The 'winter' comes to technology: layoffs, cost cuts and stock market crashes

"I was wrong, things have not turned out as expected."

This is how Mark Zuckerberg intoned the

a few days ago when announcing the first mass layoff plan (11,000 workers, 13% of the workforce) in the 18-year history of Facebook, renamed Meta a year ago.

The error recognized by the great pope of social networks was to take for granted that the

of the technology companies, which reached its climax during the pandemic after years of extraordinary prosperity, had come to stay and significantly increased its investments.

Sinning of optimism has been the trend in the sector: Meta is not the only one that has pulled out the scissors.

The new CEO of Twitter, Elon Musk, has just fired 50% of his staff, while Amazon, Google and Apple have frozen hiring and put the brakes on some projects.

The fall in advertising revenue, the economic slowdown, the return of purchases in physical stores and the stock market crash of technology stocks in recent months have shaken an empire whose strength seemed irresistible.

Each of these companies has its own specific problems and challenges, but many causes are common.

The blows come from various points.

First, high inflation and the economic downturn have reduced consumers' purchasing power (and their spending) and pushed up energy costs, hurting e-commerce firms like Amazon.

It has also eroded advertising revenue, the business foundation of giants like Google and Meta.

In addition, the Great Lockdown benefited the

world , with companies like Zoom taking advantage of the expansion of remote work and others like Netflix gaining subscribers like never before.

The return to normality has eliminated this advantage;

Many have gone back to the streets to make their purchases and Netflix and other

platforms are betting on placing ads to offer cheaper subscriptions.

The puncture in the stock market is the third key element.

Goldman Sachs affirms that we are in a moment of "revenge of the old economy", similar to what happened after the dotcom crisis in the 2000s. And, after years of extreme liquidity that has elevated the sectors of rapid growth such as technology, the rise in interest rates since last May has once again made lifelong stocks attractive, such as energy companies and banks (the traditional one, because cryptocurrencies are also on the rise). drop).

Nextep's director of strategy, Víctor Alvargonzález, affirms: "If technology companies were the great beneficiaries of abundant and cheap money - and of the declaration of a confinement that benefits everything that is

—, the change to a completely opposite scenario makes them the biggest losers”.

Mark Zuckerberg. Drew Angerer (Getty Images)

Stock market crashes were the first sign.

Then came the layoffs and the presentation of results below expectations.

After years of hiring frenzy in Silicon Valley, belt-tightening is now the norm.

Since the beginning of the year, more than 50,000 tech company workers have been laid off.

In addition to Twitter and Meta, the social network Snap (20% of payroll employees laid off in August, after multimillion-dollar losses), the exercise bike company Peloton (4,000 employees in October) and Netflix (some 500).

Another example is the e-commerce company Shopify, whose revenues soared 57% in 2020, and now suffers from the drop in online sales with the return to normality.

Last summer he fired 10% of his staff, about 10.

000 employees.

The CEO of the company himself recognized, like Zuckerberg, that he opted for constant growth and was wrong.

Apple, Alphabet (Google) and Amazon are also trying to contain their staff costs with measures that involve, at a minimum, slowing or freezing the pace of hiring.

“We are facing an unusual macroeconomic environment, and we want to keep the balance between hiring and investing and the economic situation,” said Beth Galetti, vice president responsible for human resources at Amazon, in a message to employees a few days after announcing that it was contracting in the corporate area was paralyzed.

Microsoft and Intel are also downsizing hundreds of workers.

Amazon, which started the pandemic in March 2020 with 840,000 workers worldwide, and reached 1.6 million in early 2022, now has 1.5 million.

Meta, whose workforce amounted to 87 last September.

Layoffs in large technology companies can also have a contagious effect on the rest of the sector.

“If the big ones sneeze, the rest of us are on guard.

They fuel uncertainty and fear, and that makes the rest of us stop”, summarizes Jesús Tapia, general director of ISDI Accelerator, the accelerator for emerging companies (

) of the business school focused on the digital market.

“The time to make profound changes in companies is when things are going very well;

It is when you have to question whether what has brought you here is going to continue to work for you later.

