Amazon, Twitter, Meta… Why tech giants are getting laid off en masse
At the beginning of the year, e-commerce giant Amazon will cut 18,000 jobs. At the end of 2022, 3,700 employees were cut at Twitter, more than half of the workforce, and 11,000 (13% of the workforce) at the Meta group, which owns digital platforms Facebook, Instagram and WhatsApp. Meanwhile, major US software maker Salesforce is cutting 10% of its workforce, or 7,300 jobs. And technology market giant Apple has announced a hiring freeze.
All the champions of Silicon Valley decide to cut their workforce at the same time. The wave of departures follows a period of massive workforce growth: Between 2020 and 2021, Amazon created 400,000 new jobs, up from 1.2 million to 1.6 million employees worldwide. For years, the global e-commerce giant has been constantly hiring and even became the third largest private employer on the planet in 2020.
Cut positions to reassure shareholders
At the same time, the price of the Gafam stock exchange (Google, Amazon, Facebook, Apple, Microsoft or American technology giants) rose to a high. But in 2022, the curve reversed: Amazon lost 49%, Meta 62%, Twitter 24.6%, Salesforce 40%, and Apple 27% in one year.
Even Ghafam risks being less profitable in this year, marked by uncertainties about inflation and economic growth. So, these tough decisions: “The listed company is obliged to reassure its shareholders. The most effective way to do this is to cut costs by cutting jobs.”Christopher Dembick, director of macroeconomic research at Saxo Bank Group, explains.
Rising logistics costs and cautious advertisers…
The challenges facing America’s tech giants are not all the same. Above all, Amazon suffers from the increase in logistics costs, but also from the decrease in consumption in this period of rising prices. “The band didn’t really anticipate what was going to happen. In recent years, Amazon has increased its capacity by building and hiring warehouses.Philippe Moati, professor of economics at Paris-Cité University, explains. Although the group looks huge, its operating profit has halved over the past year.
Digital platforms such as Meta or Twitter are more affected by the investment choices of companies anticipating a recession in the United States. “These companies are more dependent on advertising revenue. “For advertisers, there is no point in stimulating demand if consumers cannot afford to buy.”Philippe Moati analyzes.
Meta faced another problem. The company has chosen to invest heavily in the creation of a virtual world, the metaverse. “Metaverse will have to wait a few years before it becomes profitable” Christopher Dembick believes.
And Apple is just being cautious. “The group passed on the increased costs to consumers by raising prices. This was not a problem because Apple products are considered luxury goods and consumers continued to buy them.”says the analyst.
“It’s not the end of GAFAM yet”
Will Gafam continue in this reduction dynamic? For Philippe Moati, “It will depend on how the situation develops”. Amazon still has great sales. In the third quarter of 2022, it is $127 billion. Apple is also doing well with sales of $90 billion in Q4 2022, up 8% from 2021.
“Despite high inflation, consumers continue to buy goods online” Christopher Dembick also notes. Amazon remains the leader in e-commerce. And it exists in other areas of activity, such as computer storage, a particularly profitable activity. The development of this sector does not slow down. Therefore Philippe Moati we judge “I can’t say it’s the end of my head”. These layoffs are a way to adjust to the market, but not yet a crisis for the Tech giants.
