2022's Tech Predicament
To say the least, 2022 has been a tumultuous year for the Technology sector. More than 180,000 people have been let go as part of hundreds of layoffs from tech giants and tech start-ups across the globe. This includes large dismissals at Meta, Amazon, and Twitter. Even Google has slowed down its hiring and could reportedly lay off around 6% of its workforce in the upcoming months.
Before we discuss and analyze the general and prominent reasons for this trend, let’s take a closer look at the distinguished class of tech behemoths who have partaken in layoffs & their performances in 2022.
Zuckerberg’s Metaverse bet has not paid dividends just yet. The social media conglomerate was reported as the S&P’s worst performer of 2022, with its market cap falling from $1 Trillion last summer to around $300 Billion as of December 2022. Zuckerberg alone has lost $100 Billion from his peak as Earth's 3rd richest man as he and his company plummet down the charts.
As Zukerberg and Meta came to terms with what was happening, they announced their intentions of laying off 13% of its staff, or 11,000 people along with a hiring freeze that will last through Q1 2023- barring a few exceptions. Along with these, Zuckerberg- in a note addressed to Meta staff, also announced cost-cutting measures to become capital efficient. This included scaling back on their real-estate footprint, employee perks, and budgets across businesses while concentrating on their metaverse vision, Ad-business platforms, and their AI search engine.
The Facebook, Instagram, and Whatsapp parent’s drastic measures find their roots in optimistic investing, over-hiring, and outsized tech revenue in the virtual era of covid. Zuckerberg, like others, predicted a permanent shift towards e-commerce and a largely virtual world- an illusion that was quickly unraveled in 2022. This led to optimistic forecasting and investment which coupled with high-interest rates, the threat of federal regulation, and other macroeconomic factors lead to revenue drastically lower than the years preceding this one.
2022 has humbled Amazon.
Pandemic highs in e-commerce and cloud computing fuelled rapid growth, leading to all-time highs in value and profit. Amazon doubled its workforce across the last 2 years and similar to Meta, invested in the future. Rather than let go of employees, it was fighting to protect them. It raised its cap on base salaries for corporate employees from $160,000 to $350,000, citing a competitive labor market.
With the advent of 2022, Amazon lost nearly a Trillion dollars in value from peaks in 2021. It has reduced its workforce by at least 80,000 people through its hourly staff (delivery partners, etc.). Last month, they announced a hiring freeze across corporate jobs for the next few months and shortly afterward announced they were letting go of 10,000 people systematically across their corporate and technology divisions.
This sudden turn in events is similar to Meta’s predicament. Pandemic success led to investing heavily into expansion and innovation with great optimism. These costs have proven to be too great to handle with inflation causing a change in shopping regularity due to which e-commerce has fallen as well. Amazon has had to narrow down its expenditure by closing down on many units in tech innovation including robots, its health care initiative, and even Alexa, where it has been facing losses due to low margins.
Twitter, is on the verge of ‘bankruptcy’.
In arguably its most popular year, Twitter has had to deal with the most damage. Unless you’ve been in a coma this whole year, it is quite impossible to not have heard of Musk’s Twitter takeover. According to him, he undertook this initiative to create a digital town square for humanity, where different ideas could be discussed without resorting to violence. However, what followed his successful acquisition is absolute turmoil. A barrage of ideas without systematic implementation has made Twitter an unpopular destination for employees, advertising, and users as a whole.
Musk fired top executives as part of his mass lay-off at Twitter. His workforce is reportedly down to less than 3000 from 7500 as many also participated in a ‘voluntary layoff’ due to Musk’s harsh working requirements. These requirements have also led to lawsuits from disabled employees over a disallowance to work remotely and requiring long, intense hours. Failed initiatives in his paid blue-tick subscription idea have also not helped Musk’s situation.
These cuts, however, have left Twitter in a cumbersome situation. Musk’s team has begun sending out requests to laid-off managers and engineers to return to their jobs as products and contracts were left unmanageable without the prerequisite knowledge employees possessed. The low-level staff has also been asked to return as their absence in physical offices has led to accidents. Twitter’s future is one mystery whose answer 2022 won’t see.
The Golden Era over ?
During the pandemic, as the world shifted towards the digital metaverse, tech companies reached their pinnacle. Their optimism was unmatched, creating abundant job opportunities in technology and engineering. MAANG's total headcount was estimated to have grown by 80% between 2019 and 2021. With interest rates dropping during the pandemic and a seemingly permanent wave of at-home work being inflicted upon most of society, technology was booming. As visible from the 3 examples above, they all invested heavily in the future, into niche products and automated services that are greatly futuristic and are sure to emerge more prominently later. Everyone thought this was where the future stood.
That’s when 2022 came along. ‘Surprisingly’ enough, people went back to physical offices, meaning the metaverse was abandoned for the real world. Macroeconomic policies drove interest rates up and profits down due to the supply-chain disruption caused by the Ukrainian war. Ad revenue, a prominent earner for companies like Twitter and Meta has dipped significantly due to recession fears, high costs due to inflation and interest rate increments. Google has also reported a decrease in revenue associated with ads. Companies have had to shut down ambitious projects and prioritize their major earners once again. They moved too fast and people couldn’t catch up. Their over-hiring, and over-investing all unraveled and their numbers projected some of their worst quarters in years. Fulfilling the egos of CEOs has also led to a loss, with failed investments and misaligned priorities. All of these factors have lead to slow growth, rapidly decreasing value, and minimal profit. Companies have had to come up with new plans to please their investors as they attempt to show progress. Unfortunately, aside from downsizing investment into the future, this has meant laying off hundreds of thousands of employees accross the technology sector.
Investors are calling time on MAANGs dominance in stocks. Tech has had a dismal year with high losses, lay-offs, and major companies all shrinking considerably in terms of market cap. Tech has played a pivotal role in the bull market this decade has witnessed, but their optimism has gone one step too far and the world has proven to be too slow to catch up. Some believe tech has reached its peak and while it will remain an integral part of financial markets, what is coming is a downward trend. Others believe this is a short-run situation and over the next few months, we should see an upward trend again with stability re-emerging and cost-efficiency measures winning back both profits and investors.
Only time will tell whether Tech will once again dominate markets, or whether MAANG will ever truly find its place again at the summit of the financial world.