Tech companies are laying off workers in a shaken market – 05/17/2022 – Mercado

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

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

“As I weigh the ramifications of this, all I can think of is ‘wow,'” Little wrote on LinkedIn, telling friends and colleagues she was among the 12% who were fired from Carvana. .

His experience mirrors the sudden sobriety that has gripped the U.S. tech sector, prompted by a massive, deep sell-off in stocks as investors fret about rising interest rates and slowing economic growth.

Private companies are forced to readjust expectations about valuations, access to finance and the risk appetite of venture capitalists, who may be placing more emphasis on caution.

“I think it’s certainly humbling for a lot of people in tech who thought things would never be different, or didn’t plan for a rainy day, or were a little pompous,” he said. said Semil Shah, founder and general partner of Haystack, a San Francisco-based venture capital firm.

“If you actually count the chickens before they hatch, or think about all the riches to come, it’s going to take a while.”

In open markets, Carvana was one of the hardest hit, but not the only one. DoorDash, the U.S. restaurant food delivery market leader, is down 49% year-to-date. Affirm, one of the biggest players in the once-hyped “buy now, pay later” industry, is down 75%. Shopify, the e-commerce operator regularly rated as the most serious threat to Amazon’s dominance, is down 67%. The picture was even bleaker until a general increase in Friday’s session (13).

Even big tech companies, among the safest growth stocks of the past decade, suffered steep declines. Apple, Amazon, Alphabet and Meta collectively lost $2.1 trillion of their market caps. In Apple’s case, the $600 billion drop was enough to see it dethroned this week by Saudi Aramco as the world’s most valuable publicly traded company.

For an energy giant to take its place illustrates the shift in investor confidence from companies with strong revenue growth but more fragile earnings to safer bets, said Jefferies analyst Brent Thill.

“It’s a large-scale technological vomit, a real eject button,” he said. “Less than a year has passed and all the high growth software companies are now evil, not for profit. I think there is a total shift from technology to defensive sectors, energy and public services.”

Tech companies are responding by getting to the bottom line – cutting costs, reducing cash burn, and focusing on the fundamentals.

“I’ve been talking about free cash flow more than I thought since I took my first accounting course, it’s kind of crazy,” said one person at a large tech company.

Similarly, at Uber, with shares down 45% this year, chief executive Dara Khosrowshahi told staff in a note last weekend: “The guidelines have changed. Now it’s about cash flow available.”

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

After radically renaming and realigning his company last year, Meta CEO Mark Zuckerberg’s enthusiasm for the Metaverse has paved the way for greater enthusiasm for big investments. The social media company pledged last month to cut its spending forecast by billions of dollars this year.

For this, Meta pulled the handbrake on the strong growth in the number of employees. According to an internal memo from the company’s chief financial officer, David Wehner, obtained by the FT, it recruited more employees in the first quarter of this year than in all of 2021 – but that’s over.

“We need to review our priorities and make tough decisions on what projects to undertake in the short and medium term to achieve the spending reduction targets we committed to in the results report,” he wrote, adding “It will affect almost every team in the company”.

A note from another Meta executive said scheduled job interviews for prospective junior and middle engineers will be “significantly cancelled.”

Twitter, potentially on the verge of taking over Elon Musk, said Thursday that it hasn’t reached its own “intermediate stages” of growth, so it’s “cutting non-salary costs to make sure we’re responsible and efficient.

Companies in the tech industry are looking closely at headcount as an immediate way to cut costs. Layoffs.fyi, which tracks layoffs among publicly traded and private tech startups, saw an increase from February, though levels were still well below the early stages of the coronavirus pandemic. Food delivery startup Reef, celebrity platform Cameo and diet and wellness app Noom are among the private companies that have laid off employees.

We are only beginning to feel the impact of the tech sell-off on the private sector and the funding ecosystem that underpins it.

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

According to CB Insights, global venture capital funding in the first quarter of 2022 was down 19% from the previous quarter, the biggest percentage drop since the third quarter of 2012. along with Spacs – fell 45%.

Haystack’s Shah said money for startups has already become harder to come by for companies without a solid business model.

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

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