10 Most Important Tech Layoffs to Watch

Published on September 5, 2022 at 9:14 am by Hamna Asim in Hedge Funds, News

In this article, we discuss 10 most important tech layoffs to watch. If you want to see more firms that recently laid off employees, check out 5 Most Important Tech Layoffs to Watch.

The tech sector hired aggressively up until 2022, mainly because the demand for technology-led products and services grew exorbitantly post pandemic. However, the macro shift has impacted even the biggest industry titans, including Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT). J.P. Gownder at Forrester Research told Marketplace in mid-August:

“In an environment of economic uncertainty, even big companies will say, ‘Hey, let’s wind down this particular part of our business because it’s not successful, and we expect it to be even less successful if the economy slows.’”

As per Layoffs.fyi, a website that tracks layoffs in the tech sector, over 37,000 employees were made redundant at 467 startups globally in the second quarter of 2022, compared to less than 3,000 layoffs in the same period a year ago. The technology industry accounted for nearly a quarter of the job cuts announced in August. A Reuters report dated September 1 suggests that US tech companies have reportedly fired 14,408 workers so far this year, a 70% increase on a year over year basis. While job cuts were brutal in tech, overall, companies plan to hire about 41,985 employees in August, up 65% from July.

Even the biggest tech firms are facing the heat of macro-led constraints such as high interest rates, foreign exchange headwinds, declining profitability, surging inflation, broken supply chains, and weak consumer purchasing power. On top of that, the aggressive competition in the tech space is leading to rampant cost cuts in order to retain a competitive edge in terms of profitability.

Photo by Elijah Hiett on Unsplash

Our Methodology

We selected the most prominent tech firms that have reported layoffs in August and so far in September for this analysis. We have ranked the list according to the hedge fund sentiment around the securities, which was assessed from Insider Monkey’s Q2 2022 database of about 900 elite hedge funds.

Most Important Tech Layoffs to Watch

10. Groupon, Inc. (NASDAQ:GRPN)

Number of Hedge Fund Holders: 11

Groupon, Inc. (NASDAQ:GRPN) is an Illinois-based company that operates a marketplace that connects consumers to merchants. On August 8, Groupon, Inc. (NASDAQ:GRPN) reported a Q2 non-GAAP loss per share of $0.34, beating market estimates by $0.10. The revenue of $153.2 million dropped 42.4% year over year, falling short of analysts’ forecasts by $3.62 million. In an uncertain macroeconomic environment, the company has withdrawn priorly issued full year 2022 revenue and adjusted EBITDA guidance.

The company laid off more than 500 of its employees on earnings day. The present turnaround plan is expected to have positive cash flow by year-end and enhance customer retention. The company forecasts $50 million in savings by the end of 2023 from its cost cutting programs.

On August 10, Barclays analyst Trevor Young lowered the price target on Groupon, Inc. (NASDAQ:GRPN) to $10 from $12 and maintained an Underweight rating on the shares. The analyst said the fiscal 2022 guidance withdrawal and new $200 million multi-year restructuring leads to concerns on whether Groupon, Inc. (NASDAQ:GRPN)’s fundamentals “are poised for another leg down, even as ramp in marketing shows green shoots”.

According to Insider Monkey’s Q2 data, 11 hedge funds were bullish on Groupon, Inc. (NASDAQ:GRPN), compared to 16 funds in the last quarter. Ahmet Okumus’ RPD Fund Management is the leading position holder in the company, with approximately 3 million shares worth $33.85 million.

In addition to Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT), Groupon, Inc. (NASDAQ:GRPN) is one of the tech firms that made headlines for company-wide layoffs in August.

9. Wayfair Inc. (NYSE:W)

Number of Hedge Fund Holders: 22

Wayfair Inc. (NYSE:W) is a Massachusetts-based e-commerce firm offering a wide selection of furniture, decor, housewares, and home improvement products. On August 4, the company reported its June quarter results, posting a GAAP loss per share of $3.59, missing estimates by $0.43. The revenue of $3.28 billion outperformed Wall Street consensus by $96.07 million. On August 19, Wayfair Inc. (NYSE:W) announced a workforce reduction by 5%, which includes 10% of the corporate team. As the company laid off 870 employees, it expects to incur costs between $30 million and $40 million, consisting of employee severance and benefits.

