[username_my1]

wrong view / comparios ... in a 5% interest rate environment, companies fight for investors money .. if you don't do the cuts and find a way to be efficient investors will put their money somewhere else that's more profitable.

this reasoning is pure and simple and correct, you start from the top, not from the fact "they can afford it" because their job is not to spend the money they have their job is to increase value for investors.

[SturgeonsLaw]

Let's do a little root cause analysis. Why do companies like Google, Microsoft and Amazon, with massive income streams combined with substantial cash holdings, need investor money? Maybe Toyota's "Five Why's" can shed some light on it.

We need to fire thousands of people.

Why?

Because it will make us more attractive for investors.

Why?

So they put their money in our company.

Why?

Because that will buoy our stock price, which is important.

Why?

Because it makes shareholders richer.

Oh.

[Yoric]

True but oversimplified a little.

Because that will buoy our stock price, which is important.

Why?

Because our stock price is also our operational funds.

How comes?

Because our actual funds are invested somewhere else.

Why?

Because it makes shareholder richer.

Oh.

[pjc50]

> our stock price is also our operational funds.

.. no it isn't? This is conflating "equity" with "free cash". Have a look at one of the balance sheets.

[Yoric]

I may very well be misunderstanding some of this.

However, until now, it has been my understanding that the way any large company works is by using their stock value as collateral against short term investments from banks, which then serve as operational funds.

Am I wrong?

[pjc50]

You might have seen that in the crypto space, but no normal bank is going to work like that: the only point at which collateral becomes relevant is if the debtor can't pay the loan back, i.e. they're bankrupt, in which case the equity is worthless. Corporate loans will be either unsecured (companies have lots of unsecured short term debt: every single invoice sitting unpaid in accounts payable is a debt!) or secured on something physical in the way that car loans and mortgages are.

You occasionally get debt-to-equity swaps in near-bankruptcy situations.

There was a certain amount of "borrow against funds held in Ireland to avoid US repatriation taxes" done by Apple, but that wasn't using stock as security, that was using cash of a different subsidiary.

[Yoric]

Thanks!

[RhodesianHunter]

In the case of all of the companies in question here, yes you are wrong. They have significant amounts of free cash flow and cash on hand.

[lumost]

However the also use that equity as compensation. Google without RSUs would not pay much better then any other large company.

[Yoric]

My bad. Thanks for correcting me.

It looks like I cannot delete or amend my post, which is a shame.

[Yoric]

According to other comments, while the above above holds true for some companies, this is not the case of FAANG. Unfortunately, it is apparently too late for me to edit or delete my comment, so it shall remain posted on HN for all eternity.

[pas]

is that really true?

or is it because a large portion of the global revenue is "parked" outside the US for tax reasons?

or due to stock buyback there are not much "funds" at all?

[dsparkman]

Yeah, most of these companies park their cash outside the US to avoid having to pay taxes, then borrow money in the US against their assets/stock. It worked great when interest rates were essentially zero. Not so much now.

[benj111]

But the b2b sourdough app is a potential driver of future growth. Yes it may help the bottom line today, but getting rid of employees today lowers future growth potential.

Investors know this. Investors would also question why there are layoffs in an apparently healthy company. All this means that CEOs don't want to do mass layoffs which even more strongly raises the question of why they did it to start with.

[IX-103]

When the executives start co-opting the language of hedge fund managers while refusing to answer whether the open letters from hedge fund managers prompted the layoffs, the answer is pretty clear.

Who else uses the term "right-sizing" and considers how being laid off "provides an opportunity to build resilience"?

[edgyquant]

Tech investors already think that these companies over hire and the current environment is pumping up that sentiment

[chmod600]

"need investor money?"

There exist large private companies; how do they behave differently? I could imagine it going either way, depending on the owners, employees, and all kinds of other factors.

[lovich]

Private doesn’t necessarily mean they have no investors, just that it’s not publicly traded securities used as the investment vehicle

[mook]

I think the last answer is a bit off.

… Why?

Because that will buoy our stock price, which is important.

Why?

Because a significant portion of executive compensation is in stocks.

[overrun11]

The median shareholder in Microsoft, Google and Amazon is likely a lower economic class than the median employee at these corporations if I had to guess.

