Dropbox today joined the fray of tech companies announcing layoffs. The cloud storage giant announced today that it plans to cut 16% of its staff as it deals with slowing growth instead of hiring new talent to build its AI offerings on Thursday.
The cuts amount to roughly 500 employees.
Chief Executive Drew Houston told employees that while the company is profitable, it’s seeing a slowdown in growth because “the AI era of computing has finally arrived.”
He added that the company’s core cloud business growth was slowing as challenges from the economic downturn put pressure on customers, making some of its profitable investments no longer sustainable.
“Part of this is due to the natural maturation of our existing businesses, but more recently, headwinds from the economic downturn have put pressure on our customers and, in turn, on our business,” he said. “As a result, some investments that used to deliver positive returns are no longer sustainable.”
The company said it had shifted some employees from one team to another to focus on its AI projects but would need more talent with a different mix of skill sets, particularly in AI and early-stage product development.
“We’ve been bringing in great talent in these areas over the last couple of years and we’ll need even more,” Houston said in a memo to staff.
These appear to be the first layoffs the company has made since January 2021, when it laid off 315 employees in the throes of the Covid-19 pandemic. At the end of 2022, the company had 3,118 full-time employees, of which 2,583 were in the United States.
Shares of Dropbox were up 5% in Thursday’s premarket trading.
More on Dropbox’s cut
According to the SEC filing, the business would face layoff-related expenses of between $37 million and $42 million, which will be reported in Q2. It was noted that results for the first quarter, which will be released on May 4, will meet or beyond expectations.
Ironically, even with the strong results that imply that Dropbox is profitable, Houston said the company is choosing to take a preemptive step to cut jobs and invest in new areas to keep up with the pace of change, given that growth is slowing.
“While our business is profitable, our growth has been slowing. Part of this is due to the natural maturation of our existing businesses, but more recently, headwinds from the economic downturn have put pressure on our customers and, in turn, on our business. As a result, some investments that used to deliver positive returns are no longer sustainable,” he wrote.
“Second, and more consequentially, the AI era of computing has finally arrived,” he continued. “We’ve believed for many years that AI will give us new superpowers and completely transform knowledge work. And we’ve been building towards this future for a long time, as this year’s product pipeline will demonstrate”, he adds.
Houston is also on the board of Meta Platforms, which said on Wednesday AI was helping it boost traffic to Facebook and Instagram and earn more in ad sales.
The fears that AI would lead to additional job losses are progressively coming true, and the most recent development will only reinforce those guts for businesses looking to reduce operating expenses.