Arnd Wiegmann/Reuters
- Layoffs season is underway, with Meta expected to conduct widespread cuts.
- The layoffs are the result of multiple factors, including economic conditions and budget-planning for next year.
- Industry experts say the next few weeks are critical, as holiday layoffs could hurt morale and future hiring.
Layoffs season has arrived.
Meta is reportedly planning widespread layoffs. Lyft cut nearly 700 staffers. Fintech giant Stripe laid off 14% of its workforce. Those are just headlines in the last week — and it’s likely only the beginning, industry experts say.
Earnings across tech are weakening at the same time that companies are beginning to plan for the coming year. And with economic forecasts looking dire, tech firms are starting to tighten the belt — starting with cutting their workforces to shave salary costs.
Which means that in the weeks ahead, thousands of tech workers may be out of a job.
How did we get here
As Big Tech companies reported less-then-stellar earnings over the past few weeks, they also also flashed warning signs about the months ahead. The looming threat of a recession was causing customers to scale back spending, companies said — with few signs of a rebound on the horizon.
That means in the weeks and months to come, those companies are going to be looking to trim costs where they can, said Dan Wang, an associate professor at the Columbia Business School.
“When they cut costs, the first thing to go is typically labor costs and also advertising and marketing,” Wang told Insider. “So when it comes to forecast what their numbers will look like, it’ll depend on how they have seen the trend in advertising spending on their platforms. When that doesn’t look good, then they have to accommodate those expectations by adjusting the workforces.”
Tech companies are coming off a period of outsized growth, spurred on by the pandemic. What’s happening now is something of a correction, he said, as the tech world recalibrates to a time when people aren’t stuck at home, glued to their devices.
And even though in many cases layoffs began earlier this year — both at startups and big tech firms — sometimes, they didn’t go far enough, Menlo Ventures partner Matt Murphy previously told Insider.
“It always happens in cycles like this that sometimes companies don’t do layoffs significantly enough, but rather slow down on hiring and hope that normal churn might rightsize them,” Murphy said. “Coming out of Q3, which was much more difficult than Q2, it became much more obvious how many headwinds there were, and startups realized they can’t grow out of this with the staff they have and actually have to lay people off.”
What’s happening now
For some companies, these economic challenges are coming at the same time that they’re planning for the next fiscal year.
Amazon, Meta, and Google, for example, have fiscal years that end at the end of 2022 or in early 2023. They may be looking to get costs off their balance sheets now — before their fiscal years close. For example, if an employee is laid off now and given six weeks of severance, that reduces costs for the first quarter. Even if workers are given a longer severance, like three months, their salaries would be off the books before the end of the first quarter.
While budget-planning doesn’t apply to every company — Microsoft, for example, just conducted layoffs and its fiscal year ends in June — there is an element of planning ahead at play, said J.P. Gownder, vice president and principal analyst at Forrester, a market research company.
“That’s sort of unfortunate because it means that a certain number of folks are going to lose their jobs before the holidays and before the turn of the year,” he told Insider.
But in other ways, some companies may just be playing follow the leader: assessing economic conditions based in part on what other companies are doing, Gownder said.
“Watching other firms that are peers, not necessarily competitors, but similar firms to yours in the tech sector, could lead you to say, ‘Ah, this is the time,'” he said. “There is a bit of group-think in Silicon Valley.”
What happens next
With Thanksgiving just around the corner, the next two weeks are critical. That’s because companies may not want to cut jobs during the holidays — it could tank company morale, paralyze the employees who did keep their jobs, and affect future hiring, Gownder said.
“The best talent don’t want to work for the companies that kind of indiscriminately and without any empathy lay people off at the first sign of trouble,” he said.
Which means that if tech firms want to conduct layoffs, the next two weeks are the time to rip the bandage off or risk not only keeping those costs on their profit and loss statements headed into the next quarter, but piling on these secondary effects.
Some planning could mitigate that — severance would help soften the blow, as would helping laid-off workers get new jobs, like Airbnb did back in 2020 — but the timing still comes down to how individual companies are going to make their planning decisions.
“There is a process at work here, and unfortunately, I don’t know that that process is much focused on not disappointing people at Christmas,” Gownder said.