The framing of ordinary workers getting the boot so fat cats can buy bigger yachts is seductive but I can just as easily frame it as:

Fixed income, middle America boomers entrusted these companies to be good stewards of their capital but it was instead spent on paying high six figure salaries to coastal city professionals from elite schools to do work of dubious value.

[diordiderot]

> The median shareholder in Microsoft, Google and Amazon is likely a lower economic class than the median employee at these corporations if

> I had to guess.

You guess incorrectly

[overrun11]

Any evidence?

[jujugoboom]

This is such a poor faith argument that completely ignores any reality. These companies have had a massive last decade or so, and if what you're saying is really the case, then we would see booming levels of wealth in middle america among the elderly. Instead, we see most wealth going to the richest of Americans, with the lions share of wealth created during the last 2 years of resurgent economic boom going to the top 1% of Americans, not the fixed income middle america boomers who are currently dying because they can't afford to keep living on social security.

[overrun11]

> we would see booming levels of wealth in middle america among the elderly.

I'd be interested to see evidence but I suspect we did see this? Retirement portfolios and housing prices (where the majority of elderly wealth is) ballooned.

> Instead, we see most wealth going to the richest of American

The elderly are the richest Americans so this is consistent with the elderly getting wealthier.

[jujugoboom]

Retirement accounts are largely a benefit enjoyed by those well-enough off to have them [1], as well as owning a home. So while yes, these indicators have increased, it only speaks to how the bulk of wealth created since 2008 has gone to mostly well-off individuals. And while yes, wealth is overall heavily weighted to older generations, it does not change the fact that the only people who are rich are the rich, regardless of age. While most wealthy people are boomers, most boomers are not wealthy. If you look at economic insecurity (200% FPL), the elderly in America are over-represented, with a rate of about 33% compared to ~27% overall[2].

[1] https://www.census.gov/library/stories/2022/08/who-has-retir... [2] https://ncoa.org/article/get-the-facts-on-economic-security-...

[xapata]

Your analysis doesn't match the economic measures I've been reading, which indicate that lower income workers in the US have seen real wage gains and that homeowners have seen net worth increases, and are feeling wealthier. Unemployment is very low, despite the recent layoffs, and many categories of employment are still seeing upwards wage pressure.

Social Security is pinned to inflation, so I don't understand why those living on Social Security payments might be in different circumstances now than 5 years ago.

[jujugoboom]

I have no clue where you're finding that lower income workers are experiencing any real wage gains, let alone at a significant rate. Home ownership as a percentage of population has never recovered anywhere near pre-2008 levels, so on behalf of myself and most people in my generation and cohort, I couldn't care less if homeowners have more money, that fact is having less of a bearing on our real world with each day. And yes, social security is pinned to inflation so their situation hasn't changed much in 5 years, you're right, most elderly people in america are dying poor and increasingly alone in nursing homes seeking to extract profit from them. None of these points have anything to do with my original point, which is that since the 2008 recession, the tech industry has seen a massive influx of money, and to try and argue that the money put into that industry somehow makes it back to middle america because of some made up idea of who shareholders are is a bad faith argument, and ignores any reality of the situation. I have no idea what it is with people like you who just want to die on the hill of nothing being wrong and that we just have to keep doing what we're doing. A better future is possible, and only if we all start believing it is.

[xapata]

Source: https://www.nytimes.com/2022/11/29/opinion/inflation-poor-in...

"The labor economist Arindrajit Dube has estimated hourly wage changes — by decile rather than quartile — over a longer period, since the beginning of the pandemic recession. He finds that real wages for the bottom 40 percent of workers have actually increased".

[xapata]

Who are the shareholders?

Pension funds, which ensure a decent retirement for a large portion of US residents. Index funds, in which many people have invested their retirement funds.

[bootsmann]

And they didn't think about making shareholders richer the years before when they hired all these people or how do you explain that process?

[noisy_boy]

We need to hire thousands of people.

Why? Because market is booming and we need to make the most of it to increase our profits.

Why? Because it will make us more attractive for investors.

Why? So they put their money in our company.

Why? Because that will buoy our stock price, which is important.

