murky economic environment.
Due to the decrease in demand for services, Amazon wants to tighten its belt. Last week, after a weak earnings report, the company laid off about 150 people in its live radio division and told employees on Thursday that it was implementing layoffs at the company’s retail jobs.
The fintech company Stripe spoke perhaps most directly about the impact of recession fears when it announced Thursday that it will lay off more than 14% of its workforce, or more than 1,000 jobs.
In an email announcing the layoffs, Stripe CEO Patrick Collison wrote that 2022 marked the “beginning of a different economic climate” that would require companies like Stripe to abandon high-growth and spending strategies.
Collison cited energy shocks, higher interest rates, inflation, reduced investment, and fears of a global recession as reasons why the company is now building differently for lighter times.
“To properly adapt to the world we are going into, we need to reduce our costs,” he added.
Smaller startups that rely on technology investments and venture capital funding have made their cuts recently. CloudKitchens, a smart kitchen provider led by Uber co-founder and former CEO Travis Kalanick, laid off 30 of its recruitment employees on Thursday as part of an organizational restructuring, Insider reported.
Lyft announced Thursday that it will lay off 13 percent of its workforce, or nearly 700 employees, the Wall Street Journal reported.
“There are several challenges in the economy.” “Next year, we face a likely recession, and the cost of driving insurance will rise,” the company’s founders told employees.
Lyft already laid off about 60 workers in July to cut costs and consolidate operations. The company imposed a US hiring freeze in September. due to higher insurance costs, inflation, and growing uncertainty.
In just over a week, Elon Musk became the owner of Twitter and is making massive layoffs.
Musk had already hinted for months that he planned layoffs during his tenure, saying the company needed to “get healthy” financially and reduce costs.
Last month, reports suggested that up to 75 percent of Twitter’s workforce could be laid off, although Musk quickly denied those rumors.
But despite the company’s silence on the matter, there may still be big layoffs ahead. Sources reported throughout the week that managers had been ordered to draw up layoff lists.
On Wednesday, Bloomberg reported that Musk planned to cut 3,700 jobs, or about half of the company’s workforce. Laid-off workers are expected to be notified on Friday.
Twitter missed analysts’ profit expectations in the second quarter, with executives blaming “advertising industry headwinds” for the poor performance.