[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.

[RhodesianHunter]

The equity used as compensation is purchased during stock buybacks and is wholly divorced from investors buying and selling stocks.

[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".

[jujugoboom]

While yes, real wages for the bottom 50% have increased according to FRED data, that trend only appears if you look at data from 2020-2022. If you look a little further back, to about 2008, you'll find that real wages for the bottom 50% has grown at a much slower rate than those in the top 50%[1]. This also all ignores that percentages are deceiving when looking at small windows of data, and only suggests how current situations may compare to previous situations, not the overall situation someone is in. Many of the people in the bottom 50%, and especially as you get into lower deciles, have not been in a good place for a while now, and while real wage growth is great, it does little to truly improve their situations (remember, percentages result in a lower actual value when your starting value is lower). If you really wanted to make this argument, then you could pull up net worth data that shows a 110% increase from 2020-2022 for the bottom 50% compared to only a 27% increase for the top 0.1%, but then someone might show you a graph of the data and ask for you to point to the 110% increase[2]. I don't know what it is with weirdos online trying to cherry-pick data to try and prove poor people aren't poor, but it's really getting old.

[1] https://imgur.com/a/WCrJ40c [2] https://imgur.com/a/t1tQe4n

Edit: also interesting to point out that 2020-2022 has included things like direct-to-citizen stimulus checks, and large government investment in the form of the build back better package. If anything, it is a testament that direct aid to people struggling does more to improve their immediate situation than any other solution proposed by neoliberals and the GOP. If that is your argument, then I will agree with you, and say we should do more, like a UBI and increased taxes on the wealthy to start to undo decades of socioeconomic stratification.

[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.