Tech bubble burst: layoffs begin. It is a short step from financial crisis to real

The US internet technology sector, inflated by excessive expectations and hyper-expansionary monetary policies, is rapidly exploding. To give an idea, let's make a few names and therefore percentage of decline in a year:

• Netflix – 70%
• Snapchat – 75%
• Carvana -91%
• Facebook -40%
• Uber -49%
• Pinterest -67%
• Paypal -73%

Now comes the bad for the real economy, starting with direct damage, as W olfstreet points out . Big companies are now talking about cost cuts, hiring freezes and layoffs. Even the biggest stocks in tech and social media, profitable companies with huge market capital, are suddenly talking about hiring freezes. Some early-stage SPACs have warned against running out of liquidity and the ability to continue operating as a going concern.

There is also an inflationary problem for the technology sector, especially in the US where the salaries of trained people demand ever higher wages. Startups can no longer rely on investors to endlessly power their cash-making machines. And for them, raising money suddenly became difficult. Investors have become more cautious. The founders of these startups have been warned by venture capital partners to get moving, cut spending and start aiming for positive cash flows. Then it cuts.

The layoffs are relatively small and few for now. Labor shortages persist, jobless claims remain close to record lows, and redundant workers, thanks to the labor shortage and 11 million jobs available, are often quickly hired by other employers. And many of these people already have jobs ready when they are fired. But the trend has completely changed. The tech boom is over. The next step, which started in February last year, one title after another, is the technological breakdown.

On May 26, it emerged that Microsoft, whose stock fell 22% from highs, has enforced a hiring freeze in its core division. The executive vice president who heads the group that develops the Windows operating system, Office applications and Teams on Thursday told employees in an email that the new hires for the software group would need to be approved by top management. Which effectively means a hiring freeze for the group. Microsoft said it will continue hiring, but "will further focus on targeting those resources."

Netflix, whose shares plummeted 73% from highs, is laying off staff. A few days ago it emerged from a WARN file submitted to the State of California that the company had laid off 106 people. It was later learned that the company had laid off 150 employees, mostly based in the United States.

On May 24, it emerged that PayPal , whose shares plummeted 73% from its highs, fired dozens of employees from its offices in Chicago, Omaha and Chandler, Arizona, to cut costs. It also emerged that it is planning to close the entire San Francisco office. This city is one of the most expensive places in the US and we expect companies that can will move their locations elsewhere.

On May 24, it emerged that Lyft, whose stock plummeted 80%, has mandated a slowdown in hiring and is slashing the budgets of some departments, the Wall Street Journal reported.

The technological crisis is also being felt in Europe: Klarna, the Swedish fintech company that grew a lot during the covid-19, suddenly laid off 10% of its staff, indicating a turnaround that risks not being the only one.

This is only the first negative relapse, the immediate one. We will soon see the effects on consumption linked to the loss of value of investments, and it will be a much, much stronger effect.

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The article Explosion of the Tech bubble: layoffs begin. From financial crisis to real, the step is short comes from ScenariEconomici.it .

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This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/esplosione-delle-bolla-tech-iniziano-i-licenziamenti-da-crisi-finanziaria-a-reale-il-passo-e-breve/ on Fri, 03 Jun 2022 09:49:05 +0000.