Through Samantha BarnesInternational banker
IIn early August, Robinhood announced it would lay off 23 percent of its full-time employees. The popular trading and brokerage app, which has seen its user base surge during the pandemic, has seen a sharp slowdown in client trading activity on its platform. Additionally, the announcement came just three months after the company confirmed it would be laying off 9 percent of its employees, further underscoring the precarious state the global economy and tech sector is in today.
According to Robinhood’s second-quarter results, monthly active users fell 34 percent year over year to 14 million, while the company’s revenue fell a whopping 44 percent to $318 million. The company’s April conference call with its CEO, Vlad Tenev, also revealed that it had increased its headcount to nearly 3,900 in the first quarter from around 700 at the end of 2019. However, the most recent reduction will reduce this headcount to around 2,600. “Last year we filled many of our operational roles on the assumption that the increased retail engagement we had seen with the stock and crypto markets in the Covid era would continue into 2022,” Tenev confirmed in a blog post on the site the company. “In this new environment we are working with more staff than is appropriate. As CEO, I have approved and taken responsibility for our ambitious workforce plan – that’s up to me.”
Robinhood is one of many tech companies that has thrived in recent years, only to recently admit that it has seen declines in financial support and user activity in the wake of the recent economic downturn. They were therefore forced to downsize their activities. In fact, several of the world’s largest tech companies have done the same. Google, for example, announced a two-week hiring freeze on July 20, in what many perceived as a concerted move to slow the rate of new hires at the company. “Google is reading the space, following the trend of other big tech players slowing hiring into 2023 amid macro storm clouds,” said Dan Ives, analyst at Wedbush The edge. “Google sees a slowdown in digital ad spend and we see this as a cautious move.”
Apple, Amazon, Facebook, Microsoft and Twitter have also signaled that they would significantly slow their hiring pace. “As Microsoft prepares for the new fiscal year, it ensures the right resources are focused on the right opportunity,” a Microsoft spokesman told CNBC. “Microsoft will continue to increase headcount in the coming year, and we will have an additional focus on where those resources are going.” Twitter, meanwhile, confirmed in early June that it had reduced its talent acquisition team by a whopping 30 percent, partly due to mounting business pressures, but also following an announcement by the company in May that hiring was on hold and cost cutting needed.
Uncertainty about jobs has impacted the entire tech sector, which is becoming significantly more cautious due to the weakening economic environment. A recent Annual Confidence Index study of 1,006 technicians and 500 IT (information technology) decision makers by UK IT recruitment firm CWJobs found that 85 percent of IT decision makers agreed that the cost of doing business impacted their organizations. “Tech employers are preparing for future market uncertainties while trying to build resilient teams in a competitive market. It’s a challenging time, but this is a pivotal moment for companies to attract talent – before workers decide to stay put and weather the storm there,” confirmed Dominic Harvey, director at CWJobs. “More importantly, this is an opportunity for employers to build the teams they need to face whatever challenges lie ahead. This includes finding the right talent with the right expertise to build the team they need for the future.”
Meanwhile, an analysis by Tortoise Media’s Luke Gbedemah and Sebastian Hervas-Jones found that a divide is emerging between tech companies that can weather an economic downturn and those that may face existential decline. “The figures show that for the first time in industry history, the combined growth rate of companies’ real earnings was negative rather than positive, and overall real earnings were lower than a year earlier,” said John Naughton, professor and author of From Gutenberg to Zuckerberg: what you really need to know about the internetrecently wrote in a play for The guard news release. “Alphabet’s sales, for example, rose 13 percent, but profit fell 14 percent. Apple’s revenue rose by a hair, but profits fell more than 10 percent. Amazon’s revenue rose 7 percent, but profits fell a whopping 60.6 percent. Meta — meaning Facebook — had a terrible quarter, with slightly declining revenue but a 36 percent drop in profit. The only bright spot was Microsoft: Revenue increased by almost a fifth, but even then profit increased by only 2 percent.”
