The tech industry’s job outlook grew on Thursday, with ride-hailing company Lyft Inc.
and payments company Stripe Inc. both are announcing major withdrawals from Amazon.com Inc.
Price AMZN -3.06%
saying it would halt the company’s operations for several months.
The sad news for the industry came as the Federal Reserve moved again to raise interest rates to fight inflation, signaling a greater risk that the US economy is slipping into recession. Faced with this possibility, tech industry executives are warning of tough times ahead.
“We’re facing an unusual economic environment, and we want to balance our hiring and spending and think about this economy,” Beth Galetti, Amazon’s senior vice president of human resources and technology, said in a memo to employees this week. The memo informed them of Amazon’s plan to temporarily suspend workers across its businesses, which include workers in high-end categories such as Prime Video and grocery stores.
After years of incredible growth and record profits, many tech companies around the world are taking a step back as purchasing patterns change after the pandemic and businesses have to rethink how they spend on everything from marketing to business. In some cases, efforts to change wages have come to companies that have already paid back.
US claims for unemployment benefits have fallen from their summer peak and settled at a low level last week. The Labor Department’s October jobs report will be released on Friday, providing the latest snapshot of the overall labor market.
Although companies have reported economic growth, hiring freezes, layoffs and cost reductions – which have not affected other industries as strongly – show how the technology sector has grown as the pandemic has brought development to the sector.
“Unprofitability can be hidden when everything goes well,” said Mark Stoeckle, CEO of investment firm Adams Funds. “It’s easy to protect your margin when the money is going up, but when it’s stagnant or going up slowly, then you have to look at where you’re spending your money.”
For a technology company that has seen growth over the years, reducing headcount is anathema to the company’s culture and will be difficult to implement, said Mr. Stoeckle.
Amazon’s shutdown adds to a series of similar issues announced by other tech companies.
Lyft co-founders John Zimmer and Logan Green said Thursday that the company will cut 13% of its workforce, or about 700 jobs, The Wall Street Journal reported Thursday. In the memos, the founders pointed to the economic slowdown and said they expected the prices of the shared insurance to rise. Lyft has more than 5,000 employees not including drivers. The company in July laid off about 60 people and previously indicated it wanted to reduce hiring and cut costs in other departments.
Stripe on Thursday also announced layoffs that will affect 14% of employees. In a letter to employees, Chief Executive Patrick Collison cited “inflation, energy shocks, high interest rates, reduced investment and low start-up costs.”
Also on Thursday, Dapper Labs, which produces custom logos from the National Basketball Association and the National Football League, said it was laying off 22% of its workforce. Cryptocurrency-exchange operator Coinbase Global Inc.
this summer let go of 18% of its employees, and the strong trading Robinhood Markets Inc.
Tech companies are facing many challenges. Facebook parent Meta Platforms Inc. plans to cut costs by at least 10%, in part through layoffs, as sales slump and management struggles to relaunch the social media company to reflect its new focus on real-time and virtual reality. Letters Inc. Profile
Google has asked some employees to apply for new jobs to stay at the company, as has Apple Inc.
officials have said that they are hiring “on purpose”.
At Twitter Inc., meanwhile, Elon Musk’s ownership has brought about major changes that have included the departure of senior executives and plans to be fired. Company officials and people familiar with the matter say up to 50% of the 7,500 workers could be cut. The proposed layoffs are expected to reduce technical positions and affect other areas of the company.
The decline comes despite major companies trying previous strategies to cut costs this year. In Amazon’s case, the company scaled back plans to open a new museum this year and laid off hiring last month in its main division. Lyft is now also reducing its workforce after the previous changes.
Amazon’s hiring freeze doesn’t extend to an hour’s worth of workers as the company has been hiring hard in recent months to prepare for the busy holiday season.
Amazon has warned that it is taking precautions during the current economic situation. Brian Olsavsky, Amazon’s chief financial officer, said last week that company officials have seen signs that consumers are strengthening their spending and that inflation remains high.
The company’s shares have fallen since it reported quarterly earnings a week ago saying its fourth-quarter sales figures may fall short of expectations. The company said it expects operating expenses to be anywhere between zero and $4 billion in what is Amazon’s most important sales period of the year.
Amazon’s top executives have warned of financial ruin. CEO Andy Jassy last week said the company needed to balance its finances. The message followed a recent tweet by Jeff Bezos in which the Amazon founder said it was time to “drop the bullets.”
Contact Sebastian Herrera at [email protected] and Preetika Rana at [email protected]
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