Tech layoffs as industry confronts 20-year low

As the US economy slows, several IT companies that flourished during the pandemic are now facing a downturn, scaling back, layoffs, and retracting job offers.

On Tuesday, the cryptocurrency exchange Coinbase announced a headcount reduction of 18 percent, or approximately 1,100 employees, with CEO Brian Armstrong warning that “we appear to be entering a recession after a 10-plus year economic boom.” He went on to say that the publicly traded company, which has a market capitalization of more than $13 billion, “grew too quickly” in 2021 as it scaled up to capitalize on the crypto frenzy.

The downturn is harming a wide spectrum of businesses. Coinbase’s layoffs come only one day after BlockFi, another cryptocurrency business revealed it was laying off about 250 staff. OneTrust, a marketing company, laid off 950 staff last week, while Stitch Fix laid off 330 and ID.me fired 130. Bird, a transportation provider, laid off a comparable amount of employees, while PolicyGenius laid off 170. And this is only in the last two weeks.

“Those companies are suffering right now,” CBS News technology reporter Dan Patterson said. Many tech players are consolidating now after staffing up during the pandemic, he added.

According to Layoffs.fyi, which records job cutbacks in the industry, tech companies globally have let off a total of 35,000 workers so far this year. Many more are abruptly changing their recruiting plans, particularly previously fast-growing cryptocurrency firms.

“A lot of these companies have not only stopped hiring — they’ve rescinded job offers,” Patterson pointed out.

Coinbase revoked employment offers from approximately 300 potential candidates earlier this month, according to Vice reporting, which detailed one now-unemployed tech worker losing a “life-changing” $300,000 job offer.

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With the value of bitcoin, Ethereum, and other popular currencies plummeting, firms in the risky cryptocurrency area are leading the charge in layoffs. However, the tech decline is widespread: the Nasdaq composite index has lost 30% of its value since January, the largest drop in the tech-heavy stock index since 2007 when it dropped 48%.

Even established tech sector titans are feeling the effects of this. Meta and Twitter have stalled or halted hiring plans, whilst Netflix, Peloton, and Robinhood have laid-off employees.

“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 driving many of them “to cut costs and shore up capital,” he explained.

According to Challenger, layoffs at IT companies “exploded” last month. According to the corporation, employment cuts in technology were ten times higher in May than in the first four months of the year.

Tech firms are frequently regarded as economic barometers. Investors in technology must have a high-risk tolerance because these firms can take a long time to make a return. When the economy is booming, these investors are generally ready to sacrifice profitability for growth; but, this equation shifts when borrowing becomes more expensive — for example, when interest rates rise — or when the economy appears to be deteriorating.

The latest tech meltdown is being compared to the late-90s dot-com boom, which saw the Nasdaq lose two-thirds of its value between November 1999 and May 2002. Scott Miners, chief investment officer at Guggenheim Partners, warned that the technology index might decline by up to 75% over the next few years. Legendary value investor Jeremy Grantham predicted a 40% loss in the broad S&P 500 index.

“A lot of companies probably will disappear,” Credit Suisse chairman Axel Lehmann said last month at a CNBC event.

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