In a note to investors dated August 23, Piper Sandler analyst Peter Keith said that Wayfair Inc. (NYSE:W)’s announcement of a 5% workforce reduction and likely cutback in third party labor costs is a “notable positive.” He estimates the expense to be $150 million, “which helps somewhat to dig out” of its approximate negative $400 million EBITDA position for 2022. However, the analyst would like to be more confident in the company’s revenue and demand outlook before declaring an optimistic rating on the shares.

According to Insider Monkey’s data, 22 hedge funds were bullish on Wayfair Inc. (NYSE:W) at the end of June 2022, down from 27 funds in the last quarter. Brian Bares’ Bares Capital Management is the biggest stakeholder of the company, with roughly 5 million shares worth $214 million.

Here is what Vulcan Value Partners has to say about Wayfair Inc. (NYSE:W) in its Q2 2022 investor letter:

“We sold Wayfair Inc. (NYSE:W) during the quarter. It was a mistake. Wayfair Inc. is a leading e-commerce retailer for home goods and furnishings. Prior to our initial investment, we watched Wayfair build its business. As customers increased, revenue per customer expanded, and the company grew year over year. Wayfair invested heavily in its logistics network to handle big and bulky furniture from freight forwarding all the way to last mile delivery. We believed this created a positive flywheel.

Wayfair became a more cost-effective distribution channel for suppliers, reduced delivery times to customers, and improved its customer shopping experience. Nonetheless, at the time, Wayfair did not produce free cash flow, and therefore it did not qualify for investment. During the pandemic, consumer behavior changed, and as a result, the company’s margins and free cash flow reached levels previously not expected for many years to come. We believed the competitive dynamics had changed for the long term in favor of Wayfair and the company qualified for investment.

We initially purchased Wayfair in the fourth quarter of 2020. Although we knew Wayfair would face difficult comparisons post-COVID, we believed the company would continue to generate free cash flow and its value would continue to be stable. The recent combination of persistently high levels of inflation, a possible recession, and the company’s commitment to continue investing heavily for future growth has resulted in negative free cash flow. We believe sustainable free cash flow is the key ingredient to long-term value stability and the company’s future free cash flow is in question. Therefore, we followed our discipline and sold Wayfair.”

8. Robinhood Markets, Inc. (NASDAQ:HOOD)

Number of Hedge Fund Holders: 25

Robinhood Markets, Inc. (NASDAQ:HOOD) is a California-based company that operates a financial services platform, allowing users to invest in stocks, exchange traded funds, options, gold, and cryptocurrencies. The company announced a Q2 GAAP loss per share of $0.34, exceeding estimates by $0.02. The revenue of $318 million declined 43.7% year over year, falling short of Wall Street consensus by $3.51 million. Transaction-based revenues decreased 7% sequentially to $202 million.

On August 3, Robinhood Markets, Inc. (NASDAQ:HOOD) announced that it aims to slash its 2022 total operating expenses by as much as 29%, after cutting its workforce by 23%. The company cited the stock and crypto market crash in the first half of 2022, which resulted in Robinhood Markets, Inc. (NASDAQ:HOOD) losing users and revenue. The company paid severance charges of $17 million for its April restructuring and an estimated $45 million to $60 million for its August restructuring.

Barclays analyst Benjamin Budish on August 31 downgraded Robinhood Markets, Inc. (NASDAQ:HOOD) to Underweight from Equal Weight with an unchanged price target of $10. The company should benefit from improving markets, higher interest rates, and the upcoming product rollout cycle, the analyst told investors. However, its customer base will potentially be impacted greatly by inflation and/or a likely recession, and it will take some time before the present product pipeline drives a more engaged customer base, added the analyst.

According to Insider Monkey’s data, 25 hedge funds were long Robinhood Markets, Inc. (NASDAQ:HOOD) at the end of the second quarter of 2022, up from 19 funds in the earlier quarter. Cathie Wood’s ARK Investment Management is the biggest position holder in the company, with 33.5 million shares worth $337.6 million.

Here is what Claret Asset Management has to say about Robinhood Markets, Inc. (NASDAQ:HOOD) in its Q4 2021 investor letter:

“Robinhood went public at $38 a share at the end of July of this year. After a one day decline of 8%, it proceeded to rise to a peak of $85 in a matter of 4 days before settling down around $40 in September. Then, we found out that the company does not appear to understand the margin rules that apply to their client’s trades… and got fined by the Securities Exchange Commission. As of today, it is trading below $20, at 57 times earnings, approximately half of its IPO price. Caveat emptor… Buyer beware.”

