Between stock market losses and layoffs: tech companies are in turmoil

Massive losses on the stock market, the announcement of unprecedented layoff plans: after years of euphoria, the major American technology companies have been going through a dark period since the beginning of 2022, and the trend does not seem ready to be reversed. Click on to discover everything you need to know about the current tech crisis.

In the 2010s, marked by the crisis in the financial sector, the major American technology companies took over. Their stock prices had reached stratospheric levels: on January 1, 2022, the total value of Google, Apple, Facebook, Amazon and Microsoft had reached 10,100 billion dollars, including nearly 3,000 billion for the Apple brand alone.

The repeated confinements during the Covid-19 pandemic boosted online commerce and pushed these companies to invest and recruit massively. But the return to routine has put pressure on their profits while revealing the slowdown in their growth.

Between the overvaluation of the stock market, lower profitability and slowdown in innovation, all the ingredients were there for a difficult return to reality, especially since the business models of these companies are now mature and have become as vulnerable to economic cycles as the others.

According to Jan Loeys, a stock market specialist at JP Morgan bank, quoted by the Belgian newspaper 'L'Écho', the growth of these companies "has been largely generated by the acquisition of potential competitors". "Smaller tech companies are more interesting because that's where new ideas can come from. This will be especially true if the Democratic Biden administration succeeds, through tougher competition policy, in preventing Big Tech from buying up its competitors," he continued.

The first consequence of this tech crisis was a collapse in the capitalization of its prominent firms. Between January 1 and November 10, 2022, the stock market value of the five digital giants fell by 34%. A drop that will result in a slow recovery in the years to come.

The value of Meta, the parent company of Facebook, Instagram and WhatsApp, suffered particularly badly, falling from 942 to 247 billion dollars over this period.

As a logical consequence of this slowdown, the major technology companies have announced layoff plans on a scale never seen in the sector. According to 'La Tribune', 68,000 tech employees lost their jobs in January 2023 alone after a first wave of 90,000 departures last November.

As of November 2022, Meta announced the dismissal of 11,000 employees, or 13% of its workforce, and a hiring freeze for several months. Quoted by '01net', the founder and director of the company Mark Zuckerberg sees in this situation the consequence of "miscalculations made during the Covid-19 pandemic", during which he had bet on a "permanent acceleration of e-commerce."

Meta, however, continues to invest heavily in the Metaverse, virtual reality technology, which Zuckerberg considers a "high-priority growth area". An investment considered to be a money pit by some observers and which even the company admits will not be profitable before 2030.

In early January 2023, e-commerce giant Amazon announced a massive layoff plan for 18,000 employees, after considering an initial figure of 10,000 jobs in November. Staff cuts will primarily affect Amazon stores.

To cope with the explosion of e-commerce linked to the pandemic, Amazon had hired with a vengeance: with 427,000 recruitments made during the confinements, the Seattle company had exceeded the number of 1.5 million employees. But Andy Jassy, the successor to Jeff Bezos at the head of the group, cited an "uncertain and difficult" economic context to justify the current cuts.

A few weeks after Amazon, Microsoft also announced the dismissal of 10,000 employees in the next three months, which represents 5% of its workforce.

Alphabet, the parent company of Google, announced the layoff of 12,000 people, or just over 6% of its workforce worldwide. The famous search engine also fears competing innovations in artificial intelligence, such as the ChatGPT generator.

In his press release, the CEO of the group Sundar Pichai  recalled the “spectacular growth” of recent years. “To support and fuel this growth, we hired for a different economic reality than we face today."

But the wave of layoffs in tech is not just about the giants of the sector. The software publisher Salesforce also announced a 10% drop in its workforce, or 7,000 jobs cut. According to '01net', the company admitted to having over-hired during the pandemic with an increase in its workforce of 30% in two years.

Acquired last year by Elon Musk, Twitter has fired half of its employees. The founder of the social network, Jack Dorsey, quoted by '01net', held himself responsible for this massive staff reduction, considering that he had “increased the size of the company too quickly."

The biggest tech companies are due to report results in the coming weeks as their near-term outlook looks bleak. The coming years will tell us if they manage to recover financially and remain at the heart of innovation.