US payments company PayPal said it was repositioning itself for the next phase of growth, as it announced plans to lay off 307 jobs in Ireland. Usually, repositioning for future growth is just PR speak to cut costs.
His announcement was disappointing for employees and their families in both Dundalk and Dublin where PayPal has large operations. But this was probably no surprise.
The tech sector has seen a huge jump in valuations over the past few months and this is set to continue. Now we are likely to see a wave of job losses in this industry which is very valuable to this country.
Here are some ominous signs. There are clearly company-specific issues in the case of PayPal. But the firm announced the loss of 130 jobs from Ireland in April 2021.
These were part of the “Operational Requirements Review”. Unlike many other tech companies, PayPal has had to look at its cost base well before 2022.
Its share price has fallen 68pc in the past year and has lost nearly $180bn (€168bn) from its market value. Its financial results for the first three months of this year showed revenue was up 7.4 percent, but net income was down 53 percent and its net profit margin was 7.85 percent, falling 56 percent from the previous year.
Several reasons have been cited for this, including rising costs, supply chain issues, the return of in-store purchases post-Covid, and the way its former parent company, eBay, has moved payments away from PayPal.
Several years ago PayPal expected to employ 2,900 people in Ireland by 2018. After these deductions, the company says the figure will be “over 2,000”.
PayPal has been and continues to be a very important employer, especially in Dundalk. It has reiterated its commitment to stay in Ireland and there is no reason to doubt it.
But we may have to get used to the idea that what appears to be an unstoppable industry, a “one-sided bet” is entering some volatile times.
Job losses in foreign direct investment (FDI) companies are nothing new, even in good times. For example, last year in Ireland the number of people directly employed in the multinational sector reached 275,384 – the highest ever FDI employment level.
Even within that figure, while 29,000 new jobs were created out of 29,000, nearly 12,000 were lost due to job losses, leading to a net profit of 17,000. The attrition loss figure for 2019 was 8,000.
Even in the best of years, job numbers in some occupations contract.
There is a real feeling that something big is happening this time. Investors in digital companies are starting to ask questions with their valuations falling. For example, this week, ‘buy now, pay later’ company Klarna announced it was cutting about 10 percent of its global workforce, or 700 jobs.
The comments from its founder and CEO, Sebastian Simiatkowski, were quite telling. “What we are seeing in the world now is not temporary or short-lived and that’s why we need to act.” Simyatkowski found himself in a similar position to many other businesses in Ireland and elsewhere.
“When we laid out our business plans for 2022 in the autumn of last year, it was very different from today’s world.”
Now we’re starting to see momentum built into those business plans from eight or nine months ago, especially in tech stocks that are sensitive to changes in consumer demand.
Klarna assumes that amidst rising inflation and high interest rates, fewer people will buy as much goods online. With all that debt still to be collected by the company, it will have to be closely watched over potentially high default rates.
Another consumer app pulling back is Gorillas, the fast grocery delivery startup that is laying off half its workforce at its Berlin headquarters. Paying more to get your groceries delivered quickly isn’t as attractive when weekly shop costs start to rise, whether you buy it yourself or have it delivered.
The confusing piece in this technical picture is the exception. Take Apple this week which looks to expand into a new building in Cork capable of hosting 1,300 employees.
how so? Apple can afford to think longer. Its share price is actually up 11 percent from a year ago. It is also investing in machine learning and artificial intelligence. These are not frontline digital online jobs that can be cut quickly due to declining sales.
A deeper problem is the way in which technical evaluation feeds into the broader technology ecosystem. Big drops in huge technical valuations hurt investors. This in turn means more questions to be asked by venture capitalists who invest money in small startup businesses.
If these startups get less funding, they cannot afford to employ as many people in loss-making companies that need time to build profitability (or not) and which are fully evaluated on future growth. is based.
This will make it difficult for small tech firms to raise fresh money at previous valuations.
Klarna is currently raising fresh investments and there is speculation it will do so at a valuation of $30bn. Its final round of funding valued the business at $46bn.
This sounds like a huge drop in value, but keep in mind that the company was valued at $11bn as recently as September 2020.
We are likely to see more tech job losses in Ireland in the coming months. There are still a lot of things going on in this area, not least the fact that many big global names are investing heavily in Ireland. Scale matters a lot.
Even changes to the OECD corporate tax seem to be delayed.
Industry in Ireland remains vibrant and strong but for some this will be its first real storm.
