After at least a decade of expansion, tech companies have been rattled by inflation along with a slowdown in advertiser spending. The ad spending crunch has hit social media companies like Meta and Twitter hard, of course. Even Google parent Alphabet (GOOG, GOOGL) was slammed in its latest earnings cycle, as YouTube missed sales expectations by a whopping $400 million.
In recent weeks, Facebook parent Meta laid off 11,000 workers, about 13% of its overall workforce, and Amazon slashed 10,000 employees, about 3% of its corporate workforce. Additionally, Twitter, now owned by billionaire Musk, laid off half its workforce earlier this month, and a steady stream of resignations have followed.
Who might be next? The answer just might be Alphabet, according to Joshua White, Vanderbilt University finance professor and former Securities and Exchange Commission economist. White cites a letter that activist TCI Fund Management sent CEO Sundar Pichai this month, which stated that the company needs to take “aggressive action” in slashing headcount and salary costs.
“Our conversations with former executives of Alphabet suggest that the business could be operated more effectively with significantly fewer employees,” TCI Managing Director Christopher Hohn wrote on Nov. 15.
Chris Kayes, George Washington University School of Business professor, points out that Alphabet implied months ago that it was considering layoffs. To that end, in September, Pichai said that he hoped to make the company 20% more efficient, suggesting that could include trimming headcount.
Not all that surprising, though. Alphabet has increased its volume of employees by slightly over 50% throughout the pandemic. Per SEC filings, on March 31, 2020, the company had 123,048 employees; as of Sept. 30, 186,779 employees.
Alphabet shares are down about 30% year-to-date, as of market close on Monday. The company didn’t return a request for comment for this story.
So, when does it all end?
Experts say that tech’s pullback isn’t over just yet. So, what will it take to end the pain? In part, that relies on the Fed, which has been raising interest rates to lower inflation. Tech companies have been especially slammed by the Fed’s hawkishness, as the sector has relied on low interest rates for years to bolster growth.
“We know when it stops when the Fed starts to become dovish,” said White.
The holidays will also have an effect on how things go from here, added White. A better-than-expected holiday season could soften the effects of the difficult macroeconomic environment moving forward. In the end, the next phase of tech layoffs will depend on the severity of any recession. Goldman Sachs (GS) recently expressed optimism that a gentler landing is possible and ZipRecruiter Chief Economist Julia Pollak said that she expects tech growth to pick up where it left off once all that is sorted out.
“I think Big Tech is going to have a period of paused headcount growth, even a dip, but overall in the aggregate it’ll be a very slight dip, and growth will resume again,” she told Yahoo Finance. “The long-term trend is still towards more people having phones and laptops, and consuming online entertainment and content… That long-term line is going right up, but there will be some fluctuations around it.”
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