In this article, we discuss 10 companies that recently announced layoffs and hiring freezes amid recession fears. If you want to see more stocks in this list, click These 5 Companies Recently Announced Layoffs, Hiring Freeze Amid Recession Fears.
A wave of corporate layoffs has impacted the United States, as large-cap growth stocks have been heavily battered amid the broad market selloff and are cutting down on costs by squeezing their workforce.
The Labor Market Might See an End to the Great Resignation
The tech industry’s hiring spree from the pandemic years has significantly cooled down in 2022, as a result of deteriorating macro factors and soaring costs. According to Fortune, as more analysts predict a recession, the labor market might see an end to the Great Resignation, which had American masses switching their jobs frequently. The market has definitely shifted, as the once reigning tech giants have suddenly lost billions of dollars and are grappling to control costs and maintain profitability.
However, Julia Pollak, chief economist at the job-search site ZipRecruiter, believes that the select layoffs at big firms like Uber, Microsoft, Twitter, Wayfair, Snap, and Meta are not showing up in aggregate unemployment surveys. She reiterated that the Labor Department disclosed 11.4 million job openings in April, which is about twice as many as the number of unemployed people who are looking for work. Pollak observed that the labor market is still hot and not experiencing any tightness.
Some of the most notable companies that let go of their employees recently or announced hiring freezes amid recession fears include PayPal Holdings, Inc. (NASDAQ:PYPL), Uber Technologies, Inc. (NYSE:UBER), and Netflix, Inc. (NASDAQ:NFLX).
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We have listed some of the most popular companies that have recently announced layoffs and slowed hiring. We have also mentioned the analyst ratings and hedge fund sentiment around the holdings, to provide better context for potential investors.
10. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 80
Tesla, Inc. (NASDAQ:TSLA) is a California-based company that manufactures and sells electric vehicles and storage systems in the United States, China, and internationally. On June 3, Tesla, Inc. (NASDAQ:TSLA)’s Elon Musk said that he has a “super bad feeling” about the economy, believing it is heading towards recession. Consequently, in a company wide email, he decreed that 10% of the staff needs to be laid off.
In addition to that, the company is freezing hiring worldwide. The stock dropped 9% after this announcement. While the redundancy does not affect employees who manufacture cars, battery packs, or install solar panels, the company reiterated that it had become overstaffed in several areas.
On June 3, Cowen analyst Jeffrey Osborne lowered the price target on Tesla, Inc. (NASDAQ:TSLA) to $700 from $790 and maintained a Market Perform rating on the shares. The analyst cut Q2 estimates in light of China’s zero COVID policy and strains at Tesla, Inc. (NASDAQ:TSLA)’s Shanghai production facility in April and May. He believes approximately 50,000 auto units were compromised during the shutdown and this risk seeps into Tesla, Inc. (NASDAQ:TSLA)’s June quarter as well. The analyst expects Tesla, Inc. (NASDAQ:TSLA)’s Q2 deliveries to equal 242,000 vehicles, down from 309,400. He projects that the company will “point to challenges in achieving its stated goal of 50% delivery growth in 2022”.
According to Insider Monkey’s Q1 data, elite hedge funds pulled out of Tesla, Inc. (NASDAQ:TSLA). The number of long hedge fund positions in the company declined to 80 in Q1 from 91 in the prior quarter. Cathie Wood’s ARK Investment Management held a prominent position in the company, comprising about 1.6 billion shares worth $1.7 billion.
In addition to PayPal Holdings, Inc. (NASDAQ:PYPL), Uber Technologies, Inc. (NYSE:UBER), and Netflix, Inc. (NASDAQ:NFLX), Tesla, Inc. (NASDAQ:TSLA) has also taken a cautious approach to hiring amid recession fears.
Here is what Baron Fifth Avenue Growth Fund has to say about Tesla, Inc. (NASDAQ:TSLA) in its Q1 2022 investor letter:
“During the first quarter, we bought back shares in Tesla, Inc., which designs, manufactures, and sells electric vehicles, solar products, energy storage solutions, and batteries. We believe that despite the run in the stock over the last few years, Tesla presents a favorable risk/reward profile and remains a Big Idea with only about 1% market share of the automotive market. Since we bought the stock during the first quarter, shares increased 27.1%, despite a complex supply-chain environment, on continued revenue growth and record profitability. Robust demand and operational optimization allow the company to offset inflationary pressures while vertical integration provides flexibility around supply bottlenecks. Moreover, we
expect new localized manufacturing capacity to drive additional efficiencies while software initiatives, including the autonomous driving program, are accelerating, offering valuable optionality to the stock.”
9. Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders: 109
Netflix, Inc. (NASDAQ:NFLX) is an American provider of entertainment services, streaming and producing TV series, documentaries, feature films, and mobile games in multiple genres and languages. About 150 US-based employees at Netflix, Inc. (NASDAQ:NFLX) were fired in May due to a slowdown in the company’s revenue growth.
