Many technology companies that expanded during the pandemic are now pulling back, laying off workers and retracting job offers as the U.S. economy slows.
On Tuesday, the cryptocurrency exchange Coinbase said it was cutting its workforce by 18%, or about 1,100 people, with CEO Brian Armstrong warning that “we appear to be entering a recession after a 10-plus year economic boom.” He added that the publicly traded company, which has a market value of more than $13 billion, “grew too quickly” in 2021 as it scaled up to take advantage of the crypto craze.
The slump is affecting a wide range of companies. Coinbase’s cuts come one day after cryptocurrency company BlockFi, which had grown nearly sixfold in 2021, announced it was laying off about 250 people. Privacy and marketing company OneTrust last week let go 950 employees, Stitch Fix cut 330 and identity-verification company ID.me dismissed 130. Transportation company Bird slashed a similar number, while PolicyGenius gave pink slips to 170. And that’s just in the past two weeks.
“Those companies are suffering right now,” said CBS News technology reporter Dan Patterson. After staffing up during the pandemic, many tech players are consolidating as they contemplate the labor market, he said.
So far this year, tech companies worldwide have laid off a total of 35,000 workers, according to Layoffs.fyi, which tracks job cuts in the industry. Many more are abruptly reversing their hiring plans, in particular formerly fast-growing cryptocurrency companies.
“A lot of these companies have not only stopped hiring — they’ve rescinded job offers,” Patterson noted.
Before slashing staff, Coinbase earlier this month yanked job offers from about 300 incoming hires, according to reporting from Vice, which described one now unemployed tech worker losing a “life-changing” $300,000 job offer.
With the value of bitcoin, ethereum and other popular currencies dropping sharply, startups in the risky cryptocurrency space are at the forefront of layoffs. But the tech downturn is broad — the Nasdaq composite index has lost 30% of its value since January, the biggest drop in the tech-heavy stock index since 2007, when it fell 48%.
That’s affecting even established tech industry stalwarts. Meta and Twitter have slowed or paused hiring plans, while Netflix, Peloton and Robinhood are laying off workers.
“Many technology startups that saw tremendous growth in 2020, particularly in the real estate, financial and delivery sectors, are beginning to see a slowdown in users,” Andrew Challenger, senior vice president of outplacement firm Challenger, Gray & Christmas, said in a statement. Concerns about rising interest rates and inflation are spurring many of them “to cut costs and shore up capital,” he said.
Tech company layoffs “exploded” last month, according to Challenger. In May, job cut announcements in tech were 10 times the number in the first four months of the year, the company calculated.
Tech companies are often seen as a bellwether for the broader economy. Investors in tech need a relatively high risk tolerance, as these startups can take a long time to turn a profit. When the economy is expanding, these investors are often willing to forgo profitability for growth, but that calculus changes when borrowing becomes more expensive — such as when interest rates rise — or when the economy looks less rosy.
The latest tech rout is drawing comparisons to the dot-com bubble of the late 1990s, which saw the Nasdaq lose two-thirds of its value between November 1999 and May 2002. Scott Miners, chief investment officer at Guggenheim Partners, predicted that the tech index could fall as much as 75% over several years. Legendary value investor Jeremy Grantham said the broad S&P 500 index could drop 40%.
“A lot of companies probably will disappear,” Credit Suisse chairman Axel Lehmann said at a CNBC event last month.