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Why are there so many tech and media layoffs in 2023?

First the stock prices came down, and then the layoffs began.

If 2022 was the time when technology companies that had struggled to make consistent profits started letting go of employees — Snap cut a fifth of its workforce, Carvana let go 1,500 employees, Twitter … well, you know — then 2023 seems to be the year where even the giants of the industry are cutting headcount. In the past few weeks, Amazon, Google and Microsoft have announced or implemented layoffs of some 40,000 combined employees. Even Salesforce, the enterprise software giant, is laying off 8,000.

While these tech companies — and Meta, which laid off 11,000 in November — don’t all operate in the same business — Meta and Alphabet sell ads, Microsoft sells software, Amazon sells too many things to list — layoffs are happening for all of them. That’s because their investors expected more growth than they are currently showing, share prices that soared in 2020 and 2021 have come back to earth, and any time share prices fall, investors and executives get antsy — and workers often pay the price.

These most recent announcements are likely not the end of this layoff season.

“We … expect a major theme will be tech layoffs as Silicon Valley after a decade of hyper growth now comes to the reality of cost cutting mode to get through this economic storm,” Wedbush Securities analyst Dan Ives wrote in a note to clients. “The Cinderella ride has ended (for now).”

Interest rates and stock prices

In September 2021, the Federal Reserve was beginning to end its pandemic-era stimulus efforts. By November, it was explicitly saying it was ready to start hiking rates in the next year. That same month, the Nasdaq composite, which includes many technology companies, peaked, while the broader market, represented by the S&P 500, peaked in December. By March, the Fed was bringing up interest rates, and would do so consistently for the rest of the year, hiking at seven straight Federal Open Market Committee meetings, bringing rates from near-zero to over 4 percent. This had a predictable, predicted and realized effect on stock prices last year: They went down. The S&P 500 fell 19.4 percent in 2022, while the Nasdaq fell over 30 percent. For specific tech giants, the results were often worse: Amazon’s stock price fell by 50 percent, Meta’s by over 60 percent, Alphabet by almost 40 percent.

The near-zero interest rates implemented by the Fed in order to bolster the economy in response to covid-19 resulted in a bull market, where tech stocks especially rose sharply, explained Steven Miran, a co-founder of Amberwave Partners and a former Treasury official.

This meant “no cost discipline from management, because stocks went up no matter what they spent on beer taps and bowling alleys in the office. They could hire lots of workers, and it didn’t really affect their stock performance,” Miran said.

“Now, with higher interest rates for the foreseeable future, markets have been punishing those growth stocks, forcing CEOs to come up with additional ways of supporting their share prices,” Miran continued. “The classic thing company management does in a downturn is cut costs — unfortunately, lay off workers.”

Investor pressure

When stock prices come down, investors start agitating for corporate executives to do something. And that something is often eliminating jobs.

As stock prices came down, investors started to notice that large tech companies had a lot of workers who were paid very well. And while it’s not always possible to directly link any one investor in a multibillion-dollar public company — especially ones where founders still retain substantial control — it is true that investors and analysts haven’t exactly been lamenting the departure of thousands of tech employees, especially after years of hiring and higher pay.

One investor, the British hedge fund manager Christopher Hohn, wrote a letter to Google Chief Executive Sundar Pichai last week saying he was “encouraged to see that you are now taking some action to right size Alphabet’s cost base.” While the 12,000 jobs cuts, Hohn wrote, were a “step in the right direction,” he still called on Google management to “go further” and cut headcount by a fifth so that Alphabet had 150,000 employees. In its latest quarterly report, the company said it had 187,000 employees. Morgan Stanley analysts described the cut as a “welcome surprise” and estimated that the cost savings would run between $3 and $5 billion per year.

Investors were glad to see the layoffs. After they were announced on Friday, its stock price rose by some 4 percent.

Salesforce is in the process of a 10 percent employment cut, meaning around 8,000 employees will lose their jobs. Earlier this week, the Wall…

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