These employees mostly belonged to management-level positions in the creative fields, and the company said that it aimed to control costs in order to survive the battered revenue and earnings. The stock was already down tremendously after Netflix, Inc. (NASDAQ:NFLX) disclosed 200,000 subscription cuts in Q1 2022, which was the first decline in the subscriber base in more than a decade.
On June 1, Benchmark analyst Matthew Harrigan exclaimed that “even as bulls are talking up short-term technicals”, he remains “skeptical” on any sustained Netflix, Inc. (NASDAQ:NFLX) stock recovery since he now sees the company as “effectively a media name”. Management needs to curb overall costs and improve execution on its content expenses, but it may be tough to contain spending in the mature U.S. market as competition gains edge while aggressively investing in Asian growth markets, argued the analyst, who reiterated a Hold rating on Netflix, Inc. (NASDAQ:NFLX) shares.
According to Insider Monkey’s database, 109 hedge funds were bullish on Netflix, Inc. (NASDAQ:NFLX) at the end of March 2022, compared to 113 funds in the preceding quarter. Ken Fisher’s Fisher Asset Management is the leading stakeholder of the company, with 6.35 million shares worth $2.38 billion.
“After being a prime beneficiary of increased viewing patterns during the stay-at-home period of COVID-19, Netflix is recalibrating what a normal growth trajectory will look like as global economies fully reopen. The stock fell sharply after the company modestly reduced its net subscriber additions for the current quarter, calling into question its ability to continue to deliver double-digit subscriber growth.
We believe one of our edges as active managers is our long-term orientation and willingness to be both early and patient with additions to the portfolio. With Netflix, we remain convinced that our thesis for owning the stock is intact. While some fear the U.S. streaming market is becoming saturated, Netflix’s penetration of global broadband homes is still less than 50%, a figure that doesn’t even include the opportunity to attract more mobile-only smartphone users.”
8. Coinbase Global, Inc. (NASDAQ:COIN)
Number of Hedge Fund Holders: 46
Coinbase Global, Inc. (NASDAQ:COIN) was founded in 2012 and is based in Wilmington, Delaware. The company offers financial infrastructure and technology solutions for the global crypto economy. Coinbase Global, Inc. (NASDAQ:COIN) announced in the beginning of June that it is freezing its hiring efforts, and rescinding the recently accepted job offers. This is a result of the downward trajectory in the crypto universe, and the company is also facing lackluster traffic on its digital NFT marketplace that was established in May 2022.
On June 6, after Coinbase Global, Inc. (NASDAQ:COIN) reported that it would extend its hiring pause for both new and backfill positions for “the foreseeable future”, Cowen analyst Stephen Glagola informed investors that the company concluded Q1 with a liquidity of $6.3 billion and he thinks Coinbase Global, Inc. (NASDAQ:COIN) “remains well capitalized to navigate through a crypto winter”. He reiterated an Outperform rating and an $85 price target on Coinbase Global, Inc. (NASDAQ:COIN) stock.
Among the hedge funds tracked by Insider Monkey, Coinbase Global, Inc. (NASDAQ:COIN) was part of 46 public hedge fund portfolios at the end of Q1 2022, down from 57 funds in the preceding quarter. Jim Simons’ Renaissance Technologies held over 1 million shares of the company in the March quarter, worth about $200 million.
Here is what Longleaf Partners Fund has to say about Coinbase Global, Inc. (NASDAQ:COIN) in its Q4 2021 investor letter:
“We also have seen plenty of IPO/SPAC craziness showing both that private players need public markets more than they admit and that there is more volatility embedded in these newer companies than a private quarterly mark might admit. As for how efficient both the private and public markets are, we would encourage you to really delve into some of those multi-hundred-page S1s for many of the newest public companies to see the huge gap between the last valuation at which the company was funded and/or granted shares to its executives and the often much higher price at which the company went public – Coinbase is a prime example.”
7. Meta Platforms, Inc. (NASDAQ:FB)
Number of Hedge Fund Holders: 200
Meta Platforms, Inc. (NASDAQ:FB) is a social media, technology, and metaverse firm that connects people on the internet worldwide via mobile devices, personal computers, virtual reality headsets, and wearables. The company operates in two segments – Family of Apps and Reality Labs.
Although Meta Platforms, Inc. (NASDAQ:FB) owner Mark Zuckerberg reaffirmed that the company would not lay off employees, he is directing a company wide hiring freeze for multiple verticals. The segments where a hiring freeze was largely implemented were not profitable for the company, with the stock down about 42% year-to-date. Meta Platforms, Inc. (NASDAQ:FB) is prioritizing its assets towards its core business and Reality Labs, to cash in on the $10 billion metaverse investment.
On June 2, Citi analyst Ronald Josey maintained a Buy recommendation on Meta Platforms, Inc. (NASDAQ:FB) with a $300 p
rice target after the company disclosed that its COO, Sheryl Sandberg, will resign this fall. As part of the management change, Meta Platforms, Inc. (NASDAQ:FB) also revealed strategies to improve the integration of its Product and Business segments, noted the analyst, who believes this can enhance decision making capabilities and time to market. He thinks Meta Platforms, Inc. (NASDAQ:FB)’s revenue growth will revamp in the second half of 2022 as it reduces the pace of its longer-term investments to sustain profitability.