Why? Because it makes shareholders richer.

Oh.

[vooffle]

The economy, consumer confidence and investor mood changed. The way you make investors richer changes depending on inflation.

[MomoXenosaga]

Do people on HN not read history books? This has happened countless times before.

Or was it assumed that those in the tech industry were a "protected" class of people for whom the rules do not apply?

Hell one of the best things about capitalism: everyone is equal before the dollar and everyone is expendable.

[agentultra]

Everyone that is disadvantaged by not holding any of the power is expendable. And expend those in power will do in order to do the bidding of their investors and keep their compensation + bonuses well padded out.

You never see CEO’s take pay cuts, lose compensation, or executive teams get, “right sized.”

It’s always the workers who get the shaft first.

Given that a lot of this is driven by a hedge fund, isn’t this how IBM was gutted back in the day?

[hypertele-Xii]

And expend you they shall. Faster and longer and cheaper, unless a union demands otherwise.

https://en.wikipedia.org/wiki/Triangle_Shirtwaist_Factory_fi...

[zwily]

Well, interest rates. But that’s driven by inflation.

[noisy_boy]

Thats four whys.

[pjc50]

It's necessary to divide the companies making layoffs into "profitable" and "unprofitable". It is much easier to make the case for layoffs at an unprofitable company: eventually it will either have to appeal to investors or run out of money, at which point everyone will be laid off anyway.

But the big tech companies are actually profitable. Even Amazon. https://www.wsj.com/market-data/quotes/AMZN/financials/annua...

They put $470 billion through the till and ended up with $33 billion net income, for a margin of 7%. That's a normal profitable company, albeit a huge one that continues to eat the remaining retail world. You can look at the quarterly results too, but there's nothing in the rear view mirror that justifies layoffs.

[Aeolun]

> their job is to increase value for investors

Is their job to increase it in the short or the long term? These “I know we’ve been doing great for 3 years, but the past 3 months haven’t been so hot, so we’re going to cut jobs.” Messages seem incredibly shortsighted.

[christophilus]

Public companies have an incentive to focus on the short term (quarterly reports). This really makes a difference in management behavior. Bill Clinton and Warren Buffett have both talked about this, and presented regulatory approaches to fixing it, but here we are.

[mensetmanusman]

Clinton’s attempt was so watered down it accelerated executive pay increases: https://ips-dc.org/wp-content/uploads/2016/08/IPS-report-on-...

[hgsgm]

> Public companies have an incentive to focus on the short term (quarterly reports).

Why?

Incentivized by whom? This is choice they make. See the OP.

[NickC25]

Incentivized by the stock market.

If you go on an investor call as the CEO and said, "hey we didn't make any profits this quarter because we invested it all into projects that will grow our revenue X% in the next quarter or half" you'll get fired by the board very quickly, or an activist fund will buy up shares and vote you out as quickly as they can.

[pbhjpbhj]

Do investors sell if they company income falls for a quarter? I'm guessing yes, and that answers the question of whether the company looks to the short term when seeking only to satisfy investors.

The whole system is wrong.

[Aeolun]

Why would the company care if the investors sell? They’ll happily buy again when things are looking up.

Only when things are going so terrible that the board is trying to get you replaced is when it becomes important.

If the board aims to replace you because of a bad quarter in a bad economy… find a different company to be CEO of I guess.

[ikiris]

Because a huge part of their compensation both to themselves and their employees is floated stock.

[pas]

That doesn't explain it. It might be a factor, but it's not a big factor. FAANG jobs pay extremely well and then there's the stock on top.

Is the vast majority working at these companies (with years of vesting, no?) so shortsighted? Especially the higher ups?

Is it a requirement at these companies that you have to be 10000% in debt and living paycheck-to-paycheck to be a SVP/VP/director/whatever so you have to be hyper-focused on that stock comp?

It's just ridiculous. (And note, I'm not saying it's not a factor, it might be, but it's just not the full picture.)

[sangnoir]

> FAANG jobs pay extremely well and then there's the stock on top.

When excluding RSUs, FAANG jobs are not extreme in any way. RSUs are not a cherry on top but an important component of remuneration. Often for mid-level and above (roughly TL/staff engineer and Manager-II), the value of RSUs is more than 50% of total compensation.