Such disappointing numbers strongly suggest that we may have reached the end of more than a decade of phenomenal tech stock gains. Indeed, technology has been at the forefront and at the heart of stock market appreciation – from 2013 to 2021, for example, the S&P 500 Information Technology (Sector) posted gains of more than 500 percent. By 2019, venture capital (VC) funding reached a then-record high of $143 billion, while the number of unicorns rose to 348, according to PitchBook. The following year, that number reached the top 500 worldwide, with the United States raising a whopping $164 billion, a new record.
In recent years, technology stocks have been instrumental in driving stock markets to record highs. But 2022 has proven to be a turbulent year for the global economy as systemic factors – including the war in Ukraine, rising inflation and significant monetary tightening by central banks – weigh on the global economic outlook for at least the coming months, if not longer. S&P 500 tech investors suffered losses of 25 percent, while venture capital funding for the sector showed clear signs of underperformance vis-a-visthe last few years. IPO activities have now come to an almost complete standstill. The Nasdaq, which is heavily populated by technology companies, also experienced a third of its value between November 2021 and June 2022.
And as Bitcoin-led cryptocurrencies experience a major selloff this year, investors’ appetite for new technology initiatives is clearly waning. “In recent years, the technology market has grown thanks to exceptional and difficult-to-reproduce conditions,” Laura Petrone, principal analyst at GlobalData, recently told industry publication Verdict. “These included historically low interest rates and more recently the Covid-19 pandemic. Companies like Netflix and Peloton grew rapidly on both factors, while companies like Uber suffered from the pandemic but also benefited from a decade of low interest rates and huge VC investments.”
But not only the USA is experiencing a possible bursting of its technology bubble. It was recently reported that India’s burgeoning educational technology (edtech) sector is in trouble. According to local media, India’s biggest edtech company — $22.6 billion-valued Byju’s — is struggling to close an $800 million funding round that started in March, with investors Sumeru Ventures and Oxshott still having about $250 million left US dollars in funds for “economic reasons,” the company said. Although the funds are expected by the end of August, Byju’s finances are under investigation by the Serious Fraud Investigation Office (SFIO).
And perhaps most notably in Japan over the past few weeks was a whopping $23.4 billion loss reported by SoftBank Group, a record for the renowned technology investment conglomerate and a dramatic reversal from the 5.6 gain billion US dollars achieved in the same quarter of 2021. A weaker yen and the “global downward trend in share prices amid rising concerns over an economic recession fueled by inflation and rising interest rates” contributed to the slump, it said, adding that South Korean e-commerce giant Coupang and US platform for Food deliveries DoorDash was among the top contributors to portfolio losses. As SoftBank is known for its heavy investments in technology companies, its recent losses, following its worst-ever full-year net loss reported in May, send a strong signal that the global technology sector is shrinking.
So have we seen the bottom of this tech sell-off yet? According to Dan Suzuki, deputy chief investment officer at investment firm Richard Bernstein Advisors, the slump must go further; he advised against investing in the sector when speaking to CNBC in early July. “The two certainties in this world of uncertainty today [are]…that earnings growth will continue to slow and liquidity will continue to tighten. It’s not a good environment to get into these speculative bubble stocks,” Suzuki said. “It’s a kind of history that you don’t touch. The time to be bullish on these stocks overall is when we see signs of bottoming out in earnings or when you see signs of liquidity being pumped back into the system.”
As such, investors may be best off staying on the sidelines for now, which can be a new and unusual sentiment. After all, it seems a distant memory when tech was so precariously positioned and didn’t consistently push stock indices to new all-time highs. “The era of what might be termed ‘tech exceptionalism’ – the era in which these companies and their cheerleaders were lauded for being different from normal, boring corporations – may be coming to an end,” says John Naughton . “From now on, they’re just corporations – like BT or Unilever.”