Among the hedge funds tracked by Insider Monkey, 200 funds were long Meta Platforms, Inc. (NASDAQ:FB) at the end of March 2022, compared to 224 funds in the last quarter. Boykin Curry’s Eagle Capital Management disclosed a notable stake in the company, comprising 7.4 million shares worth $1.65 billion.
Here is what Baron Durable Advantage Fund has to say about Meta Platforms, Inc. (NASDAQ:FB) in its Q1 2022 investor letter:
“Meta Platforms Inc., the parent company of Facebook, reported excellent operating results in 2021. Its revenue increased 37%, operating earnings increased 40%, and the company generated $40 billion of free cash flow. Despite these excellent results, Meta experienced extreme volatility in its stock price during the first quarter. We believe that two factors are responsible for this volatility. First, the company quantified the headwind to revenue from Apple’s recent privacy changes in the amount of approximately $10 billion for 2022. Meta is rebuilding its advertising technology, and we believe the long-term headwinds from Apple’s privacy changes will be limited because Meta will create a suitable solution. Second, Meta continues to invest heavily into its Reality Labs segment, also known as the metaverse. While we believe the metaverse presents great opportunity for Meta, we are not assigning any value to it in our valuation work. While 2022 may be challenging for Meta, the company’s competitive advantages are still intact, and the company trades at a significant discount to our estimate of its intrinsic value. Despite our concerns about a possible recession, we expect Meta to return to double-digit bottom line growth next year.”
6. Carvana Co. (NYSE:CVNA)
Number of Hedge Fund Holders: 48
Carvana Co. (NYSE:CVNA) operates an e-commerce platform for buying and selling used cars in the United States. On May 10, Carvana Co. (NYSE:CVNA) laid off 2,500 employees, which represents 12% of its entire staff. To add fuel to fire, mere hours before announcing the layoffs, Carvana Co. (NYSE:CVNA) announced that it had acquired car seller Adesa’s vehicle auction division for $2.2 billion, and the company now owns its 56 U.S. locations and its 4,500 employees. The company placed the blame for the mass layoffs on the rampant recession in the automobile sector.
On May 19, BofA analyst Nat Schindler slashed the price target on Carvana Co. (NYSE:CVNA) to $80 from $225, citing that the market’s shift in opinion has “been driven by some things completely out of the company’s control”, such as the Covid and supply chain constraints to the auto market that led to higher used car prices. Whereas, the analyst contended that some factors were clearly “within its control”, including outsized employee and compensation growth in 2021 leading to greater operating expenses per retail unit and the expensive move to acquire ADESA with debt financing. However, the analyst reaffirmed a Buy rating on the stock as he still believes in Carvana Co. (NYSE:CVNA) and its efficient business model.
According to Insider Monkey’s data, 48 hedge funds reported owning stakes in Carvana Co. (NYSE:CVNA) at the end of March 2022, compared to 56 funds in the preceding quarter. Chase Coleman’s Tiger Global Management is the leading shareholder of the company, with 8.5 million shares worth over $1 billion.
Like PayPal Holdings, Inc. (NASDAQ:PYPL), Uber Technologies, Inc. (NYSE:UBER), and Netflix, Inc. (NASDAQ:NFLX), Carvana Co. (NYSE:CVNA) is monitoring its expenses and controlling hiring spend.
Here is what Saga Partners has to say about Carvana Co. (NYSE:CVNA) in its Q1 2022 investor letter:
“I first wrote about Carvana in this 2019 write-up. I initially explained Carvana’s business, superior value proposition compared to the traditional dealership model, attractive unit economics, and how they were uniquely positioned to win the large market opportunity.
Since then, Carvana has by far exceeded even my most optimistic initial expectations. While the company did benefit following COVID in the sense that customers’ willingness to buy and sell cars through an online car dealer accelerated, the operating environment over the last two years has been very challenging. Carvana executed exceedingly well considering the shifting customer demand in what is a logistically intensive operation and what has been a tight inventory environment due to supply chain issues restricting new vehicle production.
Shares have come under pressure following their first quarter results, which reflected larger than expected losses. The quarter was negatively impacted by a combination of COVID-related logistical issues in their network that started towards the end of the fourth quarter as Omicron cases spread. Employee call off rates related to Omicron reached an unprecedented 30% that led to higher costs and supply chain bottlenecks. As less inventory was available due to these problems, it led to less selection and longer delivery times, lowering customer conversion rates.
Additionally, interest rates increased at a historically fast rate during the first quarter which negatively impacted financing gross profits. Carvana originates loans for customers and then sells them to investors at a later date. If interest rates move materially between loan origination and ultimately selling those loans, it can impact the margin Carvana earns on underwriting those loans…” (Click here to see the full text)
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Disclosure: None. These 10 Companies Recently Announced Layoffs, Hiring Freeze Amid Recession Fears is originally published on Insider Monkey.