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Major companies firing employees: Is the Global Tech Industry collapsing?
Major companies firing employees: Is the Global Tech Industry collapsing?
The global tech industry, which stays in the limelight for all the good and bad reasons, is again the talk of the town. All across the world, the tech industry is going through a rough patch as major layoffs in the IT sector are taking place. The stock prices of big tech giants such as Meta, Amazon, and Netflix have nosedived 70-80 percent, and they are being forced to lay off thousands of employees from the companies.
On the other hand, if we talk about Indian tech startup companies, the trend of mass layoffs is also quite evident here. Recently
Amazon employees layoffs: 10,000
Meta, employees laysoffs: 11,000
Twitter employees laysoffs: 3,500
Educational tech startup BYJUs has laid off 2,500 employees, Vedantu has fired 600 of its employees, Cars24 600, and Unacademy and Blinkit have called it curtains for 1,000 and 2,500 employees, respectively. is recession coming in India?
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What caused this Lay-off spree in the Tech sector?
Over-estimated projections: Pre-covid, these tech big tech companies were growing steadily. Still, the digital popularization during Covid-19 resulted in exponential growth for these companies, and they went on a hiring spree during the covid as they estimated that they would keep growing the same post-pandemic.
But as the world came out of the grip of Covid and things went back to normalcy, the growth of these companies declined as compared to that in the midst of peak Covid. It resulted in an excessive workforce for these tech giants, which reduced the profitability of these companies. Thus, it became one of the primary reasons for layoff in the IT sector. Meta and Amazon acknowledged the layoff news in a letter to the employees.
Saturation in AD revenue: AD revenue constitutes a major role in the revenue stream of these tech companies such as Google, Meta, and Instagram. The revenue from ads has been saturated for these tech companies, and now they have realized that they have to move forward from depending on ads for revenue. For example, Facebook renamed itself to Meta and decided to focus on Metaverse for its future.
Ongoing Recession: Ongoing recession in major developed economies has also hampered the growth of these companies as most of these companies are from the US, and an increase in the interest rates by the Federal Reserve has increased the cost of operations for these companies.
Impact on the Indian Tech Startups
The bullish run in the IT sector during the covid times was seen in the Indian IT sector also. What happened during Covid enhanced IT stock prices by 2 to 3X due to the discounting factor, where the market discounts everything of the future.
In the covid scenario, IT companies overestimated future demands, due to which the Nifty IT index went from a low of 10,991 to an all-time high of 39,446 which is 2.5x of its low. But now that the world is coming back to normal, the stock prices of IT stocks are correcting. Let’s understand the impact of the fall of the Tech sector with the example of Infosys.
As you can see, the company's revenue increased in the FY year 2022, but the operating and net margins fell. In contrast, the return to normalcy and the shift from working from home to an office setting increased the operating expenses of the company.
In addition to it, the Russia-Ukraine war, increased inflation, and high attrition rate among these IT companies added fuel to the fire.
The ongoing recession in the US and global slowdown have had adverse effects on Indian nascent Indian tech startups as well. Most Indian tech startups such as BYJUs, Unacademy, Cars24, and Zomato are not even profitable and are majorly funded by Private investors such as Venture Capitalists.
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Given the economic conditions worldwide and the state of other tech players in the industry, VCs have halted their funding in these startups, which has hampered the functioning of these companies to ease pressure on their financial books. These companies have had mass layoff news becoming a common affair.
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Conclusion
So, if it is the end game for the tech companies, time will tell, but it is certain that the tech industry is going through a crunch time. Most market analysts says that in the long-term, those tech companies which strong fundamentals and valuable business, such as Google, will survive, but loss-making startups with shaky fundamentals have some serious concerns that they will have to address.
