“It was a tough day,” read the subject line of an email to Shelly Little from her bosses at Carvana, an online used car retailer.
The note signaled Little was one of nearly 2,500 employees fired from the US-based company this week, in a mood described by another employee as “mass hysteria”. Since the start of the year, shares of the company known for its towering multi-storey car “vending machines” have dropped 84%.
“When the ramifications of that started, all I could think about was – wow,” Little wrote on LinkedIn, notifying her friends and colleagues that she was one of 12 percent at Carvana that shows the door.
Her experience reflects a sudden sober drop in the US tech sector, fueled by a deep and wide sell-off in equities as investors fret over rising interest rates and economic growth. economy slows down.
Private companies that are being forced to readjust their valuation expectations, access to capital and risk appetite by venture capitalists may no longer be cautious about the wind.
Semil Shah, founder and general partner at San Francisco-based Haystack Ventures.
“If you’re actually counting your chickens before they hatch, or you’re thinking about all the riches that will come your way, it’s going to take a while.”
In the public market, Carvana has been one of the hardest hit, but not alone. DoorDash, the US market leader in restaurant food delivery, is down 49% year-to-date. Confirmed, one of the biggest games ever loved buy-now-pay-later industry, fell 75%. Shopify, the e-commerce operator frequently cited as the most serious threat to Amazon’s e-commerce dominance, fell 67%. The picture is even more bleak until there is an uptick across the board in trading on Friday.
Even the Big Tech companies, some of the most solid growth stocks of the past decade, suffered severe declines. Apple, Amazon, Alphabet, and Meta together saw $2.1 billion wiped out of their market capitalization. In the case of Apple, its $600 billion drop is enough to see it dethroned this week of Saudi Aramco is the world’s most valuable publicly traded company.
The fact that an energy giant should take over its shell is testament to the shift in investor confidence away from companies with strong revenue growth, said Jefferies analyst Brent Thill. but lower profits shift to more certain companies, said Brent Thill, an analyst at Jefferies.
“It’s a full-fledged, large-scale technology, a full-fledged push button,” he said. “Less than a year has passed and all the high growth software companies today are evil for not being profitable. I think it’s a wholesale shift from technology to the defense, energy and utilities sectors. “
Tech companies are responding by addressing the basics – cutting costs, reducing cash burn, and focusing on fundamentals.
“I’ve talked about free cash flow more than I thought since I took my first accounting class, which is a myth,” said one person at a major tech company.
Similarly, at Uber, with its stock down 45% this year, chief executive Dara Khosrowshahi told employees in a memo late last week: “The target columns have changed. Now it’s about free cash flow.”
“In times of uncertainty, investors seek safety,” he added in the note, which was first reported by CNBC and verified by the Financial Times. “They recognize that we are the leader of scale in our categories, but they don’t know how much that is worth. Channeling Jerry Maguire, we need to show them the money.”
After renaming and reorienting his company dramatically last year, Meta chief executive Mark Zuckerberg’s eagerness for the metaverse has facilitated massive investment enthusiasm. The social media company last month pledged to reduce spending forecast several billion dollars this year.
To that end, Meta has driven strong employee growth. According to an internal memo from Meta’s chief financial officer David Wehner, obtained by the FT, it hired more staff in the first quarter of this year than it did in all of 2021 – but that’s over.
“We need to rethink our priorities and make some tough decisions about which projects we work on in both the short and medium term to achieve lower cost guidance,” he wrote. that we have committed to in the earnings process”. almost every team in the company. ”
Another note from the Meta executive said job interviews scheduled for prospective junior and mid-level technical employees would be “reasonably cancelled”.
Twitter, potentially on the brink of takeover of Elon Musk, said on Thursday that it had failed to hit “intermediate milestones” for its own growth, so it was “retracting its non-labor costs to make sure we’re accountable and effective”.
Tech companies are looking closely at headcount as an immediate way to cut costs. Layoffs. Ghost kitchen start-up Reef, celebrity calling platform Cameo and diet and wellness app Noom are among the private companies laying off employees.
How the tech sell-off is beginning to affect the private sector, and the financial ecosystem that underpins it, is only just beginning to be felt.
According to a report published by analytics group PitchBook this week, the companies closest to moving into the mass market and looking to raise larger rounds are the first to encounter headwinds, experiencing “much different sentiment from investors” than the high valuations in 2021.
According to CB Insights, global venture capital funding in the first quarter of 2022 fell 19% from the previous quarter, the largest percentage drop since Q3 2012. The number of people going public – whether it’s an initial public offering or a Spac merger – has fallen by 45%.
Haystack’s Shah said that money for startups has become harder to earn for companies without a solid business model.
“People are still writing checks,” he said. “But if you’re raising 500k, 5 million or 50 million, you have to fight to get it – more than you had to fight to get it a year ago.”