Investors can tell a lot about a company by its layoff patterns.
With a record 4.5 million U.S. workers quitting jobs in March 2022 in the so-called Great Resignation, it came as a surprise to many when numerous high-profile publicly traded companies announced waves of layoffs throughout the year. While the low-interest-rate environment of the COVID-19 pandemic saw new burgeoning tech companies soar to become hot growth stocks, that trend has dramatically reversed. Amid rising interest rates and high inflation, numerous companies have begun cutting back, citing slowing revenue growth, high costs and even earnings losses. For investors, this could be a sign of trouble, especially when it comes to growth stocks. A Bain & Co. study of the dot-com bubble found that share prices remained flat in companies that laid off 3% to 10% of their employees. Companies that shed more than 10% of their workforce experienced an average 38% share price drop. Here is a list of seven growth companies that recently implemented layoffs.
Netflix Inc. (ticker: NFLX)
Streaming giant Netflix laid off 150 employees in May, which represented less than 1.4% of its workforce of roughly 11,000 employees. The company cited slowing revenue growth as a key factor. In April, Netflix’s share price fell more than 25% after-hours following a disappointing earnings report. Management reported the first net subscriber decrease in a decade and forecast continued losses in the next quarter. The company cited account sharing, competition from other streaming services and the end of the pandemic as factors. To address this, Netflix plans to crack down on account sharing and explore lower-priced, ad-supported plans to grow its subscriber count.
Market cap: $88 billion
Year-to-date return (as of market close on May 31): -67%
Employees affected: 150
Peloton Interactive Inc. (PTON)
Fitness equipment manufacturer Peloton laid off more than 2,800 employees worldwide in February, representing about 20% of its corporate workforce. This included CEO John Foley who stepped down amid poor financial results. Previously a standout pandemic-era outperformer thanks to lockdowns that drove strong demand for its products, Peloton’s share price has cratered in 2022. The stock fell steadily from a 52-week high of $129.70 per share to just $13.96 at the end of May. At its height, Peloton commanded a market capitalization of roughly $50 billion. The company endured a series of disappointing earnings reports, missing consensus analyst estimates for revenue and earnings per share over multiple quarters amid slowing sales and declining subscriptions.
Market cap: $4.7 billion
YTD return: -61%
Employees affected: 2,800
Robinhood Markets Inc. (HOOD)
Robinhood soared to prominence in 2020 during the pandemic on the back of its commission-free trading and intuitive, attractive brokerage user interface. However, following its role in the 2021 GameStop Corp. (GME) short squeeze that saw CEO Vladimir Tenev testify before Congress on Robinhood’s decision to block purchases, the company began to experience headwinds. In April, Robinhood announced layoffs of 9% of its 3,400 employees to reduce redundancy, consolidate functions and cut costs. A series of disappointing earnings calls before and after this downsizing caused Robinhood’s share price to decline steadily, going from a 52-week high of $85 per share to a 52-week low of $7.71.
Market cap: $8.8 billion
YTD return: -43%
Employees affected: 300
Zillow Group Inc. (Z)
Real estate and mortgage company Zillow started 2022 out with a planned mass layoff of about 2,000 workers, or roughly 25% of its workforce. Zillow planned the downsizing to take place over several quarters. The exodus was cased by the company’s decision to shutter its digital-home-buying segment Zillow Offers after incurring a $380 million adjusted loss from its operations during Q3 2021. Zillow Offers was unable to become profitable at scale, with management struggling to meet previous revenue guidance amid rising home prices and supply-demand imbalances. The decision to shutter that segment of the business had a significant impact on share prices, with the stock down heavily from its 52-week high of $124.70 per share.
Market cap: $9.8 billion
YTD return: -36%
Employees affected: 2,000
Carvana Co. (CVNA)
Online car retailer Carvana laid off 2,500 workers in May, most of whom worked in the company’s operations division. The move garnered considerable controversy when it was revealed that some of the laid-off employees were terminated via Zoom and email after getting their network access abruptly cut off. Carvana cited slowing revenue growth and increased used-vehicle prices as reasons for the cuts. In its March 2022 first-quarter earnings report, Carvana reported a $260 million net loss, making for the company’s third consecutive quarter of earnings misses. At its height, the company had a 52-week high share price of $376.83, which dwindled to a 52-week low of $25.69 per share.
Market cap: $3.1 billion
YTD return: -87%
Employees affected: 2,500
Latch Inc. (LTCH)
Enterprise security technology company Latch laid off a total of 130 staff members in late May, or roughly 28% of its full-time employee roster. High-profile cuts include Chief Revenue Officer Chris Lee and Vice President of Sales Adam Sold. The layoffs came about as part of a larger shift within Latch to reorganize its product lineup and revise its sales compensation structure. Latch stated in a press release that it expected the cuts to achieve approximately $40 million in annual cost savings and result in approximately $4 million to $6 million of total cash restructuring. Latch went public in 2021 following a special-purpose acquisition company, or SPAC, listing that raised $453 million and saw the company valued at more than $1.5 billion.
Market cap: $316 million
YTD return: -71%
Employees affected: 130
PayPal Holdings Inc. (PYPL)
Digital payment processor PayPal recently laid off 83 employees in April and May. The cuts primarily affected the company’s head office workforce in San Jose, California, and mostly consisted of engineers, managers and directors. Although relatively small in comparison to the other layoffs profiled so far, the move by PayPal comes on the heels of a series of disappointing financial results. In February, PayPal’s share price dropped nearly 25% following management’s forecast of slowing revenue, earnings and user growth. In April, management again lowered its full-year adjusted profit outlook, from $4.60 to $4.70 per share to $3.80 to $3.90, citing surging inflation and the ongoing Russian invasion of Ukraine.
Market cap: $99 billion
YTD return: -55%
Employees affected: 83+
These seven companies recently laid off employees:
— Netflix Inc. (NFLX)
— Peloton Interactive Inc. (PTON)
— Robinhood Markets Inc. (HOOD)
— Zillow Group Inc. (Z)
— Carvana Co. (CVNA)
— Latch Inc. (LTCH)
— PayPal Holdings Inc. (PYPL)
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2022 Layoffs: 7 Growth Stocks Hit the Hardest originally appeared on usnews.com
