Why Many Digital Employee Layoffs: Don't Be Shocked By These Facts!

Why Many Digital Employee layoffs (Freepik) companies

YOGYAKARTA - Every week seems to bring a new chapter of layoffs in the technology sector. It started early in the year with smaller and growing companies that needed to oversee their ongoing spending, and has now expanded to industry giants like Meta and Amazon. Why do many digital companies lay off employees?

Just this week it was reported that Amazon plans to lay off 10,000 employees on a large scale. It comes from Meta releasing 11,000 workers last week and Elon Musk runs a continuous turndoor on Twitter.

It's probably sooner to list companies that didn't lay off their workers this year, but companies that include many other big names like Uber, Airbnb, Zillow, Coinbase, Netflix, Spotify, Peloton, Shopify, Stripe, and Robinhood.

The flow of dismissals has even given birth to websites that track layoffs in all sectors.

But why is this happening? Why are so many companies in the technology sector, even those that still generate huge profits, laying off so many people?

The reason is clear to be specific for each company, but there are several big themes affecting Silicon Valley and beyond.

Post-Covid reality

Yes, work from home has become a much more accepted practice. Many office workers now enjoy the benefits of working from home as part of their permanent work arrangements.

But hybrid work has also become much more popular. Many workers (and employers) want time in the office to collaborate, share ideas, and build corporate culture.

"Although technologies like Zoom and Google Meet are still widely used, we have gone through a past where every meeting is automatically held online."

Outside of work, the situation is even more severe. In many ways, life away from the office is almost exactly as it was before the pandemic. Bars and restaurants are full again, weekend sports are resumed and holidays are back

In many cases, people are even more interested in these things after two years of taboo.

The end result? Tech companies hire too many people. And it's not an ordinary admin staff who earn $10 per hour, it's a very experienced software engineer and low-income developer to mid-six.

Not to mention the advantages, facilities, and even the generous stock options included as part of the package. Several levels of excess employees for redundancy are required, but it is clear that in many companies, it is outrageous.

Economic situation and potential recession

Now this situation does not need to be a major concern if the prospect of healthy growth in the field of technology. Managing too many people is not a problem if you hire them too early.

Tentu, ini tidak ideal, tetapi jika Anda berharap untuk mempekerjakan posisi tersebut dalam 6 hingga 12 bulan, memilikinya di buku setahun lebih awal tidak akan merusak bank untuk perusahaan seperti Meta atau Alphabet.

The problem is that the short-term future doesn't look too bright. We've heard for months now that the US seems to be heading towards a recession. Coinbase CEO Brian Armstrong was one of the earliest to mention it, with Elon Musk, Zuckerberg, Jeff Bezos and many others following in recent months.

The recession means lower consumer spending and, most importantly, for many technology companies, lower advertising spending. At the recent Q3 earnings call, Meta mentions this in particular, stating that they expect Q4 ad revenue and early 2023 to be weaker than ever before.

With these obstacles in sight, tech companies need to regulate their spending to ensure they go through a volatile period safely.

What does Technology layoffs mean for Investors?

So how is the market reaction to all these layoff news? Well, in the case of Meta and Amazon, it's actually pretty good.

There is a huge difference between dismissing staff for concerns of maintaining business, and dismissing staff to tighten belts and making shareholders happy. For the largest company, large payroll does not raise concerns over whether the company will survive, but only how much profit they will make.

For startups or growth phase companies, massive layoffs could be a sign that the company itself is in trouble. Examples that are more inclined towards the end of the spectrum include companies such as Peloton or Groupon.

This means navigating technology investment is becoming more challenging than ever. It is difficult to say which companies are downsizing as part of a normal business cycle and which face fundamental challenges for their business.

We can help with that. In Q.ai we use AI power and machine learning to help predict how investment performance is, and then automatically rebalance our portfolio in line with AI projections.

In Emerging Tech Kit, our AI sees four vertical technologies, as well as a vast universe within each of them. First of all, AI projects and balances Kits across four verticals, technology ETFs, large-capalyzed technology stocks, growing technology stocks, and cryptocurrencies through public trust.

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So after knowing why many digital companies lay off employees, watch other interesting news on VOI, it's time to revolutionize news!