But when there is uncertainty and volatility, you have to understand what your core business is, focus on innovating only on that, not testing, ”he says.

Now is not the time to go on an adventure.

The cascade of results in recent days coincide in a forecast: almost all companies expect business to decline in the last part of the year.

The present is already complicated: Amazon's net profit fell by 9% in the third quarter and similar trends have suffered the accounts of other technology giants such as Microsoft, Google and, above all, Meta, whose profit has been halved, weighed down by his commitment to the metaverse, which has so far been ruinous.

The black week of presentation of results, the first of November, resulted in the evaporation of 500,000 million dollars of the joint capitalization of the so-called FAANG (Facebook, Apple, Amazon, Netflix and Google).

Since January, Amazon shares have fallen nearly 50%, Meta shares about 70%, Apple shares 20%, Google shares 45% and Microsoft shares nearly 30%.

Netflix falls 54% in the year.

Twitter has gone public after being acquired by Elon Musk.

Interest rate hikes are particularly damaging to this sector, which in recent years has benefited from extraordinary liquidity and has been dominated by speculation.

The rise in the price of money produces a downward revision of the valuations in these shares, since the new scenario forces a higher discount rate to be applied to the future profits of the technology companies.

"If we discount these securities at a higher interest rate, the resulting current valuation is lower and, conversely, if we have a lower interest rate, the current valuation is higher," explains Celso Otero, fund manager de Renta 4 technology expert.

Before, investors agreed to leave their money parked in these companies, but now there are reasonable investment alternatives,

Otero adds that the current lower liquidity translates into fewer purchases and focused on lower-risk assets.

“We must also remember that we came from a time of Covid, which caused an increase in the savings rate in households and that was channeled in part to financial products, technology being one of the best assets.

We have now passed into a time of high inflation, which has caused a decline in that rate and which causes a reduction in the positions of some investors, ”he explains.

Looking to the future, the expert considers that "few sectors have growth expectations similar to the technology sector" and that they will continue to be important values.

Elon Musk, owner of Twitter and founder of Tesla.

Getty Images

For Xavier Ferràs, professor in the Department of Operations, Innovation and Data Sciences at Esade, it would be a mistake to focus on the short term when analyzing the financial turmoil that technology companies are going through.

What is happening now we have seen more times.

“We are in a phase of

, of over-expectations, which began with the pandemic, a moment in which we focused on the digitization of all businesses, and which is now being adjusted”, he explains.

We find ourselves on what Ferràs calls “the slope of disappointment”, a common phenomenon in innovative sectors.

“When any of the companies or technologies that participated in the

(which can be translated as overexcitement) begin to show signs of exhaustion, or that they were not what they seemed, and one of them presents some bad news, then it seems that everything it sinks".

It is not a definitive situation: “If we look at historical models, in the end these slopes are corrected”, indicates the professor.

How did technology get to this point?

According to Ferràs, the globalization in which the sector is developing has undergone a general mutation in recent years.

“There have been three big triggers.

The first was the Huawei crisis: the US realizes that, for the first time, China dominates a strategic technology, 5G, and can penetrate Western societies because it is very good and cheap.

What happens after 2018, he thinks, is dressed as a tariff or commercial crisis, but it was a technological crisis.

“The second milestone was when, in the 2020 pandemic, the Western world regained its sensitivity to industry and digitalization.

Suddenly we realize that we only generate services and that we need to re-concentrate technological production.

And the third came this year with the Ukraine war:

The result of these dynamics, Ferràs projects, is that technology is going to be increasingly important.

“Large corporations and states are pouring resources into R&D like never before.

South Korea, for example, has just announced investments worth 450,000 million dollars to create the best chips in the world.

A golden age of innovation is coming.”

The competition between the US and China does not have to be bad, at least from the point of view of consumption.

After all, the great technologies we use today (internet, GPS, superconductors) are daughters of the Cold War.

“We will see a set of disruptions that will come in the next few years and that will mark an era,” she maintains.

It remains to be seen if the metaverse, one of the big bets in the sector, manages to sneak in between them.

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