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Key Takeaways
- Podium is the most recent tech company to lay off staff, with a 12% reduction in its workforce.
- More than 50,000 people were laid off in the tech industry in November, adding to the growing concerns of a possible recession.
- Despite constant announcements of tech layoffs, recent labor data indicated that the economy added 263,000 (non-farm) jobs in November.
If you’ve been following the news lately, you’ve heard about the growing list of tech layoffs. Podium, a tech startup, is the latest to let go of staff. An internal memo revealed that they cut 12% of their workforce.
So far, it’s estimated that there have been more than 120,000 layoffs in the tech industry in 2022.
The tech layoffs have been especially prominent in the media, fueling fears that a recession may come sooner rather than later. What do the recent Podium layoffs and other notable cutbacks signal for investors?
What’s happening with the layoffs at Podium?
Podium is now on a list of well established tech company that recently announced layoffs. According to a report from Business Insider, Podium laid off 12% of its workforce. The Utah-based company had about 1,300 employees before announcing these cutbacks.
Podium is known for offering customer management services by helping businesses communicate with customers through text and chat boxes.
The company raised $201 million in funding in November of 2021. This increased the valuation to $3 billion. At the time, CEO Eric Rea told Bloomberg that the company had more than $100 million in annual recurring revenue.
Analysts were also discussing a possible IPO that they felt was inevitable at the time. As we all know, the economy is in a much different place just one year later, reeling from soaring inflation that has led to an aggressive rate hike campaign from the Fed.
On top of laying off 12% of the workforce, Podium will also be reducing expenses by extending their hiring slowdown until next year, subleasing its office spaces, reducing perks, and limiting software spending.
Business Insider was able to view the internal memo. It’s believed that the staff didn’t hear about the layoffs until they got an email. Some staff even found out when they couldn’t log in to work.
Podium officials didn’t respond to the story or officially comment on the situation.
All laid-off employees will receive six weeks of severance pay, and the company will cover healthcare premiums for all employees in the U.S. until the end of January.
Podium co-founders Eric Rea and Dennis Steele discussed in the memo how an uncertain macroeconomic environment, overhiring, and decisions in sales and customer experience led to the layoffs.
They wrote, “While we have always been disciplined about unit economics, we are going to need to be even more focused in order to drive the business forward in a macroeconomic environment that is less forgiving.”
Notable tech layoffs in 2022
There have been many headlines about tech companies announcing layoffs. It’s estimated that more than 120,000 layoffs have happened in this sector so far in 2022. A CNBC report stated that over 50,000 people were laid off from tech companies in November alone.
It’s believed that many of these tech companies experienced explosions in growth during the pandemic. They responded by adding on staff at a rate that proved unsustainable when the pandemic restrictions loosened up and demand dropped.
Now, realizing they’ve added too much staff and caught up by a decrease in discretionary spending and plummeting valuations, tech companies are especially sensitive to rate hikes whether or not they deliver on earnings.
As a result, these companies must manage expenses to match the current demand by reducing the employee headcount.
Here are some of the recent layoffs in the tech sector:
- BuzzFeed is cutting 180 employees, which is about 12% of its workforce.
- Morgan Stanley laid off about 2% of the workforce, which is about 1,600 people.
- BloomTech laid off 88 employees, which is almost half of the workforce.
- PepsiCo is laying off hundreds of corporate employees.
- Lyft is laying off around 700 employees, which is about 13% of its workforce.
- Amazon could lay off up to 20,000 employees globally, equating to about 6% of corporate staff.
- Coinbase announced that it would let go of 18% of its workforce.
- DoorDash is letting go of 1,250 employees.
- Kraken let go of 1,100 employees due to the crypto meltdown.
These recent tech layoffs come on top of the other major tech layoffs that we’ve covered here from companies like Meta, Twitter, and Stripe.
The pandemic hiring spree is reversing as layoffs sweep the tech industry. It’s almost easier to list companies that haven’t announced layoffs yet.
State of the labor market
The labor market has remained resilient despite the announcements of layoffs in the tech industry. According to recent data from the Bureau of Labor Statistics, non-farm payrolls increased by 263,000 in November, far exceeding the 200,000 figure that was expected.
The unemployment number matched expectations at 3.7%. Wage growth, on the other hand, doubled the projection in November to 0.6%.
Even though the Fed has been aggressively raising interest rates to bring down inflation by cooling off the economy, the labor market is telling a different story.
These November figures were surprising because the rate increase has brought the Fed’s benchmark borrowing rate to a target range of 3.75% to 4% in an attempt to slow down the economy.
The labor figures are even more interesting due to the constant news of tech layoffs, rate hikes, and speculation of a possible recession. This means the Fed will have a plethora of data to consider at the December FOMC meeting.
Fed Chair Jerome Powell commented during a speech recently on how wage pressures are contributing to the inflation rates.
Powell also shared his candid thoughts on the labor market. He stated, “To be clear, strong wage growth is a good thing. But for wage growth to be sustainable, it needs to be consistent with 2% inflation.”
Is this a sign of a pending recession?
A recession would lead to decreased consumer spending and lower advertising spending. Both of these factors would continue to hurt the tech industry, which has been bracing for this possible recession for most of the year.
With inflation soaring and constant news of layoffs, many fear a recession is around the corner.
The Fed initially tried to engineer a soft landing, a scenario where rate hikes would lead to prices coming down while avoiding a recession. As time passes, there are mixed opinions about whether this kind of scenario is possible.
The tricky question is whether these tech layoffs indicate that a recession is coming. There’s no easy answer here since the economy has been surprisingly resilient while the rate hikes continue, and inflation is showing signs of finally coming down.
The Fed’s primary goal right now is to bring down inflation. It has been made clear by central bank officials that rate hikes will continue, even if they slow down slightly. The fears will remain that slowing down economic growth will bring us into a recession.
However, we have to wait until the CPI data comes out for November to see if prices are coming down enough to satisfy the Fed before the FOMC meeting on December 13 and 14.
How are these tech layoffs impacting your investing?
On top of the already volatile stock market in 2022, investors now have to worry about layoffs and the impact on share prices. When companies report lower earnings, the share price drops, leading to further layoffs.
As an investor, it can be challenging to determine if companies are laying off staff to reduce expenses to remain profitable or if they anticipate even lower future sales. Either way, it’s difficult for investors to figure out which companies to invest in.
The good news is that you can use the power of artificial intelligence (AI) with the help of an Investment Kit through Q.ai. This ensures you don’t have to stress about finding the right stocks for your goals and risk tolerance.
With the Tech Rally Investment Kit, you can outsource your investing so that you don’t have to worry about tracking the market news as it comes. You can also activate Portfolio Protection to protect your gains and reduce losses, no matter what industry you invest in.
Source: https://www.forbes.com/sites/qai/2022/12/12/startup-podium-adds-to-the-growing-list-of-tech-layoffs/