As the U.S. economy slows, many technology companies that grew during the pandemic are being forced to restructure their operations and lay off employees.
Coinbase, a cryptocurrency exchange, announced Tuesday that it would be reducing its workforce by 18% or approximately 1,100 employees. CEO Brian Armstrong warned that the company “seems to be entering recession after a decade-plus economic boom.” He said that Coinbase, a publicly traded company with a market value exceeding $13 billion, “grew too fast” in 2021 due to its expansion to capitalize on the crypto craze.
A wide variety of companies are affected by the slump. Coinbase announced its cuts one day after BlockFi, a cryptocurrency company that had nearly tripled in size by 2021, announced it would lay off 250 employees. Privacy and marketing company OneTrust last week let go 950 employees, Stitch Fix cut 330 and identity-verification company ID.me dismissed 130. Bird, a transportation company, reduced its workforce by a similar amount. PolicyGenius issued pink slips for 170. This is just the last two weeks.
Dan Patterson, a CBS News technology reporter, said that “these companies are suffering right now.” He said that many tech players have been consolidating their positions as they consider the labor market after staffing up during the pandemic.
According to Layoffs.fyi which tracks industry job cuts, 35,000 tech companies have already laid off workers this year. Many other companies are suddenly changing their hiring plans, especially for fast-growing cryptocurrency businesses.
Patterson observed that “a lot of these companies haven’t only stopped hiring, they’ve rescinded all job offers.”
Coinbase pulled job offers from 300 of its incoming employees before cutting staff. Vice reported that one worker lost a $300,000.
Startups in the volatile cryptocurrency space, such as bitcoin and ethereum, are facing layoffs due to the sharp drop in their currencies’ value. The tech downturn is widespread — the Nasdaq composite Index has lost 30% since January. This represents the largest drop in tech-heavy stockindices since 2007, when it dropped 48%.
Even tech industry veterans are being affected by this. Meta and Twitter have slowed down or stopped hiring plans while Netflix, Peloton, and Robinhood are cutting back on workers.
Andrew Challenger, senior vice-president of Challenger, Gray & Christmas, stated that many technology startups, which saw huge growth in 2020, especially in the financial, delivery, and real estate sectors, are starting to experience a slowdown in their users. Many of them are trying to cut costs and increase capital because of rising inflation and interest rates, he stated.
Challenger reports that tech company layoffs “exploded” last month. According to Challenger, tech job cuts in May were 10 times more than in the first four months.
Many tech companies are seen as a beacon for the wider economy. Tech investors need to be tolerant of high risks, since these startups take time to make a profit. These investors will often sacrifice profitability in order to grow the economy. However, this calculus can change when borrowing becomes more costly, such as when interest rates rise or the economy looks less optimistic.
This latest tech crisis is being compared to the dotcom bubble of late 1990s. It saw the Nasdaq lose nearly two-thirds its value between November 1999-May 2002. Scott Miners, chief investor officer at Guggenheim Partners, said that the tech index could drop as high as 75% in a few years. Legendary value investor Jeremy Grantham predicted that the broad S&P 500 index might drop by 40%.
Credit Suisse Chairman Axel Lehmann stated that “a lot of companies likely will disappear” at a CNBC event last week.