Why Google, Twitter and Robinhood are firing people

Why Google, Twitter and Robinhood are firing people

Other big tech companies are cutting hiring plans too. Meta Platforms* (NASDAQ: META) announced at the end of June, which reduces plans to hire systems engineers by 30%, with 10 up to 6-7 thousand.

Microsoft is about to be fired 1% from his staff to 181 thousand people. 18% fired at Coinbase (NASDAQ: COIN). Major layoffs occur in Twitter's HR department (NYSE: TWTR). This hints to us, that they do not need personnel officers and, Consequently, They don't plan to expand much..

Previously, in May, 2,5 thousands of employees, which were 12% work force, fired online car dealer Carvana (NYSE: CVNA). Robinhood (NASDAQ: HOOD) fired 9% their employees, or more than 300 people. Netflix is ​​also downsizing: reduced the number of employees this year 4%, although actively expanding during the pandemic.

Doesn't fire employees, but cuts Uber costs (NYSE: UBER), who has now decided to halt the rise in marketing and hiring spending, how much they were reduced is unknown.

Investors take news of layoffs negatively: after all, technology companies are expected to grow in everything. Index of the largest technology companies NASDAQ-100 for these 2 month fell on 3,5%.

Why?

There can be many reasons for this situation - from rising rates FED and the resulting rise in the cost of loans to the deteriorating state of affairs in the American economy.

Rates, probably, will continue to grow, and there is more and more talk of a recession. So at first glance it seems, that tech companies are preparing for tough times.

But you have to keep in mind, that the pandemic has led to a strong increase in demand for the services of large technology companies and they began to aggressively expand, dramatically increasing the number of employees. For clarity, we have compiled a table.

Growth in the number of employees during the pandemic

31 December 201931 December 2021
Twitter49007500
Meta Platforms*44 94271 970
Coinbase12493730
Carvana732421 000
Uber26 90029 300
Alphabet118 899156 500
Netflix860011 300

Now the rate of growth in demand for online services is slowing down, the same thing happens with the load on virtual powers, which grew due to the transition to remote work.

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Now the number of people, working remotely, settled down - and, Consequently, the load on the virtual infrastructure has stopped growing so much. At the same time, quarantines were lifted and people began to spend less time on social networks and online services..

For example, Robinhood dropped from 17.7M to 16.7M active users from March 2021 to March 2022. The number of subscribers and the streaming service Netflix fell: in 4 quarter of 2021 there were 221.84 million, this is the highest in the history of the company. IN 2 quarter of 2022, their number decreased to 220.67 million.

As a result, tech companies' revenue growth slowed down., and to maintain margin they, probably, decided to get rid of excess staff, that they got during the pandemic.

Moreover, for the most part, this excess did not appear at the expense of key areas. They now redirect hiring costs according to their priorities: the same Google is going to actively hire candidates with engineering and technical skills, apparently to develop its cloud segment.

Tesla fired 200 people in June, although I said before, that will fire 10% their employees. The vast majority of these were relatively low-skilled employees with low salaries, such as testers of the autopilot algorithm of the company's cars..

As a result, after all the cuts, they will still have more staff., than before the pandemic. By the way,, Google had nearly 164,000 employees in March of this year., on 17% more, than a year before.

From the Ziprecruiter website (NYSE: ZIP) the number of job postings for software developers is currently still at 107% above, than at the beginning of the pandemic, albeit for the last 4 week, the number of posted job ads in this area fell by 10%.

What will be the consequences of this

Reducing the number of employees, anyway, means some slowdown in business activity for these companies - most likely, they will stop increasing spending on maintenance of their digital facilities and software.

Given their size, their counterparties may run short of money. Among the likely losers are such cloud businesses, how Okta (NASDAQ: OKTA), Teradata (NYSE: TDC), Citrix Systems (NASDAQ: CTXS) and the like.

The current situation has already led to thousands of layoffs in startups.. Venture investors see, that the growth of tech giants is slowing down, which means, it is worthwhile to wait a while with attempts to create "one's own Amazon».

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This should slow down growth in IT salaries and will benefit IT consulting companies like Cognizant Technology Solutions. (NASDAQ: CTSH) и Insight Enterprises (NASDAQ: NSIT), for which salaries are the main item of expenditure.

The recent fall in the shares of high-tech companies provides an opportunity for large buyers to acquire the asset of interest at a low price.. So, CRM-company Zendesk bought a consortium of private funds at a price of 40% below that, what was offered in february, - 10 billion against 17. Thoma Bravo Fund bought software maker Anaplan at a price of 5,7% below all-time highs, not higher, which can also be considered a victory in the case of IT.

However, growth is still possible.. Firstly, the pandemic is not over yet and can still flare up with the same force and drive everyone into the virtual world. Secondly, remote work is beneficial for employers, as it allows you to save on the costs of highly qualified and highly paid employees.

So in the medium term, the demand for Internet traffic and online services may grow again.. In the meantime, you can pick up the fallen stocks of large technology companies with an eye to the almost inevitable resumption of demand for their services..

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