Technology groups are cutting jobs in the new market reality – 05/17/2022 – Mercado

“It’s a rough day,” read the subject line of the email Shelly Little received from her bosses at Carvana, an online used car store.

The memo noted that Little was one of about 2,500 employees laid off by the US-based company this week, in an atmosphere another employee described as “mass hysteria.” Since the beginning of the year, the shares of the famous company for selling cars of multi-storey “automatic machines” have fallen by 84%.

“As I weigh the repercussions of this, all I can think of is ‘awesome,'” Little wrote on LinkedIn, telling her friends and co-workers that she was one of the 12% who had Carvana abandoned.

His experience reflects the sudden sobriety that has descended on the US tech sector, spurred by a deep and broad sell-off in stocks as investors worry about rising interest rates and slowing economic growth.

Privately owned companies are forced to readjust expectations about valuations, access to financing, and risk appetite among venture capitalists, who may place more importance on caution.

“I think it’s definitely insulting to a lot of people in tech who thought things would never be different, didn’t plan for a rainy day, or were a little bit overwhelmed,” said Simil Shah, founder and general partner at Haystack. Venture capital company. Based in San Francisco.

“If you’re already counting chickens before they hatch, or you’re thinking about all the fortunes to come, it’s going to take some time.”

In the open markets, Carvana was one of the hardest hit, but it wasn’t the only one. DoorDash, the US market leader in restaurant food delivery, is down 49% year-to-date. Affirm, one of the biggest in the once very encouraging “buy now, pay later” industry, is down 75%. Shopify, the e-commerce operator regularly considered the most serious threat to Amazon’s dominance, is down 67%. The picture was darker until a general increase during trading on Friday (13).

Even the big tech companies, some of the safest growing stocks of the past decade, have suffered major declines. Apple, Amazon, Alphabet, and Meta combined have been wiped out of its $2.1 trillion market value. In the case of Apple, the $600 billion drop was enough to see Saudi Aramco abdicate this week as the world’s most-traded company by value.

The fact that the energy giant is taking its place illustrates the shift in investor confidence from companies with strong revenue growth but shaky results to safer bets, said Brent Thiel, an analyst at Jefferies.

“It’s a large-scale, high-tech vomit, a real eject button,” he said. “It’s been less than a year and all the high-growth software companies are now evil and not-for-profit. I think there’s been a total shift from technology to defense, energy and utilities.”

Tech companies are responding by addressing the essentials – cutting costs, reducing cash burn, and focusing on the essentials.

“I’ve talked about free cash flow more than I’ve ever imagined since I took my first accounting class, it’s kind of crazy,” said one guy at a big tech company.

Similarly, at Uber, with shares down 45% this year, CEO Dara Khosrowshahi told employees in a note last weekend: “The signals have changed. Now it’s about free cash flow.”

“In times of uncertainty, investors seek safety,” he added in the note, published by CNBC and verified by the Financial Times. “They realize that we are broad leaders in our categories, but they don’t know what it’s worth. To take advantage of Jerry Maguire, we need to show them the money.”

After his company radically rebranded and redirected last year, Meta CEO Mark Zuckerberg’s passion for metaverse paved the way for more enthusiasm for big investments. The social media company pledged last month to cut its spending forecast by several billion dollars over the course of this year.

To this end, Meta pulled the handbrake on strong headcount growth. According to an internal memo from the company’s chief financial officer, David Weiner, obtained by the Financial Times, it recruited more employees in the first quarter of this year than in all of 2021 — but that’s over.

“We need to take another look at our priorities and make some tough decisions about which projects to execute in the short and medium term to achieve the expense reduction guidance we committed to in the earnings report,” he wrote.

A note from another Meta executive stated that scheduled job interviews for entry-level and mid-level prospective engineering employees “will reasonably be cancelled.”

Twitter, potentially on the cusp of an Elon Musk acquisition, said Thursday that it has not reached its “middle growth stages”, so it is “reducing non-labor costs to ensure our responsibility and efficiency.”

Companies across the tech industry are looking closely at headcount as an immediate way to cut costs. Layoffs.fyi, which tracks layoffs among publicly traded and privately owned tech startups, has seen an increase since February, although levels are still well below the early stages of the coronavirus pandemic. Among the private companies that have laid off employees are food delivery startup Reef, celebrity platform Cameo and diet and wellness app Noom.

I’m just beginning to get a feel for how technical liquidation is affecting the private sector and the financing ecosystem it supports.

According to a report published by analyst group PitchBook this week, the companies closest to migrating to open markets and trying to raise larger sums were the first to run into headwinds, seeing “very different investor sentiment” compared to high valuations in 2021.

According to CB Insights, global venture capital funding in the first quarter of 2022 was down 19% from the previous quarter, the largest percentage drop since the third quarter of 2012. With Spacs—it’s down 45%.

Shah Hastak said start-up money is already becoming more difficult to obtain from companies that do not have a well-established business model.

“People still write checks,” he said. “But if you are collecting 500,000 or 5 million or 50 million, you have to fight for them a lot more than you would have fought a year ago.”

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