7. Snap Inc. (NYSE:SNAP)

Number of Hedge Fund Holders: 44

Snap Inc. (NYSE:SNAP) is headquartered in Santa Monica, California, operating as a social media company.

On August 31, Snap Inc. (NYSE:SNAP) confirmed that it will eliminate 20% of its workforce, which means cutting more than 1,200 jobs. This restructuring is part of multiple new initiatives to boost revenue growth and adapt to the new market environment.

On August 1, RBC Capital analyst Brad Erickson raised the price target on Snap Inc. (NYSE:SNAP) to $11 from $10 and kept a Sector Perform rating on the shares. The company’s positive headcount reduction has yet again surprised investors while offsetting the negativity around the departure of two primary executives, the analyst told investors.

According to Insider Monkey’s data, 44 hedge funds were bullish on Snap Inc. (NYSE:SNAP) at the end of Q2 2022, down from 54 funds in the prior quarter. John Overdeck and David Siegel’s Two Sigma Advisors is a significant position holder in the company, with 14 million shares worth $184.6 million.

Like Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT), Snap Inc. (NYSE:SNAP) let go of multiple employees for cost savings.

Here is what Baron Opportunity Fund has to say about Snap Inc. (NYSE:SNAP) in its Q4 2021 investor letter:

“Snap Inc. is the leading social network among teens and young adults in North America and a growing number of overseas markets, including Western Europe and India. Shares fell this quarter on a greater-than anticipated impact from Apple’s new privacy changes for iOS mobile devices. These changes made it more difficult for Snapchat to measure the effectiveness of ads shown on its platform. We believe this is a near-term, industry-wide issue for which Snap is already developing a solution. Longer term, we continue to view Snap favorably as the company sustains its rapid pace of product innovation and expands its premium partnerships with advertisers.”

6. Shopify Inc. (NYSE:SHOP)

Number of Hedge Fund Holders: 60

Shopify Inc. (NYSE:SHOP) is a Canadian firm that operates e-commerce platforms and services in Canada, the United States, Europe, the Middle East, Africa, the Asia Pacific, and Latin America. On July 27, Shopify Inc. (NYSE:SHOP) reported earnings for the second quarter of 2022, posting a GAAP EPS of $0.95 and a revenue of $1.30 billion, falling short of market consensus by $0.83 and $35.56 million, respectively. Shopify Inc. (NYSE:SHOP) has made about 8,800 employees redundant this year, and 70 employees have been let go in August.

On August 11, Atlantic Equities analyst Kunaal Malde upgraded Shopify Inc. (NYSE:SHOP) to Overweight from Neutral with a $46 price target. Shopify Inc. (NYSE:SHOP) continues to be “a market leader in product innovation and a high-quality market share gainer”, said the analyst, who believes there is upside to estimates after the recent reset. GMV estimates are now “seemingly more conservative for Shopify than most peers”, leading Malde to see upside for Shopify Inc. (NYSE:SHOP).

According to Insider Monkey’s data, Shopify Inc. (NYSE:SHOP) was part of 60 hedge fund portfolios at the end of Q2 2022, down from 72 funds in the last quarter. Jim Simons’ Renaissance Technologies is a prominent stakeholder of the company, with 14 million shares worth $438.5 million.

Here is what Rowan Street has to say about Shopify Inc. (NYSE:SHOP) in its Q2 2022 investor letter:

“Tobias Lutke, Shopify (NYSE:SHOP) Founder and CEO

When Tobias Lütke opened an online snowboarding store in 2004, he realized how painfully cumbersome e-commerce software was. So he decided to create Shopify – a platform that made it easy for anyone to open up an online store.

Tobi has built Shopify into one of the most popular e-commerce platforms in the world, with $175 billion in GMV (Gross Merchandise Value) and $4.6 billion in revenues in 2021. SHOP went public in 2015, when revenues were just slightly above $200 million, and the stock is up 1,233% since its IPO. Shopify stock peaked in November 2021 (traded at astronomical 47x sales), which coincided with peak enthusiasm for the tech-driven, “stay-home” stocks. Since then, the stock is down almost 80% and is currently trading at just 6x 2023E sales. We believe that Mr. Market is offering us exceptional value, at current price levels, for an exceptional company led by a very talented, visionary founder/CEO.”

Click to continue reading and see 5 Most Important Tech Layoffs to Watch.

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