May 6, 2022 - Technology

Tech's new season of shrinking

Data: Fidelity; Chart: Axios Visuals

Amid a brutal market sell-off, tech companies that focus on streaming, e-commerce and social media are facing especially steep declines.

Why it matters: Internet firms that benefited from pandemic habit changes are now being forced to trim their outlooks and spending as the market leaves behind a frothy era of soaring investments and zero interest rates.

Driving the news: Tech firms have started to announce layoffs, hiring freezes and spend cuts.

  • Cameo, the hit app that connects celebrities to fans virtually, laid off 87 people Wednesday — about 25% of its workforce — in an effort to balance costs.
  • Meta, parent to Facebook, is implementing a broad hiring freeze, per memos seen by Insider, and doesn't expect to meet its annual hiring goals.
  • Netflix last week laid off staff from Tudum, its fan-centric editorial website launched in December. Executives are vowing to impose more "financial discipline" in response to a massive earnings selloff.

Be smart: Long-established tech companies in sectors like IT, hardware, chips and businesss services have had the market's latest volatility built into their stock expectations for some time.

  • For those companies, like Microsoft, IBM, and Apple, this market downturn so far looks more like cyclical retrenching than existential crisis.

But companies in streaming, like Netflix, Roku and Spotify, are facing particularly steep declines as consumers pivot to more in-person events and travel.

  • E-commerce companies like Shopify and Amazon are struggling as retail stores begin to see more foot traffic.

And startups face an even harsher reality.

  • Upstarts across e-commerce, delivery and financial services are slashing costs and jobs in a bid to save cash, Axios' Dan Primack reports.
  • Like Cameo, companies like Thrasio, GoPuff and Noom are looking to balance costs as venture investors retreat.
  • In a time of rising interest rates, when investors can get simpler, safer returns, startup money can be tough to raise, spelling trouble for companies that don't yet have enough operating revenue to pay the bills.

What to watch: No one knows whether this latest market downturn will probe a rough patch or a sea change.

  • Since every market dip since the Great Recession — even 2020's cliff-dive after COVID-19 hit — has proven short-lived and been followed by another climb, tech investors have forgotten what a real recession looks and feels like.

Go deeper: Attention economy slowdown

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