Several big tech companies have announced hiring freezes, lay-offs, and spending cuts in recent weeks even as the overall job market remains hot. Meta, Twitter, Amazon, Uber, and more have been forced to make difficult decisions after going on hiring sprees during the pandemic-related online boom. Doug Astrop, Managing Partner at Exponential Investment Partners, explains why we are seeing this tech sector slowdown, and if it might be a sign of a broader hiring trend.

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Hiring Freeze Hits Tech Sector

here to discuss is dug a strip managing partner at exponential investment partners Doug, can you just break down for us a little bit why we're seeing this kind of tech sector slowed down. I know there's a relationship in terms of the multiple compression evaluation crunch that a lot of these companies are dealing with. Absolutely. I think that is a big factor there. I think there's a couple of things going on the, the first I think is is more pandemic related and what that did to the labor market as a whole. And it caused this great resignation where people sort of reevaluated their lives and what they were doing and quit their jobs and started their own businesses and a lot of cases And that's still going on. In fact, in March 4.5 million people resigned from their jobs. So that that's still in the backdrop. There was also a survey recently that 63% of of workers consider the work life balance the top priority. So that that's not really going away, that's always gonna be there. And then now you've got this inflation that's just proven itself to be very sticky, Not transitory, it's still there and companies now are starting to experience maybe some slowdown and so they're starting to say, well if I'm going to hire people, it's going to cost me a lot more than usual and maybe I can postpone some of that hiring or or put it off indefinitely. And that will help my bottom line and help my stock price and help us weather the storm that, that we're kind of in now. I mean the NASDAQ dropped 30% from its high. So, uh, you know, times are getting a little tight for some of these companies, especially the ones that don't make money. Those are the ones that really have have some issues to deal with because Wall Street wants them to be profitable. Interesting. I'm glad you kind of broke down that this really is a multi pronged kind of issue or, or factor in terms of, you know why we're seeing this happen in terms of why we're seeing it happen right now. Do you think that's mostly related to that inflation picture you're just pointing to a moment ago in terms of just how much employers are having to pay for wages amid a time where we're seeing the market's kind of pull back their valuations come into focus in the market, signaling it really wants profitable company and this is companies. And this is truly a way to kind of, I don't want to inflate but really ease up on the bottom line. Exactly, yeah. I think that that's really what's driving it, I think is the bottom line and then the fact that the labor market is so geared towards the employee now, it's an it's an employee's market if you will, you know, they have a lot of choices, they can run up the prices that they're paid. I mean, I was reading about the recent college graduates or, or making 100,000 year and a lot of cases now and they're straight out of college. So that's kind of the market you're looking at if you're, if you're hiring and, and that's, that's a steep price to pay for employees. And then when you add onto that, the fact that you're getting pressure to be profitable and maximize your bottom line, you know, it makes sense that employees, employers would, would be cutting back a little and delaying some hires if they can, but then they've got away that they've got to run the business. So it's a tricky, it's a tricky dance, a tricky dance for those coming straight out of college and making $100,000. That's nice. I didn't make that for quite some time in my career. Certainly out of college, I think I was making like 25,000. Uh Nonetheless, I really, I really wonder these pressures are not unique to some of those big names that I mentioned a moment ago, those big names that are already signaling these hiring hiring freezes. Do you think then this is something we'll see more broadly happened in the tech sector and even potentially beyond the tech sector. Yeah, I think it could definitely spread. Um It is very company specific right now. I mean, uh, Uber has a specific scenario where their stock price is down 40 plus percent, they are focusing on profitability. They want Wall Street to, I believe that they can have a strong bottom line. So they're in a unique position, twitter's in a unique position because they're about to be taken over by Elon musk potentially see how that plays out. But, but they're certainly preparing for that. And uh, and then, you know, there's another company that laid off people was Car Vonna and there they're struggling with a big boom during the pandemic of, of the, of the car business and that's rolling over a bit and they probably staffed up to uh, to accommodate that situation and that demand was really pulled forward and now it's dissipating and they've got to figure out how to run the business in a more normalized environment. I think that's happening to a lot of companies where the pandemic really threw out of whack a lot of these issues. I'm glad you brought that carve on a kind of example, cause that's literally was my next question in terms of, do you think the tech sector just grew to rapidly during the pandemic amid all of that demand kind of being pulled forward and perhaps what we're seeing is a layer of the reality that that has to be normalized now as it related to demand. So you have to go back and normalize it with the employees that's staffed up. I think that's exactly right. I think the pandemic really skewed a lot of industries and, and had abnormal demand that now we're in a more normalized environment. I mean the pandemic is still there in the background but in the US at least it's it's not really a major factor the way it was. We don't have any shutdowns here. So I think now businesses have to readjust to a more normal environment where you know, company like netflix or amazon or Car Vonna or I mean there's there's many of them that it definitely had a big jump in demand during the pandemic because people were locked down that may or may not continue to exist in a more normal environment. What lessons then? Do you think that the big tech companies should learn from the rapid growth and then subsequent slowdown? And I would extend that to not only, you know, big companies what lessons they should learn, but investors from this as well. Yeah, I mean you got to be nimble. Um Being running a company is very challenging and you have to be nimble and when a pandemic hits. I mean that that is the one thing with the pandemic, the these companies showed extraordinary ability to adjust and uh and and survive and thrive during the pandemic. So I would applaud companies for that ability. But it's it's just a tricky balance because you have to run the business today and do that effectively and meet today's demands. But you have tomorrow's situation which can be completely different and you've got to be ready for that as well. But, but you can't over prepare for tomorrow at the expense of today. So it's very tricky to manage and the bigger the company, the harder it is kind of to be nimble and make those changes. Smaller companies can probably do it more effectively, but but it's just that's the challenge of running a company and management, it's not easy to manage all these moving parts. Labor is a big part of that. Doug really appreciate your time and your insight dug a struck managing partner at Exponential Investment Partners.