Layoffs have rocked the tech sector with powerhouses like Amazon and Lyft warning of an economic downturn

The outlook for tech industry jobs worsened on Thursday, with ride-hailing company Lyft Inc.

LYFT -2.00%

and payments company Stripe Inc. It announces both major layoffs and Inc.

AMZN -3.06%

Saying it would halt corporate hiring for months.

The sad news for the industry comes as the Federal Reserve moves again to raise interest rates to combat inflation, with the risk of the US economy tipping into recession. Faced with that prospect, tech company executives warn of tough times ahead.

“We are facing an unusual macroeconomic environment, and we need to balance our hiring and investments with this economy in mind,” Beth Galetti, Amazon’s senior vice president of people experience and technology, said in a memo to employees this week. The memo also announced Amazon’s plans to freeze hiring in its corporate workforce, which includes employees at high-profile groups such as Prime Video and Groceries.

After years of unprecedented growth and profitability, many of the world’s biggest tech companies are pulling back as marketing patterns change post-pandemic and businesses have to scrutinize spending, from advertising to investments. In some cases, the effort to adjust the salary payment has already reached the companies that have gone backwards.

U.S. jobless claims fell this fall from winter peaks and settled at record lows last week. The Labor Department’s October employment report will be released Friday, providing the latest snapshot of the overall labor market.

As markets react to rising inflation and higher interest rates, tech stocks are off to their worst start of the year. The WSJ’s Hardika Singh explains why the sector — from tech giants to small startups — is being hit so hard. (June 21, 2022) Example: Jacob Reynolds

While companies cite the broader economic climate, the slowdown in hiring, layoffs and cost-cutting — which have hit some industries less hard — underscores how the tech sector can surge as the pandemic brings prosperity to the sector.

Gene Munster, managing partner at investment and research firm Loop Management, said: “Companies are seeing this time as an opportunity to scale. Tech companies that overbuilt during the pandemic are now seeing productivity gains.” “Before, you didn’t have to ask questions about productivity because things were so good, but that’s changed as things have slowed down.”

Amazon’s hiring freeze adds to similar news announced by other tech companies.

Lyft co-founders John Zimmer and Logan Green said Thursday that the company will cut 13% of its workforce, or about 700 jobs. In a memo, the founders highlighted a potential recession and said they expect ride-share insurance costs to rise. Lyft has more than 4,000 employees, not including drivers. The company said it laid off about 60 people in July and already plans to make hiring and budget cuts in some departments.

Lyft co-founder John Zimmer at WSJ Tech Live in Laguna Beach, Calif., last month.


Nikki Richer for the Wall Street Journal

Stripe also announced layoffs on Thursday targeting 14% of employees. In a memo to employees, CEO Patrick Collison cited “stubborn inflation, energy shocks, high interest rates, shrinking investment budgets and startup funding.”

Tech companies are facing a myriad of challenges. Facebook parent MetaPlatform Inc. plans to cut costs by at least 10%, in part due to layoffs, sales have slumped and executives have struggled to navigate the social media company’s new focus on apps and virtual reality. Alphabet Inc

Google asked some employees to stay in the company and Apple to apply for new jobs Inc.

Executives said they were taking a “deliberate” route.

At Twitter Inc., meanwhile, Elon Musk’s ownership led to changes that included the departure of top executives and extensive layoff plans. Employees at the company and people familiar with the matter estimated that up to 50% of the 7,500 employees could be cut. The proposed strikes are expected to reduce engineering positions and affect other areas within the company.

Even as major companies tried earlier measures to reduce costs this year, downward trends occurred. In Amazon’s case, the company scaled back plans to open warehouses this year and suspended hiring in its core retail unit last month. Elevator is downsizing again after earlier adjustments.

Amazon’s hiring freeze does not appear to affect the thousands of hourly workers in its warehouses. In that department, Amazon has been hiring aggressively in recent months as it prepares for the busy holiday season.

Amazon cautioned that it was taking a cautious approach in the current economic climate. Amazon’s chief financial officer, Brian Olsavsky, said last week that the company is bracing for lower growth and will be “very cautious about hiring.” Company officials say they are seeing signs that consumers are tightening their budgets and inflation is high.

The company’s shares fell after it announced in its quarterly earnings report a week ago that its sales forecast for the fourth quarter may be below expectations. The company said it expects operating income to range from zero to $4 billion during Amazon’s most important sales period of the year.

Amazon’s top executives have warned that the economy is about to get worse. CEO Andy Jassy said last week that the company needed to balance its investments. That message was followed by a recent tweet by Jeff Bezos, the Amazon founder, who said, “It’s time to hit the bullseye.”

In a call with reporters last week, Mr. Olsavsky seemed to agree with that message. “Jeff is a smart guy, so when he talks, I think most people listen and take it seriously,” Mr. Olsavsky said.

Emily Glaser contributed to this article.

Write to Sebastian Herrera at seba[email protected] and Preetika Rana at [email protected]

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