[danaris]

It's taken on a life of its own at this point. The idea that the quarterly stock price is The One And Only Metric That Matters arose for various reasons related to what was mentioned, but over the years it's become so ingrained in the minds of executives and other wealthy people that even when those conditions don't specifically apply, they still act as though they do.

[htrp]

Amazon cash comp was capped in the low 100s IIRC.

[ikiris]

The stock is not just on top. The stock is a large portion of the pay if you aren't just a nameless minion.

[kgwgk]

Who is "the company"? From your comment it seems that you consider that the board is not part of it.

[beezle]

Always forgotten: for every seller there must be a buyer.

Generally speaking, unless there is a fundamental change in outlook, selling based upon the latest earnings report is the hot money which attempts to chase the latest greatest and is moving on (and rarely tells you about their misses).

[s1artibartfast]

investors care about long term profits. If they magically knew that income would fall this quarter and 2X next quarter, the price would go up.

The challenge is that they dont have magic powers to see into the future. If a company income is falls this quarter without a compelling reason such as investment, this data indicates that the company will not do good next quarter.

The are tons of examples of company stock prices increasing due to a acquisition, despite a lower quarterly profit.

[notahacker]

This might be true of a lot of companies, but then you look at others like Waymo where the revenue is pure projection, the relationship between staff numbers and having a workable product unknown and the pile of cash available to fund it not requiring any borrowing, and it looks suspiciously like trend following (with maybe a bit of actually self driving cars are further off than we thought but, hey, not our mistake because everyone else is doing layoffs too thrown in)...

[grey-area]

It’s not trend following, it is genuine existential fear, particularly someone like waymo -

With 0% rates money is free and you can take forever to make a profit, nobody cares, just borrow more money if you run out.

With 5% rates money is expensive and you have say 2 years to make a profit or everyone loses their job and investors lose their funds.

This doesn’t really apply to massive companies like google or MS of course but it does to anyone smaller without a cash cushion (the majority). Now job cuts may or may not be the right decision but they are triggered by very real and urgent fears about plummeting earnings.

[notahacker]

I picked Waymo because unlike some startups losing staff obviously isn't the route to profitability for it, and it started off as a Google-branded project backed by the near unlimited cash reserves of Google. If they're in a position where they're not confident of getting further support from that source, I don't think IRR calculations over a 2 year time horizon are the main factor there.

[grey-area]

IRR calculations, profit, value actually matter again because the risk free rate has dramatically gone up and will stay up, after a decade where they didn't matter.

Cheap money has distorted the entire market and conditioned a generation of investors to expect unreasonable returns and to ignore the price, revenue, profit and loss.

[MomoXenosaga]

The route to profitability doesn't exist and investors are starting to notice.

[loudmax]

A lot of middle and upper management pays lip service to increasing value for the investors, but they don't really care for the investors any more than they care for their employees or their customers. It's better for them to be paid in cash and be ready to jump ship at the first sign of trouble than the much riskier course of counting on long term growth of their present company.

[s1artibartfast]

To be fair, stock price for large profitable big companies has almost nothing to do with investment money. When someone buys a stock, the company doesn't see any of that money.

The real driver is shareholder returns. The shareholders would rather make more money than provide more jobs / run a charity.

Maybe you were saying the same thing, but the companies don't see the new investor money, other investors /owners do

[anothernewdude]

> if you don't do the cuts and find a way to be efficient investors will put their money somewhere else that's more profitable.

A company that is cutting staff is creatively bankrupt and has clearly no idea where to spend effort in anything new.

I wouldn't invest in a company that is reducing headcount in this manner.

[sokoloff]

You’ll be holding a lot of your investments outside of stocks for a while, then.

[anothernewdude]

Apple stock is good. I think you have a biased view of companies that is heavily weighted towards the tech companies you see in the news.

[IX-103]

In this market, is that really a bad idea?

[sokoloff]

Broad sentiment tends to lag share performance. (aka "be fearful when others are greedy and greedy when others are fearful")

[Temporary_31337]

I agree- someone with money can simply put it in bonds or a savings account. To invest in a company it has to promise to return more than the 5% per annum