Snap and Facebook Join List of Companies Cutting Talent As Payrolls Eat into Profits

Tech companies laying off staff and freezing hiring is a result of inflation and the need to increase employee pay, according to Seth Ravin, CEO of software provider Rimini Street

Unlike startups that reduce staff to cut costs to have greater runway, Seth Ravin, CEO of software provider Rimini Street argues that big techs lay off people so as not to eat into profits due to salary readjustments. Photo: Gabby Jones/Bloomberg
August 30, 2022 | 07:25 PM

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Bloomberg Línea — Snap (SNAP) and Facebook (META) are to reportedly lay off staff and close down projects in the coming days, according to media outlets. Snap is planning to lay off about 20% of its nearly 6,500 employees, according to The Verge. Business Insider, meanwhile reports that hundreds of Accenture contractors hired by Facebook to carry out content moderation in the United States are expected to be laid off by the end of the year.

Facebook is moving away from working on projects with Accenture to look for a Singaporean service provider where costs are lower, a person familiar with the discussions was quoted by Business Insider as saying. Spokespersons for Accenture and Facebook declined to comment on the matter to Business Insider, the publication reported.

At Snap, layoffs are expected to begin on Wednesday, according to The Verge. Zenly, the company Snap acquired in 2017 for social mapping, is expected to be impacted by the cuts.

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A Snap spokesperson declined to comment, The Verge. said in its report. On Tuesday, Snap shares fell as much as 4% in New York trading.

Higher salaries, fewer employees

But why is this happening? Seth Ravin, CEO of software provider Rimini Street, believes this movement of tech companies laying off and freezing hiring has to do with inflation and the need to increase employee pay. Therefore, if you increase everyone’s salary, profits are lower. Thus, companies choose to have fewer people, Ravin said in an interview with Bloomberg Línea.

Ravin believes there will be a recession in the US. However, he says it will be different to the one in 2007 when there was a global financial meltdown.

‘The best possible economy’

“The economy in the US is stronger than ever. We have 11 million jobs that we can’t find people to fill. Everybody is desperate to find people. That’s causing problems of falling profits and leading to stock market crashes. But that’s because we’re so successful. It’s crazy, I’ve never seen anything like it,” Ravin told Bloomberg Línea.

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“Now we’re raising interest rates to try to contain the economy because it is too good. It’s quite different from 2007. Banks and consumers are strong now. We have to cool the economy,” he said.

“All the tech companies are going to cut staff by 10%.”

Seth Ravin, CEO of software provider Rimini Street

Higher pay, fewer people

Looking just at the big tech companies, so far Google has said it would slow hiring; Amazon said it needed to reduce staff; Apple Inc. said it plans to slow hiring; LinkedIn has laid off its global events marketing team; Meta has cut plans to hire engineers by at least 30 percent; Microsoft told employees it was slowing hiring in the Windows, Office and Teams groups; Netflix has had several rounds of layoffs, and Oracle has laid off staff in its US marketing and customer experience divisions.

All the tech companies are going to cut staff by 10%. It’s not because they’re not growing, it’s because of profits: if you pay all your employees 10-20% more it will greatly reduce your profits,” Ravin said.

“If you are going to pay everyone more, there is only one way: you have to have fewer people. That creates this unique situation where everybody cuts people in the middle of the best possible economy because they have to make profits to guarantee the share price.”

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