US payments company PayPal said it was repositioning itself for the next phase of growth as it announced plans to cut 307 jobs in Ireland. Usually, repositioning for future growth is just PR lingo for cost cutting.
The announcement was disappointing for staff and their families in both Dundalk and Dublin, where PayPal has significant operations. But it probably didn’t come as a surprise.
The technology sector has seen valuations collapse in recent months and this is likely to continue. We are now likely to see a wave of job losses in this industry that has been so valuable to this country.
Here are some of the ominous signs. In the case of PayPal, there are obviously company-specific problems. But the company announced it would cut 130 jobs in Ireland in April 2021.
These were part of an “operational needs review”. Unlike many other tech companies, PayPal needed to review its cost base well ahead of 2022.
The stock price has fallen 68 percent over the last year, taking about $180 billion off the market value. Financial results for the first three months of this year showed that revenue increased 7.4 percent, but net income fell 53 percent and net profit margin fell 56 percent from 7.85 percent year-on-year.
There are a number of reasons for this, including rising costs, supply chain issues, the post-Covid return to in-store shopping and the way former parent company Ebay has pulled payments away from Paypal.
A few years ago Paypal expected to employ 2,900 people in Ireland by 2018. After those cuts, the number will be “more than 2,000,” according to the company.
Paypal has been and is a very important employer, particularly in Dundalk. It has reaffirmed its commitment to remain in Ireland and there is no reason to doubt it.
But we may have to get used to the notion that a seemingly invincible industry, a “one-way bet,” is entering shaky times.
Job losses in foreign direct investment (FDI) companies are nothing new, even in good times. For example, direct employment in the multinational sector in Ireland reached 275,384 last year – the highest ever FDI employment rate.
Even within that number, while 29,000 new jobs were created in 2021, around 12,000 were lost to turnover, resulting in a net gain of 17,000. The turnover loss for 2019 was 8,000.
Even in the best of years, the number of jobs in some companies is shrinking.
There’s a real feeling that something bigger is happening this time. Investors in digital companies start asking questions when their valuations fall. This week, for example, buy-now-pay-later company Klarna announced that it would cut about 10 percent of its global workforce, or 700 jobs.
The comments of its founder and CEO Sebastian Siemiatkowski were quite insightful. “What we are seeing in the world now is not temporary or short-lived and so we must act.” Siemiatkowski found himself in the same position as so many other companies in Ireland and elsewhere.
“When we formulated our business plans for 2022 last fall, it was a very different world than the one we are in today.”
We’re now seeing the momentum built into those business plans from eight or nine months ago fizzle out, particularly in tech stocks that are sensitive to shifts in consumer demand.
Klarna believes that with rising inflation and higher interest rates, fewer people will buy as much online. With all of this debt still to be collected by the company, it needs to carefully assess possible higher default rates.
Another consumer app stepping down is Gorillas, the fast food delivery startup, which is laying off half its employees at its Berlin headquarters. Paying more to have your groceries delivered quickly isn’t as appealing when the cost of doing the weekly grocery shopping increases, whether you buy it yourself or have it delivered.
The confusing thing about this tech picture is the exceptions. Take Apple this week, which plans to expand into a new building in Cork that will accommodate 1,300 employees.
From where? Apple can afford to think longer term. The share price is actually 11 percent higher than a year ago. It also invests in machine learning and artificial intelligence. These are not frontline digital online jobs that can be quickly eliminated due to a drop in sales.
A deeper issue is the way technology assessments feed into the broader technology ecosystem. Sharp falls in the valuations of giant technology companies lead to investor losses. This, in turn, means that venture capitalists pouring money into smaller startup companies are asking more questions.
With less funding flowing into these startups, they can’t afford to employ as many people in loss-making companies that need time to build profitability (or not) and whose valuations are based solely on future growth.
This will make it harder for smaller tech companies to raise new money at previous valuations.
Klarna is currently raising new investments and there is speculation that this will happen with a valuation of maybe $30 billion. In the last round of financing, the company was valued at 46 billion US dollars.
That seems like a significant drop in value, but consider that the company was still valued at $11 billion as of September 2020.
We are likely to see further tech job cuts in Ireland in the coming months. The sector still has a lot to offer, not least the fact that many of the biggest global names are heavily invested in Ireland. Libra matters a lot.
Even changes to OECD corporate taxes appear to be delayed.
Industry remains vibrant and strong in Ireland but for some this will be their first real storm.
https://www.independent.ie/business/paypal-job-losses-should-not-surprise-as-dark-clouds-gather-for-tech-sector-41690029.html The loss of Paypal jobs shouldn’t come as a surprise as dark clouds gather for the tech sector