Companies all over the world have fired around 38,000 employees in just the first half of the month. As per data accessed by Business Today from layoffs.fyi, a data aggregator, 37,866 people have been terminated from their jobs across the world as of November 16.
Meta, the parent company of the social networking site Facebook, has had the largest downsizing round so far. On November 9, 11,000 employees were terminated from the company. Amazon sacked 10,000 people on November 16. Microblogging site Twitter laid off 3,700 people on November 4.
Why are big tech companies downsizing?
Tech and tech-allied companies were the most impacted in this mass termination round. Many, including star investor and markets commentator Ray Dalio, believe that the recent crash indicates that the tech industry was in a bubble. He stresses that most of these companies were not profitable and depended on big-ticket loans or VC funding to stay afloat with negative cash flows.
Dalio, the founder of Bridgewater Associates, told Business Today, “There was a bubble in tech stocks. Mostly, what's happening is that a number of these have negative cash flows. That means they didn't have earnings that will support those prices. And in many cases, they didn't have earnings. And they relied on either borrowing money to make up the gap or raising venture capital or private equity money. And free money was basically free and plentiful. Money was basically the paradigm.”
Dan Ives, the managing director of Wedbush Securities, an investment firm managing funds over $4 billion dollars, told Business Today that these job cuts are an indicator of the end of hyper-growth for tech companies. He also said that big tech companies were rationalising cost structures to brace for the impending downturn.
He said, “We're seeing at Amazon, Apple, Microsoft, and others that the clock struck midnight for hypergrowth and now they are making cuts across the board. Amazon is no different. This is a rationalisation of cost structure to brace for slower growth times.”
What to expect next?
Dalio said that the cash crunch due to negative cash flows is forcing companies to contract or else they would go under.
“You're now seeing those companies who have negative cash flows, being severely hurt. Because if the money doesn't come in, then they'll go broke, they'll run out of money, they have to contract and so on. And we're seeing that happen,” he said.
Ives expects that the upcoming six to nine months would bring tough times for the tech space and more job cuts should be expected.
“Big Tech has been having fun up to this point but clearly they are going to see significant cost cuts, head count cuts as well. I think over the next six to nine months as the recessions is at the doorstep, time will get tough. I think this dark storm will pass but you cannot think of these tech companies as isolated from this. I think there'll be a massive rip in them as well,” he noted.
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